Is Social Media’s “Ads for Eyeballs” Valuations About To Be Eviscerated?

There’s a peculiar tone emanating from the social media space. It’s a little hard to hear, but if you listen closely, it’s there none the less. That sound is the sudden gasp of realization that the most dominating reasoning and defense that encompassed the entire social media space may in fact being laid-to-waste right before their screens. That horror?

The eyeballs for ads model doesn’t work. And – it’s being stated by one of their own. (Insert the scary music tones here)

In a blog post the online publishing platform Medium™ stunned what I refer to as “The Valley” (i.e., the everything social and disruption purely for its own sake devotees) when it announced two stunning proclamations. The First: It was jettisoning about one-third of its workforce. Second: The reasoning behind it, Here’s an excerpt, to wit:

“We also saw interest from many big brands and promising results from several content marketing campaigns on the platform.
However, in building out this model, we realized we didn’t yet have the right solution to the big question of driving payment for quality content. We had started scaling up the teams to sell and support products that were, at best, incremental improvements on the ad-driven publishing model, not the transformative model we were aiming for.
To continue on this trajectory put us at risk — even if we were successful, business-wise — of becoming an extension of a broken system.
Upon further reflection, it’s clear that the broken system is ad-driven media on the internet. It simply doesn’t serve people. In fact, it’s not designed to.”

I encourage you to read their entire post for your own conclusions. So, with that said, I’ll now give you my “two cents.”

Is it not funny how the “ads for eyeballs” model which was the be-all, end-all model to $BILLION dollar riches and IPO cash out dreams suddenly finds itself being shunned (i.e., self implied “Needs another model”) by none other than a company whose CEO once founded one of social media’s most coveted “ads for eyeballs” companies? (e.g. Twitter™)

Now to be fair the article does in fact state 2016 was their best year yet, with “readers and published posts up 300% year on year.” Those are impressive statistics. Also, I don’t know anything other than what I read in the aforementioned post. It may be in fact this outlet wishes to transform itself, or its business model, purely for the sake of journalistic integrity. And if that is indeed the case I wholeheartedly commend them. Yet, what falls short via my acumen is the timing. Here’s the reasoning…

Let’s use just one of the said key metrics: “Readers.”

If an “ads for eyeballs” designed platform experiences a 300% year-over-year growth in the sole bedrock, fundamental, metric of the “ads for eyeballs” formulation. Would that not mean, or at least one could rationally infer, the YoY profits realized by supplying ads to a tripling of “eye balls” in one year warrants an explosion of generated profits?

For another sentence caught my eye which doesn’t seem to fit if readership was up 300%. e.g., “Even if we’re successful.”

This is a very critical point to ponder. i.e., If a 300% increase in viewership YoY didn’t move the needle as to not state “even” implying that it is not – than what would?

Again, for It needs to be repeated: The basic core metric that allows the entirety of the “eyeballs for ads” argument to even exist – is – the reasoning behind dismantling, and jettisoning one-third of the company?  Remember, they state, “Our vision, when we started in 2012, was ambitious: To build a platform that defined a new model for media on the internet.”

It can be reasonably assumed it did just that – and in spades! (e.g. 300% growth in “eyeballs” this past year alone.) And for that comes the conclusion to immediately lop off 1/3 of staffing and announce a complete change or overhaul to its business structure?

This is like stating (if we’re to take the reasoning at face value) “We’ve tripled the #1 key metric that supports (and advertisers will pay for) the entire “ads for eyeballs” model, and for that accomplishment – we’re downsizing, and laying off 1/3 of you. Great job, and here’s looking at 2017, cheers!”

Something just doesn’t square here from my perspective, or opinion.

Let me express it this way: What can be rationally inferred by anyone with just a modicum of business acumen in this underlying quandary? Or said differently:

What was the decision-making process that impelled a company to jettison one-third of its personnel along with simultaneously stating a dismantling of its former business model first (and that’s a very key point) not after it tried to change that very model as some form of “work in progress” putting what can only be inferred as an ever-increasing hardship on both authors, or content providers, If, the sole intention is to reward those content creators to begin with?

Is that not as they say “Throwing the baby out with the bath water?” Unless…

A 300% increase in readership didn’t mean squat to paying advertisers because – all they were getting was the bill for more “ad sales” and no sales. So they in-turn are now stating: Thanks, but no thanks. (Think P&G™ and its decision to jettison one of Facebook™ most coveted ad models)

Personally, I feel it’s more of this, than the former, and is becoming so prevalent, it can no longer be ignored. i.e., The writing’s on the balance sheets.

There’s a reason why I make this point. For I once was involved with advertising (albeit years ago) and actually ran and designed a campaign for a multi-national consumer brand which still runs to this day decades later. And it is this:

Advertisers rarely scale down or remove ad dollars from venues that produce sales. And what they surely won’t do, is remove or scale-down ads from a venue that can demonstrate increasing sales. Especially one that has shown a growth in audience of some 300% YoY. For if the audience has grown, surely, that implies any successful prior ad sales during that period should also have been the benefactor of explosive sales results. Maybe not 1 for 1 as in 300%, however, explosive in comparison YoY should be apparent nonetheless.

So in reaction to this – you’re now going to tell not only those advertisers, but also those which benefited by osmosis: Thanks, but we’re not going to take “that” money anymore? And along with it (as implied by how it was generated per the article) will more than assuredly see “readership” drop? Along with asking them to either continue campaigns or start anew?

How does that make sense from a business perspective I ask? Why wouldn’t an attrition model be implemented first? i.e., Make changes as you go, and as the “ad revenue” was still coming in, and scale down on a more favorable time schedule? i.e., Not jettison one-third of its employees onto the unemployment rolls right after the holidays. Unless? Hint: Maybe it wasn’t.

Again, if you take the rationale stated in the above article at face value? It’s very hard to infer anything else but. Sure, it sounds altruist and is absolutely fine if that’s the true driver. However, with that said, here’s another one of those very troubling questions that seem to pop into my mind which I can’t seem to jettison:

How are the remaining advertisers now going to view Medium? i.e., Is the remaining audience for 2017 worth what they were paying in 2016? After all – Medium openly stated or implied “that” prior audience is not what they want, and with it, will reshape into something different. That “different” can rationally be assumed as – smaller. Also: how are advertisers now to view all the other “ads for eyeballs” purveyors after this revelation? Are their sales metrics (i.e., eyeballs) worth paying for?

And it is there which lies-the-rub, for that is diametrically the opposite of everything “The Valley” currently stands on. Or, more importantly – is funded and valued by Wall Street.

And yet, here is Medium, itself a well coveted outlet of “The Valley” openly stating “ads for eyeballs” doesn’t work, even in the face of 300% eyeball growth, which is the metric-of-metrics of everything that is “The Valley.”

If I’m correct in my understanding of advertisers, and advertising? That “new vision” will not be well received in today’s business climate, for that meme was told, and more importantly – sold to them incessantly, fueling and enabling the entire “ads for eyeballs” model that supported multi-$BILLION valuations and IPO cash out dreams at their expense. Literally.

Again: now with Medium itself openly stating it doesn’t work? Or, at the very least, isn’t worth it?

Let’s just say for many of today’s priced for perfection “eyeballs for ads” companies? It may as well be another nail in the proverbial “it’s different this time” coffin. For this time – it may be advertisers themselves that are reading the “news.”

With all the above said let me clarify one point, for I’ve been asked this on multiple occasions whether at a speaking event, or by friends:

I’m not saying there’s no place for the “Ads For Eyeballs” business. That’s a foolish notion. You may in fact be reading this article on one supported by that very model (and if you are I encourage you to support those advertisers should you need of their services). What I am stating unequivocally is this:

The rationale that the “eyeballs for ads” model coupled with “it’s different this time” incantations was the “magic formula” as to engender social media companies, and other unicorns of “totally worth it” valuations for IPOs along with market-cap valuations of not only $BILLIONS of dollars, but $10’s, and for others $100’s of BILLIONS on its face was ludicrous at best – delusional at worse. Period, end of fable.

I used the word “fable” specifically for this purpose: What does “it’s different this time” have in common with “Once upon a time?” Hint: Reread the above paragraph.

I can’t help but to keep remembering back how similar this revelation is to another which I was taken to task by many a Silicon Valley aficionado when the announcement that Jack Dorsey would be CEO of two companies simultaneously. The rationale emanating from “The Valley” once again has that same ring to it. i.e., It is us, as in you or me, which just doesn’t get it. There are others suggesting Medium or others should now do some M&A as a result of this.

That might be possible, however, may I suggest a pause for anyone thinking about M&A in 2017 for this reasoning…

If the “eyeballs for ads” model is indeed broken, or at the least no longer the valued metric to warrant the taking of advertisers ad dollars? There’s a whole lot of “valuations” about to find reality at never-mind “bargain prices” rather, at “fire sale” offerings in the very near future. After all…

We all know what happens when someone yells sell “fire!” In a crowded trade theater.

© 2017 Mark St.Cyr