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The
future of advertisement based business models:
Toon Lowette, Founder
of Grid Electronic Publishing Consultancy, BE
a. 10 years ago
I would like to present the results of our survey. Respondents said that 10 years ago the market was easy: high profit and paper dominated. The first electronic publishing came in effect with CDs and Internet. We still had a yearly rhythm of production and sales, which was a stable and comfortable business model. The next 10 years saw some healthy growth, 10% to 20% per year, based on innovation. The general feeling is that there is still a lot of money in content and product data.
b. Content and product
In terms of content and product, the basic mission of our respondents is to bring together supply and demand. More niches will need to be covered and more content and features delivered. Some features based on the interactive capabilities of the Internet are currently being tested: deep search, interactive voice communication, product comparisons, accounting systems, deep data integration with partners, calls for proposals, tenders, online meeting places and so on.
c. In 10 years time
Even if we have a good product, if the user does not like it, we are dead in 10 years time. Online will be everywhere. There is a general feeling that there will no longer be books in 2015 and if there are books left in 2010, they will be very specialised and niche. People will have more screens. More screens create a larger need for directories. The expectation for mobile B2B services are not very high. The problems of convenience and technology remain. Convenience will be key.
a. Two layers
Respondents have a mixed forecast for business models. We need new types of sales force. We need more online sales completion. There will be also more revenue from information sales. The business model will thus have two layers.
b. Local structured internationally
B2B publishing is a local business but will be structured internationally, as it is already in a number of cases. More mergers are expected. It will become even more capital intensive.
c. Managing transition
Will the B2B publishers continue to exist as they are now? We have had 10 years of managing transition and there are 10 more to come.
The survey is based on ten long interviews with CEOs of B2B publishing houses on the themes of challenges, strengths, vulnerabilities, successes, failures, visions and strategies of the industry. Why is our self esteem so low? Why are publishers so pessimistic? Why did one respondent say that he just makes an old‑fashioned product? These negative feelings exist and need to be explored.
The participants were ABC from Belgium, Editions Chabassol from France, COMPASS from Austria, Europages from France, Krak in Denmark, Publico in Finland and Varetas in Germany.
a. Revenue
The revenue of six of these respondents is based on advertising only. Four of them have online and books. Two of them have books only. One, the French dentist directory Editions Chabassol, changed business model from subscription and advertising to free Internet and advertising.
Three of the respondents have a minority revenue from ad sales. Two of them are online only. One of them is online and books. In one case, the ad sales are phasing out, in the other increasing. One respondent has a majority from ad sales. However, this is decreasing in favour of information sales.
b. Business models
There are many differences in business models and the vision of how they will evolve. Some believe that the ad sales business model will win. B2B users are also consumers. Thus there will be an overlap of B2B and B2C. They believe it is parallel to the Internet evolution and the yellow page business model. Advertisers, both B2B and B2C, pay for visibility. B2B and B2C may merge into B2All.
Other respondents believe that added value is the future. For them, the information model will be the business model of the future. Content is easier to sell than advertising. Advertising is about promises while content is about benefits for the user. The tide is changing to paid content.
c. Is publishing cross-platform?
To this question again, the respondents had different answers. Four said that it is not vital to publish cross‑platform. B2B does not need all the platforms. For example, there is no real mobile platform yet. B2B is very niche. Yellow Pages needs all the media it can use. Five others said that cross‑publishing is vital. Another said that it is vital but that they are disappointed in mobile as a medium. Another said that they were preparing to publish on any platform that emerged.
d. What do the companies believe is the core of their business?
One company responded that the only constant in the business is the need for contact details. Another said the core of the business is creating marketplaces in which buyers and sellers can meet. Information other than contact details gives the impression of a better database but remains less important. Another said that they need to focus on selling ads.
e. Innovation
All the companies are innovating at different paces and according to different visions and different budgets. Innovation is taking place in search, convenience, integration, editorial backbone, structuring data, adapting sales staff, sales techniques, new services and marketing. All companies have experienced failures in innovation and have learned form this. One said that they were applying innovation, that is, innovating with existing, proven applications. They see themselves as the pioneers in this industry but not the first to use applications. Another said that even if an innovation costs money, it is worth it. The information collected through it is never lost. Another said that when innovating, the information should never be more than three clicks away. The companies may not be leaders in innovation but they use state‑of‑the‑art technology and applications. They know that you can never be ahead of the competition by more than six months. One stated that, looking beyond B2B publishing, Google leads us all.
f. Market trends
Revenues are up for some respondents and down for others. National markets grow and shrink. Prices tend to go down. A few have had success with information sales when the advertising market is down. Some are compensating what they lose from advertising with revenues from information products, such as intranet directories.
g. Quality
Quality is key to content. More complex classification tables and searches of what companies publish are needed. Increasingly, the respondents want to add product information to the core of contact information. Other business databases, such as legal, credit, financial and corporate and public sector information, are becoming increasingly important.
h. Add‑ons
What is being added to the core? Self‑service advertising and fulfilment allows the advertising content to come in a more automated way. We will see more of this in the future.
i. Is contact information really a commodity?
Some say that contact details are indeed a commodity and that anybody can start up B2B contact information directories. For existing publishers adding content is mandatory. They have no other choice. This is why they invest in quality and convenience. Others say that contact information is not a commodity and that they have not seen a competitor in many years. They say that unlike the superficial nature of Yellow Pages, B2B goes into more depth. This high‑quality data is the selling proposal of the B2B publishers.
j. Are publishers evolving from ad sales organisations to publishing organisations?
Some say that they do not have any choice but to add information and hence become more traditional publishers. People want to pay for structured content so companies are becoming publishers. One respondent said that they were both ad sellers and publishers, which makes a simple, unsexy, profitable business. A number of respondents disagreed. One said that they have always been publishers by focusing on content and marketing. Another said they are not becoming publishers because they have always been a sales organisation. From now on, they will be selling other products in the same area.
k. Sales operations
The companies have to change their sales operations. The aim is to sell more insertions and to urge the advertiser to present more of him or herself. To do this, they train their sales people to become increasingly like account managers. For those that sell information, key account management is crucial.
l. Advertising revenue per client
The ad revenue per client is, on the whole, decreasing in traditional paper approaches. It is increasing in the online business, when services are being added and good account management is practiced. One said that in three or four years, the average revenue per client went up from €700 to €1,500. Another quoted an average of €1,300 and increasing. Information sales are usually a fixed contract business with small yearly increases and charges for new features.
m. Where do the advertising clients spend their money?
They spend less and in more channels. Some do not spend at all, feeling that their own website is enough. Publishers have a very strong need for better insights. Clients want proof of return on investment. Publishers need more figure based arguments and reliable benchmarks on return on investment.
n. Marketing
Most of the publishers do not spend very much on marketing themselves, but have the feeling that they should. They would like to use more email marketing and use Google to their advantage. There is a general feeling that the publishers are aiming for quality, trust, reputation and stability, but do not exploit these qualities enough. One stated that, as an industry, we are not mean enough but good, simple people.
o. Who are the competitors?
A competitor is anyone who takes away budget in any service or media. One respondent said they did not have much direct competition. However, he did point to vertical portals, trade fairs, magazine directories, search engines, trade magazines, local media and Yellow Pages. The threshold for sending people in the B2B area tends to be very low.
p. How do the respondents deal with competition?
They deal with it through innovation rather than through partnerships. Some companies have deals with trade organisations or government bodies to achieve better coverage of information and access to client base.
q. Are the Yellow Pages in the B2B arena or vice versa?
Some of the respondents did not feel that Yellow Pages were entering their business but vice versa. In many countries, Yellow Pages see the B2B publishing as uninteresting. Others said that it is true that Yellow Pages are entering into the B2B arena. More clients, they said, are being targeted by Yellow Pages sales people. For the Yellow Pages, it is an easy profit margin. However, Yellow Pages are only useful to a certain extent. Many clients leave the Yellow Pages after a year.
Most of the respondents, while they feel that the market is falling back, their revenues are lower or they have a lower market share, do not speak of a lesser need for contact information. Who fills the gap?
The essential role of the publisher is to deliver contact information. They occupy an intermediate position between the supplier and the searcher. The result of a search is contact information. This is the core of the business. Many new services offer this. The usefulness lies not only in contact information but in the contact itself. Perhaps we should go beyond the intermediary position by giving more and deeper information and by integrating into workflow, but also by fulfilling contact. Online interactive services are the ideal contact tools. New entrants understand this very well. Big catalogue suppliers, such as Kaser and Craft , offer many of the products that companies buy. If a purchaser in a company has three or four of these catalogues, he or she may not need B2B directories. E‑procurement goes even further. In Belgium, a new website, easyMRO – the MRO stands for maintenance, repair and organisation – offer a complete service. Not only does it have all the products of all the big European and international brands, they have electronic buying systems, stock control, accounting integration and so on. It publishes its own trade magazine with advertising. Every two years, it holds a major trade fair for thousands of clients. The purchasers in the companies in this arena do not need B2B directories any more.
What are the business models? Firstly, there is the contact information business model. This moves to the Yellow Pages, ad sales business model. Advertisers change and you have to develop account management. There is a clear need for online fulfilment. The advertiser wants to be in charge and his requirements are increasing.
The second business model is the database publisher model. Here, businesses sell information services with added services, such as legal, financial, public, credit and so on. Revenues are gained from the end users. Long‑term clients and partners are the norm.
The third business model is the contact intermediary model. In the old days, the book was the real intermediary. Now, with the online system, we have to reinvent the contact intermediary model. The unique selling proposal could be – and is, in some cases – contact completion. Usefulness, here, goes beyond the search result to contact itself. There is a strong need for a focus on convenience. Then the intermediary position can be reinforced.
Google may have low levels of contact, but this could increase. They have the money to invest. Catalogues may have low levels of contact and added value information but have a high level of convenience. E‑procurement is also very convenient. A maximum of usefulness and convenience will bring maximum revenues.
In the previous conference I heard someone say that Google are passionate about search, which is why they are so successful. B2B publishers should be passionate about contact. This is the core of the business. They need to refocus their vision. The combination of the usefulness of the information and the convenience of the experience is what this business is about.
We are facing ten more years of managing transition. The future never ends.
From the Floor
At a conference 15 years ago, Russell said that in 20 years time books would be dead. Time has shown that they are not. Toon is giving them another ten years. It will be interesting to see in 10 years whether things have gone 100% that way.
We have always found it difficult to sell through advertising agencies. Almost all sales are direct. Have any changes come about in the growth of or interest in advertising agencies rather than final customers in advertising in directories, online or books?
Toon LOWETTE
We did not ask that question directly but there were no references to it. I do not think that there is much demand among B2B publishers to move into the advertisers’ role. Nothing much is changing here.
Russel PERKINS
In the US, one of the first things a sales person is taught is to stay as far away from agencies as possible.
Günter BILE , Veritas, Munich
Toon mentioned that Google is passionate about search. However, the worldwide statistics show that Yahoo is number one in search. What is your opinion there?
Toon LOWETTE
Look at what Google did in its early years. The only thing you saw on the screen was the search box and button. Yahoo, on the other hand, had a screen pull of many things. You had to look for the search tool. This is the best illustration I can give. All of Google’s investments have been directed towards search. They are now diversifying into other things. Even so, it is still about search. This is what I call passion. They have defined their core business and they go for it more than 100%. You se this when you look at their site.
Chairman
Russell said that 40% of bundled subscribers and 25% of paid subscribers never log on. How many people open the book when they get it?
Russel PERKINS
I think the numbers might be similar. However, at least they have a concrete thing that they paid for, which makes them feel better about the experience. Online is trickier.