Nope – not the scourge of the teenage set – but a more insidious problem for many media companies.
Question: What is it that most media companies have when consumers are partaking of their wares?
Answer: That consumers attention.
And in this world of competing interests – and an always on – multi-tasking world – that attention is a precious commodity.
Which gets me to the second word – deficit.
In general most traditional – and quite a few new media companies monetize this attention through advertising. You generate a certain amount of interest and advertisers pay you according to a CPM (cost per thousand impressions) formula. Depending on the level of engagement – and even more on what the market will bear – and just how unique your proposition is – you will get a CPM of between $0.01 to say $20 – the range between remnant internet inventory and premium television – or some extremely highly specialized keyword searches (mesothelioma on Google comes to mind) or some very premium video advertising.
Now the difference between what advertisers could potentially generate with this attention – and what they do is their deficit.
And this leads to the final word – disorder.
Most media companies are caught in this trap. the have attention – and they monetize it through advertising. And why not? It is simple. It is accepted. It has been done this way for years. there are systems and people set up to help companies out when they look at a business this way. But aren’t they just victims of a disorder which anchors them to the past? A disorder that doesn’t allow them to break free of the tyranny of the CPM based buyer?
Look at Groupon or Living Social – or any of the other daily deal sites out there. They buy advertising on a CPM basis – and then turn around and use it to generate business on a model that takes 50% of any sales off the top – and tends to keep breakage (those unused coupons that people purchase) – so the actual gross margin is probably higher than 50%.
How many other businesses can you think of that is of interest to your consumer where the marginal cost of providing the service is high and you are not taking part in any of the business – despite potentially driving revenue to the business. If Groupon can sell 1000$80 massages for $40each – and keep $20-$25 of this – that’s a CPM of $25,000 – assuming no cost of media – and what do you think it cost them to advertise the deal? Well, since they use facebook and other e-mail lists – the cost is pretty low. But even if they went the traditional media route and bought advertising to do the same – they would be break-even on the deal at a $20 CPM by reaching 1,250,000 people and having a conversion ration of 0.0008% – which would be a pretty terrible job of advertising.
Companies with very specific media offerings have the attention of an audience who has a predilection for the niche they are offering up – and yet the best they can do is give them more Ford ads.
There has to be a better way for media companies to monetize the attention of their consumers – to cut the deficit between what they earn on a CPM basis and what they could earn doing more direct commerce – and break out of the disorder that keeps them from growing like a weed.