The Great Inventory Crunch of '06?


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After so many lean years and post-bubble disgrace, it is hard to believe the gusher of ad dollars and profitability flowing to some segments online. A year ago I wrote about the industry's need to wake up to the reality that the Web bounce back was for real. Now even I am a bit amazed at the sustained double-digit ad sales growth we are seeing. In fact, some sites are butting up against the limits of their own success with a problem most publishers would love to suffer—sold-out inventory.

In a spot check among many cross-platform brands I cover, many report selling out their ad inventory. Sites like RunnersWorld.com, SmartMoney.com, NYMag.com, and Style.com reported sellout or near sellout conditions in late 2005. To be sure, this represents only the most in-demand slice of online content. Reed Business Information's trade publishing brands had a range from 30% of inventory sold at PublishersWeekly.com to 90% at the highly targeted CriticasMagazine.com on Spanish-language texts

Nevertheless, the trend is substantial, and even when sites do not sell out entirely, many have to think about managing more efficiently the inventory that media buyers do want. In many categories like entertainment, auto, pharmaceuticals, and consumer and B2B tech advertisers are buying Web media in much the same way they buy network "upfronts," far in advance in order to secure a share of the available voice in a sector. Pat Kenealy, former CEO of tech publisher IDG, told me earlier this year that about half of his inventory was selling six or seven months in advance. An ad network targeting major auto sites already had 80% of its 2006 inventory sold before the new year.

Contrary to theory, ad inventory is not really unlimited online. Adding pages indiscriminately does not necessarily add well-trafficked space in the "impactful" formats and places buyers want. Increasingly, I see publishers having to make decisions and policies that affect how their companies will continue growing and also maintain editorial integrity. Think ahead.

For instance, multiple advertisers may clamor to buy up inventory and possibly block out competitors. This is a growing issue in the movie and TV area where flying campaigns on day and date of broadcast or on a Thursday to generate weekend box office revenue is a sacred convention. Cash up front is nice, but publishers have to show some restraint and not let too few deep-pocketed advertiser "voices" dominate banners and sponsorships. Sponsor monopolies, especially in B2B, can undermine the appearance of editorial independence. Some forward-thinking publishers limit advance sales, and one sponsor, to 15% of available space.

You also need to manage relationships with your best, long-term sponsors, so some sites may hold back a given percentage of inventory expressly for last-minute buys from preferred customers. Then you have to consider how to price campaigns that won't fly for another six months in an environment of rising CPMs. One ad broker for a major health information site already builds renegotiation clauses into advance contracts if traffic or general ad rates rise over 20% in the interim.

Some sites are top-heavy. Their targeted areas sell out at high CPMs but they have loads of unsold remnant inventory in less valuable sections. I think that behavioral targeting is about to become a very popular approach to expanding a site's most lucrative inventory. BT tracks users according to their recent content interests, so an online newspaper publisher can literally follow visitors from the pricey auto section and feed them high-CPM car ads even as they spend hours in the low-value message bases.

A standard response to inventory shortages is to diversify the ad client base by adding new content areas, but it takes careful analysis of your user base to know which directions audiences and advertisers will follow. The business information sites (BusinessWeek.com, WSJ.com) do an excellent job of leveraging the "affinity" interests of their high-income bizinfo audiences. New sections for big-ticket items like home entertainment and luxury cars are attracting these non-endemic advertisers.

Sites can also expand vertically or horizontally. For instance, Forbes.com has developed a vertical niche in the digital imaging industry with a new dedicated section. Conversely, WebMD often relies on certain drugs advertising into narrowly vertical sections devoted to specific maladies. By starting to run more general health- and fitness-related how-to videos off the front page, WebMD is now adding tons of pre-roll video spots for the general-health product advertisers who may get locked out of other areas of the site.

The era of expecting organic growth to expand your audience and quality inventory by double digits each year is over in most categories, as Web penetration in the U.S reaches its saturation point. Like magazines, newspapers, and TV before them, Web publishing is moving into its stage of maturity. Just selling online ads is no longer enough. In order to grow a business, publishers need to engage classic media metrics: how to manage, maximize, and judiciously expand a newly prized and suddenly limited resource—shelf space.