Why Sponsored Posts Are a Waste of Ad Dollars

Native Ads Are the Next Advertising Hustle

BuzzFeed founder and CEO Jonah Perretti.

BuzzFeed founder and CEO Jonah Perretti.

When people hear the traffic figures for big blogs and blog networks, they assume the sites must be swimming in money. How could they not be? With hundreds of millions, if not billions, of impressions annually, one would think that revenue would automatically follow.

But it doesn’t.

At the time of its acquisition in February 2011, the Huffington Post was earning roughly $30 million a year in revenue. Later in 2011, as the site began pulling in more than 1 billion page views a month, the site’s revenues were reportedly only $40 million. In 2012, Business Insider had revenues of only $10 million (up from 2011, when it reported a profit of, no joke, $2,127). And though eight figures in revenue is still a lot, consider that BI has more than 24 million unique visitors per month.

By comparison, in 2012, The New York Times company had revenues of nearly $2 billion. For all the talk of the death of the newspaper, you could take all the annual revenues of most of the big blogging empires combined, subtract them from the Times’s income statements and the paper might have to tell Wall Street that it had a bad quarter.

The point is this: the blogging model of “Oh, we’ll just get as many page views as possible and then profit” clearly hasn’t worked out. Like, at all.

For those of you who are only peripherally involved in the media business, the death of the page-views-as-profit model is why you’re beginning to see a lot of chatter about a new form of advertising called native ads. Since the market is flooded with more inventory than could ever possibly be purchased, CPMs (the amount advertisers pay per thousand impressions) have been driven essentially to zero. Now, desperate to generate cash, blogs have to create new kinds of inventory.

the atlantic sponsored content

The controversial Atlantic advertorial.

Some sites call it “native advertising.” Some call it “sponsored posts.” Some call it “advertorial.” But regardless of the name, it’s based on short-term thinking and built almost exclusively on industry hype. It’s not a long-term strategy; it’s just a way to juice dumb media buyers for cash—or in other cases, to create just enough semblance of a business model to convince dumb brands to acquire them.

To back up for a second, think about how the fashion business works: a designer creates a couture or high-end fashion brand that is highly sought-
after (it could be Gucci or it could be Ecko Unltd.). The first phase of growth comes from selling a product directly to customers or to retailers like department stores. Then investors see an opportunity and swoop in to “license” this brand. The next thing you know, there is a sunglasses line in China, a home decor line at Macy’s or Kmart, or even an Eddie Bauer-style car edition.

If the brand is strong, it can withstand this dilution (think: Ralph Lauren or Calvin Klein); if it isn’t, it quickly booms and then busts (think: FUBU). The problem comes when weak brands attempt to squeeze too much money out of their business by licensing too much too quickly.

And that’s what we’re seeing online right now.

For the last few years, sites like the Huffington Post, Gawker, Business Insider, The Atlantic, Politico, AOL and others (including Betabeat, to some extent) have directed all their efforts at increasing page views at the expense of the reputation of their brand (see: crappy slide shows, wild speculation, worthless gossip and untrained writers). Now they’re suddenly trying to leverage that “brand” to develop other revenue sources.

And they’re hoping that advertisers and investors will be dumb enough to go along with it.

On one end of the spectrum, we have our old media brands that rushed to the web.

Take the naked greed of a site like Forbes.com. In Forbes, we have a 100-year-old media brand that has spent the last few years opening up its platform to literally any “contributor” who wanted to post there—and, in fact, paying many of these writers per page view generated. As a result, the site’s traffic has doubled since 2010—blowing past sites like Bloomberg.com and Businessweek.

But at what cost? Is Forbes.com the same as Forbes the magazine? Certainly the Forbes family never would have published articles like “Top 10 Best Horror Movies Of The Last 2 Years,” “6 Ways to Burn Your Belly Fat Fast,” “Do I Buy Apple On Monday?” and “Glenn Beck Just Doesn’t Get America’s Strong Character” (all abysmal pieces currently atop its most-read list). And yet Forbes.com turns around and tries to sell editorial privileges to advertisers for $75,000 a month.

Think about the insanity of that position. Essentially any writer can publish on Forbes.com (I currently know at least 10 different writers who do so, and I have done so myself), making it no different from any other free blog network, yet Forbes maintains that it’s a premium brand that other brands should pay to be featured on. Do you know who would buy that? An idiot.

Or take The Atlantic and its traffic-trolling sister, TheAtlanticWire.com. Here we have another venerable media brand that publishes all sorts of link-baity stories designed solely to generate traffic. When one reads a story on TheAtlantic.com or TheAtlanticWire.com, you’re not getting the same magazine for which Mark Twain once wrote, you’re getting the same stuff you can find on any blog (with the exception of Ta-Nehisi Coates, of course, who is amazing). For instance, over the weekend, as I spent time thinking about and working on this column, AtlanticWire blogger Connor Simpson churned out 13 posts in two days. That is quantity over quality embodied.

And yet The Atlantic turns around and sells “sponsor content” to advertisers, whose main appeal is that readers hardly notice the difference between editorial and advertising content. Why would you even want to trick people into thinking your ad was produced by one of these quantity-over-quality bloggers? (The Observer also sells sponsored content on Observer.com.)

On the other end of the spectrum are sites like Business Insider and Gawker, which are licensing their names in foreign countries. In 2013, both announced separate deals with The Times of India to create versions of their sites in India. Gawker already has similar deals in Brazil, the U.K,. Japan and Hungary.

Like I said, I thought your brand had to be worth something—had to mean something—to be worth licensing.

Somewhere in the middle, we have BuzzFeed. BuzzFeed is essentially the same content that Jonah Peretti pioneered on the Huffington Post—pictures, gossip and cute viral news—that sells for fractions of a penny per view at the Huffington Post. These rates are well established and well known. Yet, dressed up as “native content,” those same posts are being packaged to brands like Virgin America at $100,000 per month. As Virgin all but admitted to New York magazine in this month’s big profile of BuzzFeed, these ads aren’t really effective—they’re just shiny and new.

In other words, these sites are trying the same type of hustle they pulled last time, having already exhausted the hustle that came before that. As CPMs have slowly dropped and settled at their rock-bottom rates, online publishers have begun to realize that they will never be nine- or ten-figure companies with business models as simple as Ad inventory x Price per view = Revenue. So they’ve come up with made-up stuff for which they can charge made-up prices. How long will that last?

It’s a shame. They’re spending all their energy coming up with the next advertising con when they could just put some effort into making a product that readers, you know, believe is worth paying for.

editorial@observer.com