Having Ads Is Just Not Enough

As Mary Meeker reports, the eCPM for mobile is just $.75. Meanwhile, the eCPM for desktop is $3.50. Of course, people has been using the PCs for surfing the internet for a long time, while while mobile has just blown up. So in regard to designing, launching, tracking, measuring and optimizing display campaigns, people working for the PC obviously has an advantage.

But let’s assume mobile can get to where PC’s already at in regard to revenue. Of course, that’s assuming a lot, but let’s say in the best case scenario, mobile figures out how to display ads effectively on a smaller screen, mobile does siphon PC’s traffic, gets higher rate, and it’s not disrupted by the new new thing. Yet even then, I don’t think mobile advertising would be able to sustain a business.

To understand why that is, it is necessary to understand how newspapers like The New York Times made money. When most people think of The Gray Lady, they think about quality (or bias) content, but traditionally only a small part of The Times’ revenue comes from selling that content. Most of The Times’ profit comes from advertising, and there are two sorts.

One is brand advertising, which is more glamorous because it comes from companies such as Ford, who makes products everyone is aware of and who is spending money like a drunken sailor. The other form of advertising is the classifieds; it is decidedly less the ugly sister, and each ads makes a hundred bucks. But the funny thing is, newspapers like The Times usually depend more on the classifieds to make their living.

The reason is simply. As David Ogilvy so elegantly puts it: only 50% of advertising works, and no ones knows which 50%. For companies like Ford, they treat advertising like a new iPad: it is nice to have, but not entirely necessary. When time gets tough, the advertising is also the first things that get cut.

On the other hand, people know exactly they get from posting on the classified. In addition, things like renting a house, finding a job, getting a date usually can’t wait. Since the cost is low anyway, people usually don’t cut this type of spending even when money is tight.

So for The Times and other newspapers, they actually make their living by offering information. Now Pulitzers and cash from Tiffany’s are nice to have, but they are not the bread and butter. The real ingredient to a newspaper’s success is their monopoly or oligopoly on local information; if they lose this, then nothing less else matters.

That’s why the advent of the Internet has been crippling to the newspaper industry. They can still sell content, they can still advertise for Ford and Tiffany’s, but they can’t own local information anymore.

This is also why Google is making billions and The New York Times is losing money. For Google, they essentially took over the monopoly of information from the newspapers, and is now dominating it on a bigger scale. Better yet, Google’s scale means that while their revenue is higher, their cost is lower.

The Times, on the other hand, has been stripped of its most important revenue, but it still has to maintain its advertising, editorial, production, and editorial operation. To make ends meet, it essentially has to make more money from its content (through the paywall) and brand advertising. So far, The Times has not been able to make up for the losses and is still losing money.

This is also why enterprises like The Huffington Post and TechCrunch are minimally profitable. Yes, they can get make their content for much less (or even for free) and can have ancillary revenue streams (the Disrupt, for example), but none of that makes up for the loss of the classifieds.

Therefore, even if mobile does catch up to PC, the money brand advertising could offer is still the icing on the cake. To sustain a business, mobile must have its Google and snatch the right to dominate information from the hands of the Mountain View giant.

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