He Who Controls Traffic Reigns King

Note: This post was authored by Sachin Kamdar, my co-founder at Parse.ly, in 2016. It was written as CEO of the company and when he refers to “we” in the post, he is speaking about Parse.ly’s customers, most of which were independently-run top-ranked websites who were struggling to compete on the open web with the digital advertising and internet traffic duopoly held by Google and Facebook. It is hosted on my blog as an archival project for the MuckHacker group blog we started a few years back.

Last week we saw earnings reports from the two giants of the internet: Google & Facebook. Alphabet (formerly Google) beat expected earnings handily in Q3 2016 and announced a $7B buyback. Facebook did the same showing that a slowdown in user growth doesn’t equal a slowdown in revenue growth.

A little after these earnings, the IAB produced a separate report touting the growth of the digital ad revenues. And then the floor dropped out (for digital publishers at least) with a tweet from Jason Kint, CEO of DCN:

This started to work its way through the echo chambers with posts on Re:Code, Vice News, Wall Street Journal, Mediapost and others. However, none of these posts talk about how we got here, and what to do about it. It’s simply just taken as fact-of-the-matter that these two giants are the future of the internet. And maybe that’s just because the assumption of why they dominate is seemingly obvious: Google is the biggest search engine and Facebook is the biggest social network. But does the fact that these two own their respective industries mean that they should take the lion’s share of digital ad revenue? Maybe, but I’d actually make the claim that it has to do with something a bit different, and that’s controlling the flow of traffic to media.

Why Controlling the Flow Matters

We’re now consuming more media than we ever have before, and from a wider range of sources. It’s no surprise as our hunger for media increases and the supply in media increases, people are going to seek out the path of least resistance to finding the things they want.

Google is the de-facto resource to go to when you know what you’re looking for, and need something to help you find it. They index the entire web to make sure they can give you the best results possible relative to your search. Facebook, on the other hand, wasn’t a clear resource to help you find things on the internet. Sure, a few years ago you might have occasionally clicked on an article or video somebody shared, but largely it was just social posts that you interacted with. That’s all changed. Facebook is now dominated by all types of media, both hosted on their site and off their site. There’s no question now that they’re the next-gen portal born out of the ashes of of Aol and Yahoo.

Facebook Rises

Did the change in Facebook actually have an effect? You bet it did, and we can observe this shift. Below is analysis Parse.ly did last year looking at the rise of Facebook relative to Google.

As of today, Google and Facebook combined represent about 80% of all the traffic that publishers receive. They both fluctuate around the 40% mark from one month to the next. Let’s look at Facebook’s earnings from 2013 (where Facebook starts to dominate more of the referral traffic) to now:

Data taken from investor.fb.com.

As you can see starting in 2013 there’s an exponential increase in revenue (of which most is driven from advertising) relative to the linear growth in MAUs (monthly active users). In other words something happened other than Facebook adding users for them to grow revenues this fast. Let’s compare this to the referral chart above. When looking at the same time range you also see incredibly strong growth in the percentage of all traffic drive from Facebook to the Parse.ly network.

Putting Together the Puzzle Pieces

You may now be scratching your head a bit. What does Facebook driving traffic to publishers have to do with their rocketship revenue growth? Value, value, value.

Value to Users

This should be pretty obvious, but we already talked about how people are consuming more content than ever with an infinite supply of new sites and sources of content. That’s an issue. Google helps when you know exactly what you want to consume, but when you’re in a passive consumption mode, it’s not great. Prior to Facebook there were a bevy of other sites that helped when you knew you wanted to consume media, but you were unsure of what. These were places like Reddit, Twitter, Digg, StumbleUpon, and premium publishers. Then Facebook entered this arena by pushing more and more content into a space that you already accessed on a day to day basis to engage with your friends, family and community: the Newsfeed. Users of Facebook started to recognize the value of a single “portal” to get all of the information they wanted to consume. And, more importantly, they started to trust Facebook as the primary discovery mechanism of content they might want to read. Now 40% of all traffic to content on the web comes from this trusted source.

Value to Advertisers

Think about Facebook pre-2013, pre-content, and mostly social posts. Now put yourself in the shoes of an advertiser where you have to make a decision about where you spend your dollars. You’re going to spend some on Google, because you know that you can find intent. And now you hear about Facebook being a great platform to target users, but you start to think about how those ads will be shown. You start to recognize that you might not want ads shown against somebody’s rant about politics. You might be concerned about an ad showing up next to two people arguing about their break-up. And then you envision all of the other “bad” posts that just don’t make sense next to your brand. And you say, “Well they may have better targeting than a publisher, but I can be sure about the messaging associated when I advertise on the New Yorker versus on Facebook.” Ultimately, you’re going to stick with the tried and true digital publisher, because it’s what you can trust.

And then 2014 hits and you start to realize that Facebook isn’t just a social network, it’s a content discovery platform. You start to understand that Facebook is actually influencing what content you’re advertising on by the sheer fact that it’s so big. You start to see more and more of the newsfeed make up content itself versus purely social posts. You actually see content creators themselves promote content on Facebook and talk about the deluge of traffic they receive. And you start to think, “ If half the people reading premium publisher content come from Facebook anyway, why don’t I capture them from the source — and benefit from Facebook’s immense targeting advantage?” Then you advertise a few dollars, and you’re wow’ed at their targeting. You’re amazed at the results. And, ultimately, you start to spend more of your dollars there.

Google spend stays the same (or even goes up), Facebook spend goes up dramatically, and the rest of the web fights for scraps. This is the world we’re living in today.

What Can We Do

What are we to do in a world where Google and Facebook dominate the web?

Commit to a Value-Oriented Mindset

We are not just content creators, we’re not just publishers, we’re not just truth-seekers, ultimately, we have to become product people that are laser-focused on providing value to our users. When we think about the issues that our users have, how are we helping to solve them? What are we doing to make sure that they come to us before Facebook and Google? How are we architecting trust and value when they think about our brand? These are the things that we need to think about first. Not monetization, not video, not social. Value.

Look at our Data

What are the things that are actually driving people directly to our site? Is it a type of content? A product we offer? Who is subscribing to stuff and why? Look at your data and really understand why people are coming to you first, and not through Facebook and Google.

Understand your Competition

You are not competing with other publishers. I repeat: you are not competing with other publishers. You are competing against Facebook and Google. Get it out of your head that you need to beat another digital media site to win. We should be thinking about the opposite. What are doing collectively to help provide more value to our users relative to a Facebook or Google? What are we uniquely positioned to do that they’ll never be able to do? How does being smaller actually give us advantages?

Know that the Market is Fickle

If I would’ve said to you, back in 2013, that Facebook would be as big a traffic driver as Google in 2 years you probably would’ve laughed at me. Yet, here we are, a few years later and Facebook is arguably bigger in this sense. Sure they had a huge springboard (a 1 billion user springboard), but people still had to take to it. People have higher expectations and are more fickle about their product choices now more than ever. Jumping ship from one service to the next is dead simple. We should recognize that another player (cough, Snapchat, cough) could emerge as a third pillar. But we should also recognize that that third pillar could also be us. The internet is made of content, and we happen to be the best at creating exactly that. Don’t sell us short, we can control the flow of traffic and crown ourselves king again.

Sachin Kamdar

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