From API, June 2003
Smoke & mirrors: Online profits are overstated
By Alan Jacobson, Brass Tacks Design
Steve Outing began a recent column by saying, News sites are a real business, bringing in substantial revenues. He made this assertion based in part on a new report from Borrell Associates entitled What Newspaper Web Sites Earn.
I take issue with Steves claim. My reading of the research indicates that news sites are generating little or no revenue.
Deep into Borrell's report youll find that 73% of revenue comes from classifieds not from ads on news pages. And this revenue is produced by surcharges that many customers dont realize theyre paying.
Furthermore, I think 73% is a little generous, and may be more indicative of smaller papers. One of my clients at a major metro told me that classifieds generate 90% of his online revenue.
Believe it or not, todays online profitability is tied directly to print classifieds, not the online editorial product. Thats why sites can claim profitability while online display ads (banners, buttons, pop-ups, etc.) remain weak at all but the very top papers.
Heres how it works: Newspapers assess a surcharge when someone places a classified ad in print. The surcharge pays to place the ad at the newspaper's Web site. Take away the surcharge and you lose online profitability.
In most cases, the surcharge is an assumed buy customers placing ads dont know they are contributing to the online sites revenue.
No one is opting out of this surcharge today, but customers may balk tomorrow. Why? Because newspaper Web sites are not the leading source of online classifieds. Pure play sites are more popular.
Borrells quantitative study clearly identified the competition. Qualitative studies conducted by Brass Tacks Design more clearly identified the threat.
All of our research is based on focus groups and usability studies I find this data much more valuable than surveys. We use qualitative research primarily for two reasons: First, to learn how customers feel about current products. Then, after we've developed prototypes, we let customers compare these prototypes with existing products. We've found focus groups to be a reliable and accurate predictor of customer reaction to redesigned products prior to their introduction. As a result, our clients are never surprised when their redesigns debut.
We've conducted focus groups as part of our classified redesigns in Hartford, Conn.; Omaha; Newport News, Va; Birmingham, Ala. and Washington, Pa. Weve conducted focus groups and usability studies in one other major market that must remain confidential for now.
All together, we've talked to more than 250 people. The results were the same regardless of newspaper size or location: Virtually no one mentioned the newspaper's site as a source of classifieds. Instead, they mention the pure play sites - Monster.com, Realtor.com, AutoTrader.com, etc. Despite a recent promotional campaign, CareerBuilder.com (which appears at many newspaper Web sites) was barely mentioned by anyone we interviewed. Some respondents said I never considered using the newspapers site when shopping for a car or a home.
I believe that customers will eventually prefer to place their ads at the pure play sites they visit. At the same time, the print classified franchise is shrinking as advertisers begin placing their ads online instead of in print. This is already happening in recruitment.
Here's why: Classified advertising is better suited to the web than print for a number of reasons: keyword searches, faster delivery, value-added content, e-mail notification, etc. So it is reasonable to assume that the classified franchise will migrate from print to online as more and more people use the Internet for information.
For a detailed description of this phenomenon, see http://www.brasstacksdesign.com/class.htm
If you believe this is true, then you can guess that advertisers will want their ads on the classified sites that get the most traffic, which today are not the newspaper sites.
So we can't count on print classifieds to support online sites indefinitely.
In addition, our research has discovered half the people did not know that newspapers put classifieds online. Ironically, this may be good news because most newspaper Web sites lag behind pure plays in usability. One of our clients has already lost the recruitment category online for this very reason HR directors could not find their own ads at the newspaper's site, so they stopped using it.
This underscores problems in Web site usability in general, and at sites run by newspapers in particular.
According to Martin Niesenholtz, CEO, New York Times Digital, Pure plays outclass us in usability and ding enduring franchises. We need to be better information architects and designers.
The improving revenue picture is masking a giant problem: as print classifieds continue to contract while more people use the pure play classifieds online, the entire newspaper classified franchise could disappear.
So what should newspapers do? Here's a three-step process to preserve the classified franchise:
1. Improve current classifieds in print, to make them a more effective means of promoting the newspaper's online classifieds. (Improve usability, enhance co-branding, etc.)
2. Promote the online site in print. But not beforeŠ
3. Improving the usability of online sites, which lags behind the usability of the pure play competitors.
You can see the details on this three-step process at http://www.brasstacksdesign.com/3_steps.htm
Newspapers must improve the usability of their sites. There is nothing to be gained by promoting an online site if it offers a poor user experience. Give people a bad experience and they won't return.
In closing, its important to note that Borrells report shows that newspapers still lead the pack in market share (for online advertising revenue). While this is true, I fear that publishers are using short-term revenue and page views as a measure of success. A cursory reading of the report appears to support this misconception.
Instead, publishers should pay more attention to two other points made in the report (and supported by the research conducted by Brass Tacks Design):
1. Most online revenue comes from surcharges on print classifieds, not from traffic to the rest of the site.
2. Newspaper online classifieds are not among the top choices of online classified users.
• Click on any image to see more.
• Hartford Courant
• Omaha World Herald
• Daily Press, Newport News, VA