Two thing jumped out at me when I read a CNET interview with John Battelle of Federated Media this morning - his direct criticism of competitor Glam Media as a “flavor of the month,” and his suggestion that he may take equity stakes in his publishers.
Full disclosure - Federated Media is our ad selling partner. Sometimes we love them. Sometimes, not so much.
Glam Media: A Flavor Of The Month
The first thing that stuck out was his criticism of competitor Glam. CNET’s Stefanie Olsen asked Battelle “Vertical ad networks like Glam Media are really popular right now. Investors love them. Why do you think that is?” His response: “Because people don’t understand them and they hope things that they don’t understand will pan out.” He added “I just think they are the kind of flavor of the month, but you have to get down to where do you add value to the marketer and where do you add value to the publisher.” In a world filled with over-media-trained executives, its refreshing to see someone go after a competitor with such a direct statement.
My next question would have been to ask him how Federated Media is different from Glam. Federated Media sells advertising for tech sites; Glam sells ads for women-focused sites (although their biggest partner is MyYearbook). Other than the focus of the ad sales effort, the differences are not obvious to the casual observer.
The truth is the networks have significant strategic differences. Glam owns a few properties of its own, which helped in the early days as anchor properties. Federated Media does not own any major publishing sites.
Glam also guarantees revenues to partners. MyYearbook is rumored to receive a guaranteed CPM on page views, and many of the blogs get guaranteed monthly payments of $10,000 or more. Those guarantees resulted in a loss for Glam of $3.7 million last year on $21 million in revenue. But it also accelerated growth and allowed them to raise a massive round of financing.Federated Media, by contrast, doesn’t guarantee revenues but is profitable. They’ve raised just $7.4 million.
But Battelle also reportedly has Glam envy. He turned down a $100 million buyout offer, reportedly because he felt Federated Media should be worth at least as much as Glam ($400+ million).
Will Federated Media Buy Or Invest In Publishers?
The weak point of Federated Media’s model is that they don’t control their own publishers. If a better deal comes along, those publishers will bail - which is what happened last year when Digg left the network for a big, three year guaranteed revenue deal from Microsoft.
One way to solve that problem without guaranteeing revenue is to own publishers, or at least a stake in them in return for a contract they can’t get out of. When Olsen asked Battelle what he intended to do with the venture capital he’s in the process of raising, he said:
Word has it you’re looking to raise money and you’ve hired Savvian to vet offers. (CNET News.com story here.) Given that you’re already profitable and don’t need the cash, what do you plan to do with the money?
Battelle: Well, I can’t say specifically what we might do with any money that we might raise, should we do a fund-raising round. But I think there are an awful lot of opportunities in this emerging field and it’s just good to have access to capital to execute any reasonable ideas that we might have. It’s a very quickly changing market and it needs financing. I mean individual sites need financing and we want to be a good partner for all of our sites.What do you mean individual sites need financing? You want to fund some of the sites you represent?
Battelle: I’m not saying that we’ll necessary do that. I’m saying that it might not be a bad idea to be ready, should that become something that those sites are looking to do. In a fast-evolving model, it pays to have a strong balance sheet.
So Federated Media says they want the option of investing in their publishers down the road. But certainly there will be strings attached. Here’s what I think he really means: They’ll either buy sites outright, or guarantee revenue, or guarantee revenue in exchange for equity. A publisher wouldn’t consider Federated Media an attractive investor versus venture capitalists simply because it would mean tying their revenue to them over the long term.
But at one point in the interview Battelle said a roll up wouldn’t work, because authors must be independent to be authentic (I’m interpreting, not quoting). So there’s some conflict in some of his statements. What are they really thinking? I have no idea. But revenue guarantees would be a nice place to start.
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smart move to invest in the publishers…control is key…CONTENT PROVIDERS OUR DAY IS COMING!
This is a bad idea for John and something he shouldn’t have hinted at. Federated is one good salesperson loss away from being a disaster. They have very little stability as a company. So, why would a publisher want them to invest when they may not themselves be around after the recession? They need to get to approximately $100M in annual revenues before they dare to talk like this. Until then they have lots to prove still.
The rates for federated media are WAY outta line. way too high.
stone - as much as i give federated a very hard time, I don’t agree that they are “one good salesperson loss away from being a disaster.” They’re holding firm to their business plan, which pisses me off because it’s less money in my pocket than I want. But that doesn’t mean they’re going to fail. At some point I predict they’ll start to lose publishers if they don’t guarantee revenue. If/when they do that their margins will fall. How they deal with that situation will determine their fate, IMO.
Flappy - what rates? The CPMs they charge to advertisers? They’re good because they do a good job at selling. It’s what the market will bear right now.
bring it on !
Michael, you make the best point when you admit they are stingy. If a competitor to FM knocked on your door offering 85% + you would flip in a minute I’m guessing.
Google’s success is they value some larger customers to the point of offering over 100% (ie. Ask.com) to win a space.
Scale allows Google to offer this, FM doesn’t have scale, yet anyway.
As a blogger I’m attracted to someone like FM that does all the work for me but I am not writing to fund someone else’s luxury vacations.
As for funding my venture? Who am I working for then? The antithesis of blogging IMO.
Interesting times.
It is not a weak point - it probably is the most intelligent way to do business.
Ideally, this forces a company to work harder to become more competitive.
The clients have a responsibility to their firms to go with the best offer. It is up to the service provider to become that best offer via competition, not shallow tactics
Interesting times indeed… though still a long way to go (for all publishers).
@4 (Michael Arrington) What is Federated Media, Glam Media, or any other advertiser’s incentive to guarantee payments to publishers? I understand how Microsoft can make guaranteed payments — they are the 800 lb Gorilla with near-limitless access to cash. But IMHO, Glam Media shouldn’t be taking a loss to artificially inflate its number of publishers — but that’s what VC funding will do to you.
Also, why do you stay with Federated Media if “Sometimes [you] love them. Sometimes, not so much.” and you can generate guaranteed revenues with another advertising partner?
Mike - its more subtle than a competitor coming to us. Long ago we pulled back a lot of the inventory to sell ourselves (all the 125 square ads in the upper right are sold directly). We had to sell those to get enough revenue to hire our first outside writer, so the incentive was there. The weird thing is FM never sold them that well, but we sell them out based solely on inbound requests.
I don’t think buying stakes in publishers is the answer. In the end, just give the publisher the best deal. FM seems good at that now.
However, in trying to sell such a property, if Battelle leaves, will that same ability exist? Can someone else keep the same deals going? I am not sure, but i think a buyer would be asking these questions. So FM is looking at “what gives us value besides our “deals of of the moment”?
But instead of stakes, it may be that their value is in showing over many years they consistently have “many good deals for a heck of a lot of moments.”
Dave - no one has offered us a guarantee. Also, even if they did, you’d have to look at the health of the company before going with it (along with the size of the guarantee of course).
My issues with FM have been documented and documented. No reason to bring them up again. Point is they’re an interesting company that’s taking a somewhat different approach to glam.
I think revenue guarantees with their model can be deadly for them because, unlike Google, they don’t have a product roadmap that is focused on increasing monetization over time. They have to rely on OpenAds, which is tenuous at best. I think their key sales folks do want to leave BTW.
Google has lots of buttons it can push. Federated is a rep firms with few buttons. I don’t like their model a bit and think it’s a relic that will not survive.
I wonder what Federated Medias requirements are? Is it based on traffic, or does the subject of the site matter more?
Though I’m in marketing, but still a noob to this word.
Long live Cnet! Even pirate chief Assington had to link to it. Go Cnet, go!
I don’t think the first half of this TechCrunch title is accurate in regard to the Battelle interview, to my mind. I read it that Battelle was talking about general industry issues, not at all picking any fight whatsoever with one company (that company he cites I read as indiciative of the general issue, nothing more).
Also, this may be off base (I don’t know) but this TechCrunch piece to me, in places really feels like airing of “dirty laundry”. Not that issues can’t or shouldn’t be aired. It’s not a value judgment, just an observation (perhaps a theory).
Hey Mike & all on this thread,
Thanks for the thoughtful coverage. I wanted to clarify one thing, which is in my answer to Stefanie about Glam, I was referring more broadly to all ad networks. We represent, as you know, a portfolio of brands. Ad networks more broadly sell categories - demographics, behaviors, etc. That’s what I think is the flavor of the month. I wrote a very long diatribe about this on my site:
http://battellemedia.com/archives/004330.php
As for deals & rev shares (which Cnet got wrong, the spilt was reversed), I can’t comment on specifics save to say we have given the majority to our partners as you know. It’s very expensive to run a fully scaled, national brand sales and service force, as well as all the technology and infrastructure (finance, ad serving, reporting, biz dev, etc.) a high quality media company needs to run. And it’s true we don’t own our publishing partners. I think that’s a motivator for most of our partners. Happy to talk more at any time, of course!
The rates are high…know 3 companies that have bailed after running ads for one month…might be getting people to pay…but the key is to have them continue.
Michael Arrington,
TechCrunch is killing my computer.
my IE goes into Not Responding mode when I try to open a topic to read comments or go to « Previous posts. I dont get any other choice but to kill the browser. I am experiencing this quite frequently.
Sorry for posting this comment here!
by the way … I am using IE 7 & Windows XP PRO
@21/@22 - always. That’s why we’re using FF, despite very very reluctantly.
wounded - why aren’t you using firefox?
kidding - I’m getting our vast technical team on this asap (which is Mark).
FM is a house of cards. I just developed a competing platform with OpenAds and AWS in 1 day. Oh yeah I have tons of cpm inventory from 3rd party shit inventory.
He should have sold. He has no differentiation or loyalty.
You are correct to be moving to direct sales for the squares.
wounded -use opera
Michael, Technicle,
True, it works amazingly on FF. Now I am a new FFF (firefox fan).
Sites like glam and federated are being used.
Publishers will always want to go direct. The only way to prevent that from happening is to offer guarantees.
Federated and Glam don’t have a lot of options. They need to become high quality publishers or they are destined to work with smaller sites.
And that’s google’s adsense market, right?
interesting anonymous email that I received that said:
“your note >> Federated Media, by contrast, doesn’t guarantee revenues but is profitable. That may be technically true but they do offer a number of sites substantial up fronts and effectively guarantee a minimum.”
If that’s accurate, that would effectively end any trust we have with FM.
Can anyone explain me why a sales house without any technology would be valued that much? If any major blogs leaved them, they would be out as a business…
Mike and all,
On #29 above: We don’t do guarantees at FM. Ever. We never pay for inventory that we haven’t already sold. That would break our model. A guarantee says “you go back to writing, and we’ll send you checks and take care of the ads. Ignore the business side of your business until we call you in a year for a renewal.” We succeed by working together with our authors all year long. The result is bigger campaigns, higher CPMs and close partnerships with authors.
What we have done a few times, and will do again in the right circumstances, is offer an advance to an author who’s moving to FM from another source of ad sales — to smooth out the inevitable dip in revenue that comes while our sales effort ramps up — or to even out the monthly cash flow for a successful author who wants to avoid the seasonal highs and lows of the ad business. It’s always a loan, a debt the author owes to FM, and it’s always recouped through ad sales in the following months.
@19 (John Battelle), @31 (Neil Chase)
With a profitable revenue model that clearly splits the market risks associated with advertising rates between FM and its publishers, why take on VC funding?
Close partnership with authors sounds like you influence what people write. What other reason could there be?
@wounded - I’m not replicating your problems with IE7 here, is anyone else having problems with TC freezing in IE?
interesting, maybe they are building up a war chest to fight off any other advertisers trying to grab any more of their top publishers with a guaranteed income.
Maybe Battelle’s holding out to provide Google’s publishing DNA based on his closing comments:
“Battelle: Being a publisher. You’ve got to be a publisher if you want to be in the branded advertising space. You’ve got to act like a publisher and you’ve got to think like a publisher. And that’s not what they’re good at.”
In any case, when FM first launched I wrote Battelle and he said I was doing exactly the kind of thing they were looking for in terms of quality and would eventually get into entertainment blogs.
Over the years I’ve been handed down the chain and can now only contact underlings who simply say I don’t have enough traffic.
Too bad. I don’t know how much longer I can stay in this game and I’m an addict so it’s going to hurt to leave.
On the blog rollup tip in the entertainment and lifestyle world, keep an eye on Rawkus.com and their Uproxx.com project. They’re getting big and they’re going to get much bigger.
Peace!
Here’s my take of what’s going on in the blog business:
http://sramanamitra.com/2008/0.....-to-focus/
http://sramanamitra.com/2008/0.....08-gigaom/
http://sramanamitra.com/2008/0.....echcrunch/
http://sramanamitra.com/2008/0.....on-forays/
http://sramanamitra.com/2008/0.....o-develop/
http://sramanamitra.com/2008/0.....ing-alpha/
Sramana
I am glad to see Battelle have an open mind here. His competitors (Tribal Fusion, Gorilla Nation, Google AdSense and Glam Media) are already starting to outright buy publishers. It ads more stability to their model, more IP, and longevity to their company.
But ultimately it will be Battelle’s investors that tell him what they would like him to do, and if they are reading TechCrunch, Venturebeat and other related sites, the answer should be fairly clear - own the content.
Question for Arrington:
Why not hire your own sales team? You seem big enough for this.
@Mark, it happens randomly.
but I am happy with firefox now, I have ditched IE7
I don’t think FM’s model is sustainable in its current form. Their future investors should ask some tough “what if” questions if they want to protect from being hosed.
Gentlemen,
Sounds to me like FM is acting like the kid that didn’t win the Park Place in the Monopoly Game. As an employee of Glam I would just like to point out that Glam is very a Publishing company that also provides a ton of content to it’s partners along with Advertisers. Yes we sell advertising on 464 sites of which most are exclusive to Glam (btw Mr. Battelle) but that is 50% of what we are doing.
As a female internet user, I can truthfully state that I do not click on ads. I like being marketed to in a contextually relevant way. This is why Glam has grown to be the #1 women’s destination on the internet…not because we are fooling our users or Publishers.
As for FM, I would be interested to hear Mr. Battelle’s thoughts on BlogAds which would seem to be more of a competitor than Glam in my opinion.
I would expect John Battelle to bash his competitors…never heard of his site until today..provides a very needed service to blogmasters…Mr Battelle has found a niche market and he is taking full advantage of it…I like the fact that he doesn’t offer membership to everyone (i.e. Google)and by doing so infuses integrity into the entire network…now, he cannot honestly expect to not have competitors…If his network is properly structured and effective, he will continue to have success…
Interesting read.
Check out my blog for legit ways to make money online.
http://mikesmoneyclub.blogspot.com/
Some very interesting information there… the key will be determining which publishers are worthy of investing in and which ones aren’t.