The cost of online advertising sales and media globalization

The current issue of BRW, Australia’s largest business weekly magazine, has an interesting article on how technology is changing the Australian media landscape, which is in the throes of a major transition. The article quotes me on the issue of scale in online businesses in Australia, especially relating to the cost of advertising sales. To expand on this theme… one of the most transformational advances in the online world over the last years was the introduction of Google AdSense, which allows anyone with a website to get advertising revenue without any overheads. All you do is set up Google AdSense – or any of a number of its competitors – on your website, a trivial matter, and you can garner revenue commensurate with the audience you are reaching. Google sells advertising, aggregates it, and then allocates it across millions of websites. Thus the long tail is born. However, naturally Google prices the advertising to take a tidy profit for itself, with AdSense accounting for 39% of its revenue. Thus you can make substantially more money if you sell advertising directly, both because you are cutting out the middleman, and because you are able to sell extremely targetted advertising and sponsorship, tailored to be presented in the formats most relevant and desirable to the advertiser. The other side of this, of course, is that you then incur the cost of advertising sales. This is the primary logic behind the blog networks such as b5media, Gawker Media, and Weblogs Inc., in which you bring together a pool of blogs, spread the cost of advertising sales across the network, and get the full potentail advertising value from your sites.
The interesting piece comes when you are targetting local (read non-US) markets. I have written before about how it is a lot easier to target most non-English markets – for example French, Portuguese, Korean, and Japanese websites are each predominantly visited by readers from one country. Yet in the English-speaking space, you are immediately sucked into a global, yet US-centric, world of sites, links, and conversations. So what does an online media company based in, say, Australia, do to make good money? This is particularly pointed if the site is based on communities or social networks. There is certainly a viable – if relatively small – local market to be addressed (2006 Q2 online advertising in Australia was $A226, up 59.4% YOY). If the reach of the online media site is sufficient it can justify a direct salesforce for local advertising, and then serve AdSense or similar advertising to visitors from overseas. However in the grand scheme, only fairly large local operations can afford to do this. From these factors stem a whole array of strategic issues for local online media company operators, including local versus international target audience mix, costs of advertising for local and international visitors, and alliances for ad sales aggregation. The globalization of online media is an increasingly important and multi-faceted issue – I will write more on these topics later. I also hope to get the time to make some comments on recent events in the Australian media landscape, but with around 80 hours scheduled on airplanes over the next two weeks, nestled between an imposing set of client strategy workshops on diverse continents, a keynote, and other major deadlines, I’m not quite sure when I’ll get to it…