The most meaningful equation in business is that sales minus costs equals profits. And it's the one that sums up why so many old media outlets have such difficulty switching to the internet: their costs are too high and their profits too low.
In particular, while they're trying to implement paywalls, something which we think will fail for all but a few (business) newspapers, ad rates for news, even quality news, are abysmally low.
Why is that?
Part of it is simple supply and demand: the supply of news to put ads against is infinite. But a big part of it is because ads next to news are stuck in the wrong paradigm.
The promise of online ads for the past 15 years has been that everything is measurable -- views, clicks, etc. -- and so advertisers will know which of their dollars are wasted.
But the problem is that this paradigm has only really worked for one kind of advertising. Online ads are great when it comes to generating transactions directly. The key example of that is Google's search ads, which are unrivaled in their excellence at getting people to sellers' sites and leading them to buy stuff.
These ads, however, form only one part of the ad landscape. The rest is brand advertising. Brand advertising tells a story and conveys emotion. And this is why, for the most part, brand advertising has stuck to TV and hasn't moved enough to the internet: the TV medium is great for telling stories. Internet ads, or at least classic IAB banner ads -- not so much.
You get where I'm going with this.
For brand advertising to get its just deserts on the internet -- to become nicer and better at telling stories, which is good for consumers and brands, and more expensive, which is good for publishers -- it needs to move to a different paradigm.
This is the issue that Steve Jobs, who is unrivaled when it comes to cutting to the core of a problem -- tackled with iAds, the iPhone ad format he introduced. TV ads have no interactivity, but are great at conveying emotion, he said. Meanwhile internet ads can have interactivity, but are crappy when it comes to conveying emotion. iAds does both. Boom.
Steve Jobs is a great salesman, but there's no reason that the paradigm he introduced with iAds can't come to the web.
In fact, it's already here: companies like Sprout and VideoEgg create very compelling ads that unfold into videos, games or other creative, interactive content. VideoEgg doesn't use CPM (cost per thousand views) to charge for their ads; instead they use a new metric called CPE, or Cost Per Engagement.
Ads like these are the brand ads of the future. And that ought to be worth a lot of money to advertisers and publishers. But to do that we have to move to a paradigm of online display advertising that values interactivity and engagement over other metrics.
Ok, but what does that have to do with online news and the New York Times?
Simple: news is one of the best places to put immersive, engaging brand ads next to! News are a bad place to put normal online ads next to because people aren't thinking about buying stuff when they're reading news. But when they're reading news they're highly attentive, so they can be engaged by the right brand ads. Making these ads the new standard would be a big help to online news outlets.
And this is where the New York Times comes in. We don't know of any other news organization that has such a strong brand both offline and online. Because of its prestige and scale, only can the New York Times establish this as the new standard. Only can the New York Times say to the agencies: "We're sorry but if you want to run ads on our website this is what the format will be and this is what the rates will be."
What are they going to do? Not run ads on the New York Times? Well, maybe some of them would. We're not saying this wouldn't be a gutsy move. But with a little cojones, just as Steve Jobs set a new benchmark (and price!) for mobile ads with the stroke of a pen, so can the New York Times change the game for online brand advertisers and publishers by establishing a new online brand advertising standard based on quality, richness, interactivity and engagement.
Once these new formats move out of the "experimental" ghetto and into the production rooms of every large agency, the new reality will proliferate outside of NYTimes.com and onto the rest of the web. Everyone will be better off.
Ideally the New York Times would come out with their own SDK, based on HTML5, for agencies to create rich, immersive, engaging ads for NYTimes.com, and new analytical tools to describe (and price) engagement. In time, they could move up the value chain to create their own creative material for advertisers, as Condé Nast, Vice, Monocle and others are doing. Of course, if they come up with tools and frameworks that are much better than what already exists, they could expand it off their site into an ad network, but that would be a whole other ballgame.
So anyway, that's my pitch, New York Times: you can change the game in online advertising. For that you have to take a stand and take a big risk -- that if you dare the ad agencies not to follow you, they'll call your bluff. You have to venture out into the unknown. But you know what? You don't have a choice anyway.
So think about it. Read more: Business Insider