Megabuyte, July 2012. Original article here (£).
Letter from the West Coast
The dark art of content monetisation
As the internet is becoming the primary portal for the delivery of the written word, this structural shift is rendering old revenue models in need of some significant new thinking. Newspapers have long accepted the inevitability of the change, with magazine- and book publishers following a bit further behind, as everyone knows the internet is the future; it means immediate delivery, low production costs and a world of multi-media opportunities to boot. But what about the money? Advertising, subscription and freemium are all possible solutions, and publishers cannot be accused of lack of trying. But the ideal method for monetisation of content, now that it is online, remains at large.
New alternatives to advertising
“The traditional way this has been done is mostly display ads, more so than subscription fees. But as every percentage of the page that you devote to advertising is one not being devoted to content, I think we have definitely started to hit diminishing returns,” said Oliver Roup, CEO and founder of VigLink, the San Francisco start-up aiming to provide a solution to the trouble with monetisation. One problem is that readers lose interest if there are too many ads, said Roup when I met him in his office, but Google is also increasingly penalising websites that overload on ads. As websites are becoming easier and easier to set up, online real estate is just not worth what it once was; generally speaking, web outlets are finding it harder to survive just on advertising alone.
This is where VigLink comes in, as an additional means of generating revenues through affiliate links. Back before the company was founded (in 2009), Roup was at Microsoft, where he learned about the Amazon Associates Programme: if a website is a member of this scheme, anyone who follows a link away from the site and onto Amazon will yield a commission for the site of the original link. Curious to see how many people were actually using the affiliates programme, Roup wrote a web crawler and discovered it was less than half: “People were linking to Amazon, but they were just not getting paid. They were not doing that little bit extra you need to do to get paid. So I thought, I am going to start a company that does that for you. And now we do that not just for Amazon links, but for many tens of thousands of other merchants too.”
Asked how much money a website can generate from affiliate marketing, Roup said this depends on numerous factors: who you are, who your audience is, what you are talking about, how much traffic you get. “We find our customers often earn in the range of what Google AdSense earns them. The good news is that it is completely incremental. The question is not, should I run ads or should I run VigLink. It is yes to both.”
Pinterest, the social network based on curating images, drew headlines earlier this year when it emerged the group was monetising users’ content by inserting affiliate links. This was through a partnership with market leader Skimlinks, a four-year old startup running out of London. Pinterest ended up terminating its relationship with Skimlinks following criticism it had been concealing the arrangement. Still, the Skimlinks has continued to grow, having raised $4.5m last autumn which brings the total funding to $7.5m. CEO and co-founder Alicia Navarro responded to the Pinterest controversy by writing a blog post with a headline that sums it up nicely: “It’s not a secret. We do monetise social discovery, and it’s great.”
Bringing this up with Roup, he is quick to emphasise that sites using affiliate links need to be upfront about this fact. “I think users get upset when they do not know, so we say to the publishers: tell your users.” While there will be those who have issues with affiliate links, just as they may take issue with advertising, providing this information in advance will go a long way to prevent any problems. “We also offer an opt-out that mean no one will make money from their clicks, but the number of people who do that is vanishingly small. Still, it does defuse the issue.”
Boosting the hyperlink
Specifically, VigLink’s product works by trawling through content and changing links into affiliate links. Visually, nothing changes on the site, but any clicks through to the merchant will generate money back to the site. VigLink then gets a cut of this commission. Roup gave a nod to Skimlinks as the main competitor, but the industry is only a couple of years old and in constant development: “We think 2012 is the year the hyperlink gets smart. so, Now, when you pull up a web page, you see display ads that are decided on a very complex algorithm. But the hyperlinks you see are completely static. […] We believe the hyperlinks – which ones you see and where they point – should be decided as the page comes up just like display ads: depending on who you are and what is going on in the world. Our vision is to make the web better by making every link intelligent and valuable.”
Roup currently has 22 people working in his company, after first securing funding in June 2009. Last year the group did a Series B round, raising $5.4m from Emergence Capital, Google Ventures and First Round Capital, taking the total raised to $7.3m. Roup told me had 96 meetings before seducing the seed money for the company, which is a lot – but then considering what year it was, and the fact that Roup was, as he puts it, “just me and a Powerpoint deck; no team or customers or website,” it starts to look quite impressive. Roup’s team is working on the sales expansion now, but ultimately what the entrepreneur wants to do is to take the hyperlink to the next level. Links technology that has been almost static since the start of the web, but as anyone knows if they read newspapers online, they can add significant value to the user experience; “So making every link on the web intelligent and valuable is what we are about.”
Advertisers: look sharp
Affiliate links look poised to become a straightforward tack-on to advertising for monetising online content, especially for materials unlikely to attract subscription fees. While the likes of VigLink can grab a slice of the market by helping to shape this area as it develops, the move to online has placed significant demands for revival for the advertising industry. As people become more discerning, ads have to become smarter to earn our attention.
Online advertisement is moving from static ads towards more moving content, meaning the focus is less on how many clicks generated but on getting people to actually watch the ads, explained Suranga Chandratillake, CEO of Blinkx. A key selling point for Blinkx is the ability to recognise meaning from audio and video, enabling only relevant advertising to be placed alongside. A similar change is happening at YouTube: five seconds in, you often get the option to skip the ad. This means the ad has to be good enough for the viewer to actually not mind watching it, or no one gets paid. This further personalises the experience for the viewer, and it raises the game for the advertiser to come up with something good, and ultimately, effective.
But throw the mobile internet into the mix and the issue of monetisation becomes a lot more challenging. Static ads do not work as well on the tiny screen, and people accessing data on the go will have less patience for video ads. “The mobile world is fascinating,” said Chandratillake. “There is a usage revolution happening, not just with apps but also with accessing web services through the mobile phone. The size is a disadvantage, but the advantage is that the platform knows who or where you are.”
Copying the web content monetisation models is not working on mobile, asserted Chandratillake, pointing out that even relatively new companies such as Facebook are running into problems as their mobile interface does not support ads in the same way. 69% of UK Facebook users have a smartphone, a statistic that rises to 82% for Twitter users, according to a recent Ipsos Mori poll. So how can companies monetise their content when users increasingly access it through mobile devices?
The mobile experiment
“The truth is that no one really knows how to make money from this. It is causing big problems for big as well as small companies,” said Chandratillake. “At Blinkx we are actively working on capitalising this opportunity though. We are building mobile applications, we are partnering with mobile companies, and 10% of our audience comes through mobile devices. But ultimately, everyone is in the same position. We are all experimenting.”
So far, these experiments include making mini-ads that fit smaller screens, as well as more interactive ads, but as demonstrated by the rise of affiliate links we are likely to be looking at hybrid solutions. One example is how earlier this month O2-owner Telefonica announced agreements with Facebook, Google and Microsoft that will let users pay for digital goods and services via their mobile phone bills, in an effort to drive downloads of paid content.
While the move towards mobile is a major structural shift that is likely to have casualties, Chandratillake believes there are numerous elements from the web that will transfer well to mobile. Brands with strong customer relationships is one of them, and Yelp, the restaurant reviews site, is a company that has done a good job on this: “They realised mobile was perfect for them, and they used their existing relationships with users and partners to build an app and got it out there very quickly.”
Yelp, a Silicon Valley success story which floated late last year, boasts 71.4m users per month and makes its money from selling advertising packages and banner ads to businesses. Currently valued at $1.6bn, the company has however been running at a loss for the past eight years, and critics are wondering whether this will ever change. Yelp, however, as well as everyone else, will undoubtedly have their best heads working on it, as online content delivery, and now mobile delivery, is the undeniable trend. But when it comes to making proper money from it, even the industry leaders are admitting it is still a hit and miss game.