There’s Less Investment And What To Do

When I was in college, one of my favorite blogs was TechCrunch. Every time a company raised a round, I read up on it. I loved the VC world and all of the companies that were getting built. 

When I started freelance writing about bitcoin, my pitch was that I could write about VC-backed crypto media companies. It was the worst time since the first bubble burst, but I found the area fascinating. 

But as I got older, I began to recognize something interesting about the venture world. The past 12-15 years have been grounded in this belief that profits were terrible. It had become a bad word. Instead of profit, what mattered was growing the top line. So everything was about growing revenue irrespective of what it cost. Because one day, you might be able to flip a switch and get profitable. 

I remember asking an operator once, “are you profitable?” And he replied, “no, but that’s by choice.”

That might make sense for software companies that can ideally reach a particular scale where costs don’t keep up with revenue. But for a media company, it’s not quite so simple. The growing scale doesn’t necessarily mean growing profit; in fact, the scale might require additional costs. 

Look at BuzzFeed. It launched in 2006. Sixteen years later, it is still not profitable. In Q3, it lost $27 million. It restructured a few days ago, letting go of 12% of the company. Nearly every media company has made some announcement about layoffs. 

I believe we will see a return to profitability for the broader business ecosystem. Growth might slow down because you’re not investing blindly, but the alternative is that businesses will actually generate free cash flow.

On the media side, we see the beginning of the end of many of these hyper-scale VC-backed media companies. BuzzFeed is going to become a penny stock in a few days. Vox has been remarkably quiet about its revenue. Is Vice even alive? I don’t know. Across the board, many of these companies are faceplanting.

The reason is that everyone has to be smarter with their cash. One of the reasons we see a slowdown in the ad markets is that money is not cheap anymore. The macroeconomic climate generally impacts us, and with interest rates up, it’s not as easy to get cash to invest in your business. So if you’re not investing in your business, you’re not spending as much on marketing. If you’re not spending as much on marketing, you’re not advertising on media company sites.

I was speaking with an operator who has a lot of software brands as his advertising base, and he said, “my clients are seeing the sales cycle extend from three months to four-and-a-half months.” That’s a 50% increase in time. Does that mean that a single seller touches fewer deals in a year? If so, that means you need to hire more sellers to grow as much as you were before. This brings down margins.

Or, you accept slower growth. Your sales team doesn’t need as many leads because the expectation isn’t to grow as quickly—primarily because you can’t afford it—so you spend less on advertising. A simple 1.5-month change in the sales cycle can have a material impact on how much an advertiser spends with you.

And to be fair, media companies are doing the same thing. I see lots of ads for media companies trying to grow. For example, I saw a WSJ ad on Twitter promoting a subscription. If it usually took $5 to acquire a sub, and now it costs $10 because it takes more time, WSJ might rethink that spend. If we spend less, why wouldn’t our partners spend less?

The simple reality is that we are seeing a return to profitability where businesses make money.

Is this drop in spend guaranteed across the board? No, of course not. I’m sure many readers see ad sales continue to come in. However, it’s going to happen to many. The level of investment in growth will slow down while the economy figures its way through things.

So, what should publishers do?

Talk to your advertisers. This is the time to lean into conversations with your advertisers to understand what they need to achieve their goals. Objective-based selling needs to become a significant focus of your business. How can your ads help someone achieve their goals? You then need to link the products that you have to those objectives.

But at what cost? There are likely products you offer that were great during the “cheap money” economy, but do they remain great products as things tighten? In the same way that your advertisers are rethinking what to spend their money on, you need to do the same. It might be time to take specific offerings off the table because they don’t make a profit.

At the same time, we need to be educators. I go back to this interesting discussion published on LinkedIn’s blog. And this part jumped out to me from the Salesforce executive:

We found a great study on B2B buying behavior showing that two-thirds of the time, when a business decision-maker purchases software, they already have a brand in mind. And 94% of the time, the buyer ends up sticking with that brand. So if you’re not part of the original consideration set, there’s no way you’re getting bought.

And then there’s this from Analytic Partners.

How to Maintain Advertising Effectiveness in Challenging Times found that 60% of brands that increased their media investment during the last recession saw ROI improvements, according to analyses of hundreds of billions in marketing spend. Brands that increased paid advertising also saw a 17% rise in incremental sales, while those who slashed spend risked losing 15% of their business to competitors who boosted theirs.

Those two things are so important. If you spend during a recession, you come out ahead of your partners big time. And if you are spending on brand advertising, you’ll be the product that your prospective customers remember when they start spending again.

We should educate our partners on that information and provide products that fit their objectives. That’s the game.

We’re seeing a return to profitability. Partners are not going to spend like they used to. They’re going to be intentional with their spending. But you can win that investment. You can steal it from your competitors. It requires a good education and a focus on what the partner needs to succeed.

And don’t worry. One day, the economy will change again, money will get cheaper, and we will return to the chaotic/wonderful days.

Thanks for reading. If you have thoughts, hit reply or join the AMO Slack. I hope you have a great weekend!