BusinessInsider makes a strong case for a flaw in the (apparent) business model of Patch. It bases its assumptions on this LA Times article. Key quote from LA Times:
“The incremental revenue from each view of an online display ad remains remarkably small. Patch.com asks for $15 for every 1,000 viewers it brings to one form of online ad that businesses create themselves. So if every one of 40,000 households in the South Bay’s three beach cities clicked on a page with that ad, Patch would earn $600.”
BusinessInsider does the math on a reporter making $38 – $45k per year, a number the LA Times uncovered. Patch also has stringers who earn $50 for a 500-word piece. Check out the math and you’ll see that, with some generous assumptions (A $15 CPM?), the local Patch makes $33 in month six of operations.
Now, we know perfectly well that a company wouldn’t present this as its business model. And there has to be an assumption that there will be other sources of revenue. We just haven’t heard what those sources are. Indeed, BI writes that Patch could charge a premium for good placement, but that premium would have to be substantial. There are other possible forms of ad revenue – couponing, etc. We’re interested in hearing your thoughts on how Patch could perform better. We’re all looking for the right business model — so are we missing something huge with Patch?
No related posts.
That CPM is ridiculous. And I mean ridiculously high. Our ads are seen 25,000 times a day and while we don't discuss our rates, I can tell you (a) they are higher than many in this area yet (b) they are NOTHING near what this effort seems to be expecting. Frankly, I think it's unconscionable to ask a small local business to pay that much, let alone to expect they can and will.
I of course am on record as saying that I feel large corporate media efforts have no business in pretending to be interested in neighborhoods, since most of them already have badly screwed up the rest of the news business, though I do laud AOL for at least attempting to staff EACH neighborhood, unlike some other efforts where a large media company pretends to be doing “neighborhood sites” that have no staffing for anything aside from a news release/event announcement posted in a tiny share of a multi-site-assigned producer's time, plus crossposting of spot news the parent organization might have covered in that neighborhood (not much of it, since to get a crew from the mother ship, it has to be big).
Oh by the way – we pay our freelancers more than this zillion-dollar company does!
Whoa there, TR. Your ad display model on West Seattle Blog isn't your typical CPM experience (but, hey, maybe it should be) as you guys show every (i think!) ad every (i think!) time a page is loaded. So you're talking apples and oranges comparing WSB to Patch.
I have CPM rates for some ads that are much higher — my highest, for example, is $40. The key is allowing local businesses to buy into the inventory with low daily budgets.
But that's not my point. I'm really intrigued by the original post in this discussion because it lays bare the same equation we all face. True local news content is expensive. The most successful sites will *probably* be able to achieve a balance, if not a small profit. It's how we each find ways to increase the revenue opportunity that will be key if all of this is going to work. One solution is technology to reduce the cost of doing biz. We're trying to build things to help here. Another is working together to form networks that can keep prices at sustainable levels. We're working to build a network her in Seattle but aren't surprised that there is reluctance to work together between the strongest players. Will we have time to make all these elements work?
TR and jseattle, recently I conducted a survey of local television station website ad rates and I found they ranged from $15 (in the smallest markets) to $35 CPM. The rates were negotiable, but only as it related to volume and if you were buying air time in conjunction.
What I got from this is that nobody really knows the true market price for local web sites – you charge what you can get away with. Google Ads have done something to normalize ad rates, but I think that because there are no consistent metrics like those created by the Audit Bureau of Circulation or Arbitron, everyone's all over the map.
I think Patch will probably be able to charge more than $15 CPM eventually, based on their buzz and perceived penetration, as opposed to anything grounded in reality.
I love West Seattle Blog, BTW!
while internally tracking effective cpm rates makes sense…..the idea of discussing and negotiating cpm's to a local direct business is problematic on many levels. the ultimate goal of any website, is to put pressure on your inventory…which then allows you to raise rate to current market 'sweet spot'
So the idea of Patch is to create neighborhood news sites.
Now there's two possible sources of advertising for such a site.
– The small, locally owned shops.
– National chains that will buy the network.
The national buys will likely pay a $15 CPM and possibly higher. And to Mike Fourcher's point, the national buzz might help here.
But for the local advertiser, $15 CPM is outrageously expensive, at least on an ability to scale advertiser participation to a level of sustained and interesting revenue. Also, the local advertiser isn't going to give a rip about Patch's national buzz. In fact, being a national company will work against Patch in local communities.
At a basic level, any online-only news start up is a disruptive endeavor. If your advertising rate is set at a disruptive level, you're going to find it difficult to get traction in most local communities. You're effective monthly rate must be attractively lower than any competitor, including the local shoppers. To be truly disruptive, the local advertiser must be able to think, “at that price, why wouldn't I try it?”
And then, you better deliver results.
Batavian, I'd say just about everything I've experienced with my little hyperlocal reflects what you just said here. Except one thing: Many local businesses want to help support other local businesses, so they are often willing to try something new or pay higher rates for that reason. Once a product is commodified and perceived as coming from a national operation, local businesses lose most of their interest.
I think it will be much harder for Patch.com to get in the door locally for that reason.
The math in this scenario is not fully understood. To derive a more accurate revenue figure take those Unique Visitors (UV's) and multiply by 20 then divide by 1,000 and multiply by the CPM rate, $15 in this case. So 40,000 UV's x (4 page views x 5 Ads per page) = 800,000 impressions per month. Divide by 1,000. If the publisher sold 100% of their inventory, which rarely happens, they would gross $12,000 (800 x $15) per month. At 80% inventory fill rate they generate $9,600 per month. More than enough to pay an Editor, Assistant Editor and a freelance staff. In my experience for directly sold ad inventory $15 CPM is the floor for local ads online and depending on ad size, type, and targeting could reach a $40 CPM.
We're saying the same thing. The problem with Patch is it will lack credibility with most local business owners.
$9,600 to pay for two FTEs and freelance? I don't think so. You're not factoring in overhead, medical, capital expense, taxes, marketing and other miscellaneous expenses.
And you're only covering editorial staff. What about advertising sales and fulfillment?
You're looking at this model as if it's only one site and ignoring the value of a network. With only 5 sites bringing in $10K per month one could have $600K in revenue per year. More than enough for overhead, medical, capital expense, taxes, marketing and other miscellaneous expenses. The point here is that some costs can be spread across multiple sites like sales, marketing, IT, ad operations etc.
Who ate all the avatars? Server mice?
Now a new quote gets mixed with the former top post.
i think Patch Revenue Model Makes at Regator. … Is the Patch revenue model sustainable?