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The
wild and wonderful world of database publishing
Russell
Perkins, Infocommerce Group, USA
Today, I hope to give you an insight of what we are seeing in the United States in terms of speciality directory publishing and speciality database publishing, both subscription based and advertising based. While I will primarily be talking about B2B publications, I will also touch on some of the interesting things going on in B2C. There are also some exciting things going on in the cross‑over between the two.
The industry, at least in the US, has been on a remarkable roller coaster ride for the last five years. I consider 1995 to be the peak year of the traditional directory business. We then muddled through to 2000, trying to figure out what exactly our role would be in this brave new world of the Internet. We reached a point in 2001 where a lot of people were openly pronouncing the directory and database business to be tired or dead. We then moved into a recession period that seemed to confirm this fact for many publishers and advertisers. Now in 2005, we find that the industry is coming back strongly. There is a new feeling of optimism that what we do is perhaps more important now than it ever was and that there is a valid role for us. There has been a rebirth of online advertising that not only has given us some optimism but has given us a tremendous amount of new revenue as well. This is coming together and spurring a lot of innovation and creativity in the industry. There has been a dramatic increase in the number of new product launches. It is a wild and wonderful time to be in the business.
a. Advertising based directories
2001 was a very different time. Many people were saying that for advertising-based directories online advertising did not work. They thought that after the great Internet rush the bottom had fallen out. There was the negative belief that there was just no future in online advertising. There was a growing belief that the general search engines were making buyers guides obsolete. The search engines required very little work, cost and no registration. There was a trend at the time that advertisers would buy buying guide advertising but their objective was not exposure but the increase of traffic onto their own sites. Advertisers felt they should be doing their own advertising and promotion on their own sites. They wanted to centralise and consolidate advertising on their own sites. This forced advertising-based publishers at that time to lose faith in online advertising and focus on print. It was not a pleasant time for the industry.
b. Subscription
In subscription, a general belief had grown that said that no-one wants to pay for content. This hung like a dark cloud over the industry. It made it very hard for subscription-based publishers to understand where they fit in a world where, theoretically, all content needed to be advertising supported. Since they did not have any advertising, this was problematic. Even in 2001, there was also a belief among users that print was much more convenient to use than online. This was holding up print sales, which further complicated the picture for publishers. Publishers reacted by bundling online with print, effectively giving online away in order to hold up their print sales. Sales multiples for advertising-based and subscription-based plunged during this period. It got so desperate that many smaller directories did not even try to sell but simply closed their doors.
a. Online advertising
In 2005, the picture looks different. We have a huge boom in online advertising fuelled by the paid search phenomenon. There are some important nuances here that we have to look at. Thomas Register, the biggest industrial directory in the US, announced that it is going to discontinue its print edition entirely and become a pure online product within the next year or so. A number of other publishers are about to make a similar announcement. The confidence in the strength of the online medium is back.
b. Paid subscription products
In subscription, consumers are flocking back to paid subscription products. The notion of free content has washed away. Interestingly, B2B trade magazine publishers are now flocking to the idea of subscription data products as their salvation because they do not see much growth in business magazine advertising. Whereas four or five years ago, publishers were giving away online to sell print, they are now giving away print to sell online. This says much about how things have switched in just a few years. Online products and subscriptions to a database are selling at a premium price compared to the print version. In 2001, this was going in the opposite direction.
a. Economic downturn
There are a number of factors at work. The biggest thing is that the economic downturn of 2001 eliminated a lot of the weaker players. Many of the start-up databases on the web went out of business. Many sites went from free to paid access in recognition of the fact that sooner or later you need a revenue model. Overall, this significantly reduced the base of quality free content that was available on the web. This gave a base for subscription-based publishers. Users began to realise that if they wanted good quality data they would have to continue to pay for it. They never entirely stopped paying for it but the trend was against paying for it. From 2001 to 2005, publishers have been for the most part unable to raise their prices because of the pressure for free content put on them.
b. Pay per performance advertising
We have seen the introduction and remarkable growth of pay per performance advertising. This brought advertisers back into the market. In my opinion, it gave them the confidence to advertise online. The key to pay per performance is the notion that it is risk‑free. This has revolutionised the idea of what advertising is, how they should view it and pay for it. It has brought them flocking back to the marketplace but has also presented publishers with a whole new set of demands and requirements.
c. Positive view of online advertising
All types of online advertising are now being viewed in a positive light by advertisers. It is a rising tide. An online buying guide may have no paid search or pay per performance component, but the general perception among advertisers is that all forms of advertising at least for now are useful and productive.
d. ‘Infocommerce’ products
We are seeing a quiet growth in ‘infocommerce’ products, subscription based products that have either deeper data than traditionally offered or workflow integration characteristics, that is, data bundles with software and delivered to the customer as an application or merged into their internal systems so that they become increasingly reliant on the data in their operations. You can charge a lot for data when these characteristics are present. The renewal patterns are favourable also.
e. A virtuous circle
Publishers are being pulled back by advertisers into online advertising. They are now willing to invest in upgrading their websites and offerings. This is, in turn, spurring more demand. A virtuous circle is starting to take effect.
a. Difficult transitional period remains
The major trends for advertising and subscription based publishers are very positive now. However, it is important to emphasise that we are still in a difficult transitional period. Advertisers are willing to spend money and be creative but they are also becoming more discerning and demanding about how and where they advertise online. Similarly, in subscription, buyers recognise that they will have to pay for continuing access to quality content. They are not sure how that should be priced or valued. This is being sorted out in the marketplace right now and trends are positive but many things can happen.
b. Uncertainty and disruption
Publishers remain uncertain about how to price their products on the marketplace and even about what the nature of their product is. Is it a database? Is it a list? Is it a data-feed? Is it a software product? There is also a continuing disruption in the market by the major search engines. Every day sees a new announcement or product. Most of these products are disruptive to our business, sometimes for the better but not always.
a. Subscription Database Study
Earlier this year we completed our Subscription Database Study. It benchmarks two points in time – December 2004 and December 2000 – in its attempt to map the trends of pricing of subscription data products. The survey looked at over 300 different subscription data products, all based in the US and all for-profit. It came up with some interesting findings.
There is a very dramatic shift in where revenue is coming from for subscription publishers. 73% in print in 2000 dropped dramatically to 60% in 2004. Online is growing. The online to date is mostly the migration of print subscribers. There has not been a huge bonanza of new subscribers. Print continues to show remarkable resilience, even in some very sophisticated markets like electronics. In ‘laggard markets’ – those vertical markets that were relatively slow to adopt high levels of Internet usage – users find security in the print product because they do not believe online access is dependable or available all the time. Print products are safety nets. The second most cited reason for the continuing popularity of print is portability. This is a fascinating psychology that comes into play as subscribers consider how they are going to use the online environment.
Publishers are also finding some new growth in mailing lists when they are offered online. This has never been a huge business of most database publishers, although it should be.
The marketing mix is changing. The old reliance on emails and direct mail has shifted. Search marketing did not exist in 2000. It has had a dramatic impact on the industry. We are finding that for subscription publishers the name of game is making contact. It is so difficult to make contact with a prospective customer and actually have a conversation with them. Thus, publishers are relying on telemarketing and paid search to build their businesses. In search marketing, a click is not necessarily a sale. We have done a lot of work analysing our clients’ traffic and paid search referrals and have discovered a ‘one-hit wonder’ phenomenon. These are paid click‑throughs that stay on the page for often less than a second. This is not necessarily click fraud but an indication that people often click before they think. The publisher is paying for this privilege. This makes it very difficult to get a sense of the level of return on investment in search. Publishers who sell directly from their site sometimes have a stronger sense of how search is working for them. You have to take into account this noise when considering the phenomenal numbers that some are reporting.
In 2000, we were seeing a downward shift so that online was selling for the same price as print. The trend is for print to become more expensive. We have seen a dramatic shift where online is consistently selling at a premium. This trend is accelerating, which suggests that both publishers and users are getting a lot more comfortable with the online format.
A lot of work has been done by publishers in the area of short-term access, that is, monthly, weekly or daily subscriptions. It has been a mixed experience. Not all publishers have tried it. Some are just not technically capable of doing it. Anyone who buys a monthly subscription is three times more likely to buy a full subscription than any other group. We do not see cannibalisation at all. There is very little likelihood of an annual subscriber becoming a monthly subscriber. Those who buy partial subscriptions tend to be new business.
Making a sale these days is only a small part of the battle. When publishers sell a combined print/online offer, 40% of the subscribers never log into the online version at all during the term of their subscription. Even more surprising is that when a subscriber buys only the online version, 25% never log in. If they do not log in, they do not renew. Many publishers are putting huge effort into making regular contact with their subscribers to make sure they use the service regularly. Unless you build patterns of usage, you cannot hold onto the subscriber. Customer engagement is a huge and growing issue. If you do not engage, the customer will forget about you and you will lose the longer term business.
Users of business information say that if the data is useful and of a high quality they will pay a good price for it. This was uncertain just a few years ago. For the first time, we are seeing a forming of prices throughout the industry. Many publishers feel comfortable implementing small price increases for the first time in five years. These are all good trends.
b. Survey of Advertiser Attitudes
We also just finished a Survey of Advertiser Attitudes. The survey focused on active advertisers in B2B buyers’ guides. Not yet published, we think it is perhaps the largest study ever done of buyer guide advertisers. It crosses about 14 vertical markets in the US. We augmented it by doing lengthy interviews with a cross‑section of publishers of some of the larger, more established buyer guides, as well as some start-up online ones in order to confirm our findings.
We asked the advertisers where else they advertised. 54% say they advertise in other media besides buyer guides. 12% say that they advertise in more than one buyer guide but no other media. One third say they advertise in only one buying guide. This is a fascinating pattern that mirrors what we saw in the print days. We still have a large group of captive customers who are not comfortable with other forms of advertising.
More than 75% of these advertisers were advertising with the publisher prior to the Internet. We are holding on to our traditional customer base and showing that we can move them online. They move at different speeds in different markets, but it is going in the right direction. We are not attracting huge amounts of new business. It tends to be a migratory effort at this point.
Buying guides for the first time are getting very positive reactions from major advertisers. Buying guides, at least in the US, were always the province of the small and medium sized business. It was very difficult to sell a big company. This is radically changing. If you have a compelling story, you now have equal consideration with companies. This has not been true in the past.
We asked advertisers why they moved online. It is about comfort rather than business issues. Companies are being pushed by some very soft factors to go online, not by competitive pressure or a desire to be on the cutting edge.
The media mix is shifting. We asked advertisers how they broke out their media mix now. 68% are currently in print. Most believe that within three years print will decline to about 40%. The majority of their advertising and media spending will be online at that point. This is a fairly significant shift. At the same time, it shows that there is a real and important role for print in the overall picture.
Why does print remain strong? Inertia, more than anything else is keeping advertisers in print. In their minds, it is complicated to move online. They do not understand the nuances of it. They have had previous good experiences with print. This situation will not last indefinitely but it is one of the pillars of support for print now.
We asked advertisers if they saw online advertising as superior to print advertising overall. We got a very strong positive response. The success and media exposure of paid search had blessed the entire online advertising community. Every type of online advertising is now wonderful. This is not going to last but is a wonderful period right now. There is a lot of confusion about paid search and online buyers’ guides and other formats. Advertisers are getting more sophisticated but are on a fairly steep learning curve. They certainly have not figured it out yet.
Why do they favour the online medium? Advertisers believe strongly that online produces a better response than print. They believe it is more measurable and they feel they have more control of costs. This is percolating down to all forms of advertising, even those that are not pay per performance right now.
This is good and bad news for publishers. Now, advertisers are more receptive to buyers’ guides. The flip side of this is that the advertisers are becoming increasingly demanding. They want to really understand the audience, the results they will get and there is a continuing emphasis on return on investment, although it is exceedingly difficult to measure.
What do advertisers really want? We have seen a shift away from the notion of driving traffic to a site. This is now old thinking. There is little understanding or appreciation for branding or general visibility. Advertisers want sales leads and inquiries. This is good news because the historical proposition of buyers’ guides is to deliver real leads and inquiries.
How are publishers selling their advertising? This is not as optimistic. Publishers are selling general website traffic. Everyone is focused on the amounts of hits to a homepage rather than hits within a category or granule. Everyone is racing to have the biggest possible number that they can wow an advertiser with. To some extent they are talking about their brand, reputation or market position. Above all, however, this is perceived as a traffic game. This is a worrying trend. I do not see any positive outcome to it. Overall, we are seeing very little innovation in how they are selling themselves and positioning themselves on the marketplace.
We then asked the advertisers what factors they used in making an advertising decision. Advertisers are increasingly nuanced. They are not simply looking for the biggest traffic number. They are interested in the audience to the site, the demographics. They are interested in the brand and reputation of the publisher. Price is a factor. Site traffic is fairly far down on the list. There is a disconnect: publishers are pushing traffic while advertisers are looking at other factors. Many of these factors, the publishers would score well on. However, they are not positioning themselves in that way to the advertisers. There is a need for publishers to get back in synch with their advertiser bases.
Pay per performance, despite all the hype surrounding it, is still relatively rare in the buying guide industry. Virtually no publishers have a true proprietary pay per performance capability now. A small and growing number are introducing Google AdSense-type programmes onto their sites. There are a number of reasons for this: technology, holding back to see if it is going to be a long-term phenomenon or if it is going to fizzle out and economics. One publisher said that because they are in a vertical market and have relatively low traffic they would have to get an average of $100 per click from their advertisers to balance the books. Pay per performance has a volume component to it that a lot of vertical directories do not have available to them.
I believe that advertisers’ enthusiasm for paid search is, in fact, an enthusiasm for pay for performance. Pay for performance is revolutionising the landscape. It pushes the advertising risk back onto the publisher. The publishers are trying to push back. We are now trying to find a happy medium where both can be satisfied with the level of risk they are assuming. Every advertiser is now interested in proof of value and return on investment. There is increasing interest in getting more precise and dependable measurements of results. What, exactly, are you doing for me? It is becoming a much more metrics driven market.
While there is renewed interest in leads and inquiries, there is increasingly a push to turn these into hard leads, that is, users coming to site, registering and expressing interest in a product. The publisher then delivers a full name, address and telephone to the advertiser as demonstrable proof that they are delivering qualified leads to the advertiser. This is a much more difficult and complex game but there is a lot of enthusiasm for it.
Overall, search engines are our greatest friends and our greatest enemies. They bring us the traffic that is vital to our existence. At the same time, they are becoming competitors for advertising dollars. I am not convinced that they are neutral sales agents which we can just leverage to our benefit. I am very worried about the role of search engines and paid advertising.
In the subscription sector, basic contact information has been commoditised. To exist in this business, you need a deeper, richer dataset that you would have thought possible. The interest in standalone references is evaporating. The trend is toward integration of content, in terms of business processes or work flow, so that everything you do enhances the ability of the customer to work more efficiently and productively. Anything disconnected from the whole has decidedly less value in this new environment.
The customer demands on quality are skyrocketing to the point where they are nonsensical in many cases. However, customers are starting to show that they are willing to pay a fair price for quality. We are also seeing that to keep up with these quality demands, data mining will be a big part of our business going forward. We look to some of the initiatives by the search engines and others to expose ‘deep web content.’ This is something that could be very positive for subscription‑based data publishers.
In advertising based databases, the reality remains that we are in a world of two-tier search: users will start with a general search engine, discover us through it and then move to our sites for a more detailed, precise, often parametric style search. B2B publishers can learn a lot from B2C publishers here. There has been tremendous growth in the area of paid search marketing to drive in traffic. We may be the bulk buyer of key words. We are cost sharing this with our advertisers. We can afford to pay $75 a click because we have 5,000 advertisers who are effectively sharing the price. Paid search remains too complex and expensive for an awful lot of advertisers. Our ongoing success is going to rely on how we can differentiate ourselves from the search engines. It is certainly not possible to compete directly with them. Paid search is not ideal for every advertiser, particularly B2B. There is still a lot of strength, value and appreciation for parametric searching. Advertisers continue to want from us what we have always delivered to them: leads. The difference in the new environment is that we are going to have to prove the value and quality of those leads.
What is driving online growth? From 1995 to 2001, publishers were leading their customers in many respects. From 2000 to 2005, customers were leading their publishers. From 2006 to 2010, we will have to achieve some kind of synchronisation. I do not think either party can continue to lead the other that dramatically. We will have to come to a better understanding of what customers want. Customers will have to come to a better understanding of what we can realistically deliver. Our customers do want more from us. They want deeper, more integrated content on the subscription side and advertisers want dramatically more measurement in terms of the performance of their advertising. If we can deliver this customers will pay for it. If we get it right, our future is very bright.