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Benjamin Reid is the vice president of sales engineering at Operative.

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Revenue Management for Digital Publishers

Written on
Oct 27, 2008 
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Benjamin Reid  |
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Revenue Management for Digital Publishers

socialnetworking_revvs_small.jpgADOTAS EXCLUSIVE — In a downturn economy, businesses often react by cutting back on spending. The assumption is that revenue is going to diminish so the focus should be on managing expenses. Although there are signs of a slowdown for the ad industry as a whole, eMarketer projects as of August 2008 that online ad spending will show a 14.5 percent increase in 2008, topping $28.5 billion. Despite predictions that online ad spending will continue to demonstrate year-over-year growth, online publishers are bracing themselves for the storm by looking for ways to ‘trim the fat.’

However, there are many revenue-enhancing tactics digital publishers can employ that can counter market weakness. By implementing revenue management practices, publishers can extract more value from current inventory which will serve as a strong platform for growth now and in the future.

In recent years, revenue management has become an important concept in the media industry. Synonymous with yield management, revenue management is often described as a business’ process of understanding, anticipating and reacting to consumer behavior in order to maximize profits.

The airline industry, for example, deals with the never-ending need to sell the right amount of seats to customers at the right time for the right price. Used to effectively manage supply and demand to optimize resource utilization, revenue management accounts for why a consumer might check the cost of a flight to California only to witness it plummet or skyrocket the next day. Ultimately, the goal for a digital publisher isn’t merely making sure all inventory has been sold (or in the case of the airline industry, filling all available seats). The paramount concern should be determining what the best mix of offerings is to generate the maximum amount of revenue. Put simply, the end goal for publishers is extracting the maximum value out of their inventory using price, packaging, and utilization as levers.

To determine this mix, revenue management requires visibility into analytics pulled from various departments and data sets to help companies make better business decisions. This ultimately maximizes their return. According to the Interactive Advertising Bureau and Bain & Company, online publishers seeking ways to sell unsold inventory often lack adequate visibility on realized prices and inventory, limiting their ability to make effective decisions (“Digital Pricing Benchmarking Study,” August 2008). Companies, regardless of whether they currently use revenue management processes, must evaluate enhanced methods and tools that capture this information by examining three areas – people, process, and technology.

People: A Company-wide Effort
A common misperception of revenue management is that it’s only useful to the sales team, but revenue management cannot be successful if it’s only addressing a portion of the business. To fully leverage the benefits of the discipline it should be an organization-wide initiative that represents a significant shift in the way companies think about Key Performance Indicators. Within an online publisher’s business, revenue management affects not only sales but also operations, finance, marketing, editorial, product development and a host of other departments. Revenue managed companies speak in a common language that is rooted in revenue management principals – it literally brings the organization together. For example, being responsible for building parts of a company’s website and determining how each piece will be monetized demands greater visibility into the analytics and metrics provided by revenue management.

To achieve this shift, some organizations, particularly large publishers, create a dedicated position responsible for raising the overall eCPM through pricing and packaging analysis. However, most companies stretch the responsibilities across multiple departments. This means everyone must have an understanding of this discipline to boost revenue. Whether the responsibility is shared or owned, working with representatives from various departments such as marketing, sales, product, and ad operations will ensure that the domain expertise of each department can enhance key decisions and that each department is committed to embracing revenue management in their daily activities.

Process: Transparency and Collaboration
Digital media companies need to be smart about how they drive revenue. Rules, workflow, structure and process help guide revenue management principles. Pricing or optimization software, whether developed in-house or purchased, is an important part of revenue management but not a complete solution. A business can only extract value if the output provided by the pricing tool is visible and tangible to not just the sales function but to the entire organization. Sales may be empowered to offer an agency a compelling proposal, but if they do not have transparency into the data and metrics needed to create that proposal, they may lack the ability to execute effectively. Companies therefore, must evaluate their business rules and establish clear processes that facilitate transparency and collaboration among each department.

For example, many companies disregard the process of packaging their own inventory, which can provide significant revenue lift. Instead, they pass their lower-value inventory to an ad network to monetize. According to the Interactive Advertising Bureau and Bain & Company, the use of ad networks has surged six-fold from five percent of the total ad impressions sold in 2006 to 30 percent in 2007. As an alternative, digital publishers can take matters into their own hands by establishing business processes that package high-value inventory with low-value inventory, therefore capturing optimal revenue for their product catalog.

Technology: From Spreadsheets to ERP
In the past, media companies may have delayed pursuing a revenue management program due to the misinformed belief that it is an esoteric and complex discipline requiring massive amounts of data that a publisher can’t effectively manage. In reality, once publishers embrace the concepts that underpin revenue management, they find that making a difference in the organization can be made on any end of the technology spectrum.

Finding the sweet spot between too high and too low of a price is a discipline, and one that requires commitment broader than simply using an algorithm to generate an optimal number or price. Revenue management is not just about investing in a pricing tool; it’s about data management, analysis, and business rules. Many companies have been able to gain some early wins simply by using spreadsheets and an in-house database.

Purchasing a pricing management tool is not enough. Solely relying on one tool is similar to buying a DVD without the entertainment system. Digital publishers should consider various options and invest in technology that integrates with revenue management tools such as an ad server, CRM tool or a workflow/ERP platform, enabling everyone to access data from one centralized location.

The Bottom Line
Revenue management is a discipline that media companies should focus on as they go through the exercise of cutting back and re-aligning their business to ensure proper growth. It doesn’t require the need to invest in expensive tools to get the job done. In its entirety, revenue management is all about aligning people, processes, and technology to provide the visibility needed to make better business decisions and drive revenue. The keys to a successful revenue management implementation include establishing a clear process, having a knowledgeable and dedicated staff that can promote visibility and collaboration across the entire organization, and selecting better tools and metrics that capture pricing and yield measurements.





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