In defense of third party revenues: Why it’s time to look hard at tenancies

Just as many publishing and big brand web owners were breathing a sigh of relief that their online businesses were starting to turn a profit, the market is holding the corners of the rug and tugging hard.  

The third party content providers (price comparison sites among them), who had helped unlock the commercial value of their web traffic by paying substantial commissions (sometimes in the form of tenancies), are struggling to generate the revenues they once did as the economy slows and consumers tighten their belts.

With third party content contracts up for re-negotiation and market conditions less than favourable, it’s all too easy for the web owner to accept that revenue shrink is inevitable and to go after a tenancy offered by an incumbent supplier. However, site owners must think beyond previous strategies to develop new customer facing strategies and services which in turn will develop incremental revenues.

Where tenancies once appeared the most effective way of securing income for web real estate for example, they are now an inhibitor to maximising income as they stifle competition and prevent service innovation.

The Tenancy Paradox

In principal tenancies sound great: the supplier pays a fixed fee irrespective of how effectively their content monetises traffic. Web site owners get all the benefit and suppliers take all the risk. But consider for a second the tender process when the contract comes up for renewal.

For most competitive tenders the potential suppliers operate on a level playing field, each having access to the same information – the best bid wins. However, in the context of a tenancy, only the incumbent has access to how traffic monetises and therefore will be the only supplier putting a bid on the table. A tender process including just one supplier is hardly a well managed process and cannot possibly result in the best value.

Jim Hodgkins, Managing Director of Experian Interactive, has a solution: “Making a decision based on tender responses and presentations is difficult so put them to the test.” When Jim selected his suppliers for Experian’s Credit Expert website he did exactly this. “Each potential supplier was asked to develop a website against which we could test who delivers the best monetisation and user experience across a range of products and revenue streams. For each supplier, we sent several thousand emails and search visits with tracked links to their site version. We then reviewed the gross monetisation for each operator and then negotiated the revenue share agreement.”

The second problem with basing a decision solely on the size of a tenancy is that it completely ignores the pros and cons of each potential solution. A solution that provides a better customer experience will have those customers coming back to take more services. Conversely a poor solution will mean you’ve lost that customer for good. Similarly, a solution that provides comprehensive management information on which to make sensible marketing decisions will allow you to drive more traffic and in turn make more money. All of these benefits are ignored when the only factor is the size of the tenancy.

Sweat the brand asset online

Anyone with a trusted offline brand that can attract visitors online has an interesting choice to make when it comes to revenue generation. Leverage the brand offline to drive customers online or keep the two separate.

With more and more business conducted online it would appear a simple decision: sweat the brand to get customers to your site. Ultimately, you haven’t invested years of time and millions of pounds not to get any financial benefit from your brand. However there are still concerns, particularly in the “old publishing world,” that this will somehow tarnish the brand and destroy your traditional business.

But there’s a simple rule of thumb – deliver genuinely useful services, directly or with third party content providers, and rather than tarnish the brand you will enhance it.

The obvious value added content categories to consider include: Personal finance, dating, shopping and travel. It goes without saying that if you think there’s a category that would fit your visitor profile that you haven’t already added to the site, now’s a good time to do it. Just keep in mind the principles of better monetisation when negotiating the contract.

Partner Selection

When selecting a third party content partner, a publisher recently offered four key pieces of advice: challenge the commercial model; prod it and poke it hard and get the partner to think beyond cost per click revenue models.

Secondly, a visitor who is there because of a brand has a lifetime value that needs to be carefully thought through in a revenue share situation. Capturing that value is at the heart of redefining revenue models from partnerships. Thirdly it is worth pointing out that in a technical sense, white labelling has moved beyond slapping a logo onto someone else’s page layout. Web site owners are urged to push for deeper integration that goes beyond colours and fonts to really start to work with the way your site typically behaves.

And as a final plea, people need to be much more stringent in demanding 100% transparency in terms of reporting. Fast access to good management information is a sign of a well run business and partners who can’t or won’t provide a detailed daily level of transaction reporting should be challenged on this.

The great data swindle

We are at a tricky bend in the road given the economic climate. When tenancies come up for renewal, usually both sides will have a pretty good view of how well the partnership is working in terms of revenue generation based on volume of traffic. The caution over the next couple of years means that third party content owners are going to be trying to reduce the tenancy bounties they pay. Why would you guarantee a sum of money in a market that could decline? The danger for web site owners is that if they are forced into a renegotiation now, it’s unlikely to remain at its current level and they could be “fixing” at the bottom of the cycle.

Monetising the data more effectively

The trick that so many brand owners are missing goes back to the lifetime value of the customer. Typically third party content deals are calculated based on sharing the revenue on a cost per click basis. We call that ‘day one revenue’. Under a normal revenue share agreement, there is no revenue beyond day one. It’s also quite normal that the web site owner doesn’t get any information on what products the customer is browsing and buying. The data that is captured through the enquiry (that may or may not lead to a transaction in the case of an insurance quote for example), stays with the content provider.

Relationships and revenues

There is a clear link between knowing who your customers are, being able to recognise them when they come back again and being able to learn their preferences over time. This is clearly understood in targeted ad serving so why not in cross-selling?

The benefit of course in owning data is you can use it to create business opportunities for yourself, or sell it on to others within the terms of your agreement. There is a significant incremental revenue opportunity left on the table by 90% of web site owners precisely because they don’t have a strategy in place to monetise data from opted-in visitors. And it doesn’t follow that the visitor will necessarily have a bad experience from this strategy.

We have built a scenario where a BeatThatQuote.com customer who takes out car insurance is reminded two weeks before their insurance expires that they need to renew and is offered the best deals through email marketing to pull them back to the web site. Imagine a world where a brand you know and trust can help you manage your personal finances by reminding you when your mortgage tracker is about to expire, or alerting you to better rates on your health insurance.

Conclusion

Although the market is tough, there are revenues currently being left on the table that web site owners need to wise up to quickly. Our recommendation is that you call a meeting with your third party content suppliers and get them to walk you through their overall business model and data monetisation strategies that you can both benefit from. And don’t accept that lower receipts are inevitable – this is only the case if you stick with the same hackneyed business model allied to a lower tenancy. The partnership is probably worth a lot more to both parties if they both work harder and smarter, particularly if they aren’t sharing that data at the moment!

By John Paleomylites

Founder and MD

www.BeatThatQuote.com