Digital Publishing
2 mins read

How the ad-driven business model derailed Medium

Despite sleek publishing software and a high profile founder, the hybrid publisher and platform, Medium, is in the same boat that many established publishers have been in for more than a decade. Digital ad revenues are not enough to support the business, and the startup has had to layoff 50 employees while it searches for a new business model.

One lesson to be learned from Medium’s difficulties is that publishers need to wean themselves off reliance on programmatic advertising in order to stay alive in 2017 and beyond. Programmatic ad revenue will not solve the woes of digital publishers. In fact as we shall see, programmatic is in large part the cause of these revenue woes.

Programmatic & Tragedy of the Commons

Most traditional publishers can’t afford to pay the rent, let alone journalists’ salaries and the electric bill with the money that programmatic generates today. BuzzFeed, the one notable exception, took the low cost model to an extreme, capturing a huge share of audience attention, but with none of the costs associated with actual journalism or content production. Essentially, BuzzFeed took $10 billion of revenue from the publishing industry, and turned it into $1 billion of revenue for BuzzFeed.

The emergence of programmatic dramatically reduced the hurdle to becoming a digital publisher, which is great for new publisher startups with modest revenue ambitions, but a serious problem for traditional publishers. As more publishers rushed in, this led to a “tragedy of the commons” of falling revenue due to oversupply of ad inventory. And don’t expect sympathy from advertisers – your revenue is their cost.

So what have many publishers done in response to the drop in programmatic ad revenue? They put more ads on the page, further compressing CPMs via oversupply and eroding the user experience, leading directly to the adoption of ad blockers.

Read more….