@andrewchen

Get the newsletter · 2018 essays (PDF) · Featured · Recent

Federated Media’s business model

Valleywag notes: Federated Media client losses.

For folks that don’t know, Federated Media is an ad repping firm. If you are a publisher, you can give your inventory to FM and they will sell ads against it. This is different than an ad network because they are transparent that they are selling your ads on your site. An ad network will often stick you into a blind category, like “Tech” or “Automotive” or something similarly broad. Also, rather than paying you a CPM and arbitraging the ads, instead the ad repping firms take 20% (or whatever) right off the top as commissions. Think of them as an alternative to hiring a bunch of ad sales people.

The great part about the FM business model is that they can focus exclusively on higher-quality sites. Rather than working with all the remnant inventory sites that lack focus and have editorially-problematic content, instead they can focus on sites that have branding potential, and thus, deliver higher CPMs. So you’ll see them delivering CPMs in the $5 to $20 range rather than under $1.

The bad part is two-fold: 1) Channel conflict and 2) High/low CPM squeeze

Channel conflict is created once the publisher gets too big. Basically, once the site is successful, then ad agencies will start approaching the site, and the site will want to hire a direct sales team. Of course, this creates competition if an advertiser can buy ads from two different places. So usually what happens is that if the ad sales can be brought in-house, they often are.

The high/low squeeze comes from the fact that ad repping firms can work with sites that are high-quality, but not TOO high-quality. And of course, they can’t work with low-quality sites where automated approaches dominate. In that case, there are just plenty of sites that aren’t high-quality enough, brand-wise, to justify a human (rather than automated) sales team. This is the purview of the remnant ad networks.

Anyway, those are the pluses and minuses. If I have time later on, perhaps I’ll write something about where FM could extend their business model to get around these issues.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments (and certain publicly traded cryptocurrencies/ digital assets) for which the issuer has not provided permission for a16z to disclose publicly. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.