Even Google finds it hard to monetise content with AdSense advertising

In using AdSense to monetise content, how good are the financial margins for the The New York Times verses About.com?

The answer is provided by Martin Nisenholtz, Senior Vice President for Digital Operations at The New York Times Company. The Company owns both publications.

Nisenholtz is an online advertising pioneer

About.com has “unbelievable margins” says Nisenholtz speaking on a conference panel on 28 November 2009.

He seems to be saying that to earn AdSense revenues, the content creation cost structure of About.com has a better margin than the The New York Times. Compare the cost of:

publishing original stories using, among others, senior journalists (The New York Times model)
VERSUS experienced writers and editors hacking public domain content to regurgitate it in About.com (the About.com model).

Further, Nisenholtz says the type of content in About.com is AdSense-friendly in that each piece creates a clear context. In contrast, The New York Times makes it hard for AdSense to monetise against a story on say “the reform movement in Iran”.

So topic-specific content in About.com works well with AdSense. Des Walsh, an Australian social media strategist, predicted this for me when he pointed out almost four years ago that “the web is full of how to stories”. People find them useful and it seems so does AdSense.

Following is a Beet.TV transcript of part of what Nisenholtz said on the panel.

“You know, just in listening to Eric for a moment, it just strikes me that I should also mention that the New York Times company also owns About.com, which is a very different kind of content business. And because of the way it creates content, because of the expense structure of the business as well as the kind of content it creates, it actually can earn unbelievable margins in assets. So the reason I mentioned AdSense in the context of theBuzz is because if you can create content at a very low cost that’s highly verticalized and very contextual, AdSense will monetize all day long. You’ll get very rich, very rich. And so that’s a big difference between that and creating, you know, the great content that we obviously create at The New York Times. I mean we write an article about, you know, the reform movement in Iran and AdSense doesn’t know what to do with that. They can’t monetize it, ad networks can’t monetize it. We have to monetize it directly for our own sales force. So I really think that, you know, as we talk about these models, we recognize that there are models that are friendlier to web endemic advertising and models that are less friendly. Just for monetization.”

Hat tip to Beet.TV. That link will take you to a video in which Nisenholtz makes the above quoted statement. Nisenholtz has been a digital media pioneer. Before joining the Times in 2005, he had a long career in publishing and advertising including:

director of content strategy for Ameritech Corporation,
working for The Ogilvy Group,
being the Founder and Executive Committee Member of the Online Publishers Association,
founding in 1983 the Interactive Marketing Group, and
starting his career in 1979 as an assistant professor and research scientist at New York University, where he participated on the founding faculty of the Interactive Telecommunications Program.

Drilling down on Google’s revenues verses profits

Everyone all year is talking about the financial decline of newspapers, including us. The protagonist is hyperlinking. It’s the DNA or core feature of the Web, though the term predates the Web having been invented in 1965 by Ted Nelson. If you had to pick a leader in the commercialisation of that DNA, then it’s Google.

This story so far has been about Google AdSense margins and revenues. AdSense is what Google uses to earn advertising revenue by placing ads on other people’s content. How profitable is AdSense for Google?

Google’s 2008 financial results involved revenues of US$21.8 billion. Only about 31%, ie US$6.7 billion, came from advertising around content on non-Google sites, ie from Google’s AdSense. About 66% came from Google’s AdWords, contextual ads which appear in Google search results.

It’s when you drill down to the question of profit that things get even more interesting. To quote Silicon Valley journalist, Tom Foremski who noted the above facts: “Search advertising produced 19 times more profit than content advertising.”

He goes on in Understanding Google’s Ad revenues to adds: “If we look at profitability, search advertising is many times more lucrative for Google than content advertising.

In 2008 search ads produced a profit of about $5.65 billion on revenues of $14. 4 billion or a 39% profit margin.
In 2008 content ads produced a profit of about $302 million on revenues of $6.7 billion or a 4.5% profit margin.”

Looking to monetise your web venture?

Finally, if you are developing an online software business to be supported solely with advertising, then check you theory. Read Foremski in: The economics of online advertising affects online software publishers.

As I’ve argued for years, one should not just fixate on advertising for monetarisation. Alternative models may include subscription, licensing, sponsorship and fee for service.

One more thing. Recently there has been an uptake in discussion of how effective social media advertising might be (see accompanying graphic).

Contact me if you’d like detailed academic papers on any of the above subject or advice on advertising, online monetisation options and terms and conditions for them.