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InContext / An inside look at the business of digital content

Partner or vendor? The downside of guarantee deals

February 20, 2018 | By Dennis Yuscavitch, VP of Product Marketing—Outbrain @dennisy

It started with a simple hypothesis: The most powerful long-term driver of publishers’ business is reader’s trust, which builds loyalty and habits over time. If a person who reads something today comes back tomorrow for another serving, that would create a sustainable return audience. That audience would consistently contribute to the bottom line and produce much greater returns than simply increasing the number of ads-per-page until the user experience breaks down.

However, over the past few years, most of the industry drifted in the exact opposite direction. Most seek more revenue extraction on each visit, while handing people’s loyalty and habits over to platforms like Facebook. It may have seemed like a logical approach for revenue-strapped publishers. Unfortunately it is also one that carried negative long-term implications, which spawned guaranteed revenue deals with myriad monetization partners, including Outbrain.

When considering guaranteed revenue deals, keep these three topics in mind:
  1. Restrictive Page Layouts. The days of asking a publisher to maintain a static page layout or conform to a certain number of paid placements are over. Always-on testing and optimization are critical tools in publishers’ toolbox. Guarantees prohibit flexibility by locking in page format, design and a specific number of placements. Without flexibility, publishers forgo a core capability to engage their audiences and improved monetization.
  2. Constant Compliance. Slow approval and legal overhead reduce time to deployment, reducing revenue opportunities. In addition, ongoing compliance creates a burden of monitoring, coordination amongst internal teams and strains partner relationships. Ironically, most guarantee deals eventually default to revenue share because compliance is so cumbersome.
  3. Reader First. To deliver on guarantees, publishers have to push the boundaries of recommendation quality. This trade-off can sometimes lead to a lousy reader experience, frustrating editorial teams and creating recommendation blindness. It’s a short-term revenue win but one that can degrade reader trust. This dynamic is one reason we recently launched Sphere, a publisher traffic exchange to promote high-quality editorial content.

Guarantees work in certain cases, but more often than not are an illusion for revenue-strapped publishers because they can undermine the long-term reader relationship. In addition, a lack of flexibility and a heavy compliance process distracts from more value-add and strategic activities.

Recent market developments show signs that publishers are beginning to understand the trade-offs between true partnership-based revenue share relationships, where participants work together to improve the overall health of the publisher business.  This contrasts with vendor-based, revenue-focused deals that are narrowly defined by extracting highest possible RPM. Guarantee deals will remain relevant for some publishers, but hopefully the industry can make more informed decisions based on the mutual benefits of revenue share relationships.

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