By Adam Ward

The biggest hurdle I see with traditional media’s ability to get a bigger piece of the online advertising pie is its reluctance to let the advertisers set the price for its ad space. Although I’m not advocating they let all their advertisers set the prices, they should allow some. After all, their competitors have been allowing advertisers to set prices for many years.

Before the Web, advertisers didn’t have the ability to say how much they would pay for ads. Broadcast media companies have always decided how much they would charge for air time. Although not all air time costs the same—a 30-second spot in the middle of the night is cheaper than during drive time (radio) or prime time (television)—the broadcast companies have a finite amount of air time available for ads, and they determine what those air chunks are worth based on their revenue needs and the demand from advertisers. Likewise, although print products have more flexibility in placing ads (the size of a newspaper is dependent on the number of ads running, so unlike the finite minutes in a day for broadcasters, newspapers can easily add an extra two pages to accommodate more ads), print media companies set the ad rates based on their revenue needs and the number of readers who will view those ads.

The Internet has turned these tables. Merchants who sell products online are now able to set a price for the banner ads running on online publisher sites. For example, a shoe store can join an affiliate network and tell all the online publishers in that network that it will pay an 8-percent commission to the publisher for all sales generated through that publisher’s site. So rather than publishers setting rates and trying to convince advertisers to run ads on their site, the publishers see what offers the advertisers have listed, see what the payout would be, and run the ones they think will work best.

Advertisers are able to make these types of offers because the Internet allows them to actually track customers’ actions back to the publisher sites where they originated. This is much harder to do offline. Except for infomercials where advertisers can track a spike in phone calls during the commercial, advertisers have a tough time knowing just how effective their traditional ad campaigns are. For example, they may know that six million cars pass their billboard ad each year on a highway, but they don’t really know how many of their customers saw that billboard, or whether it prompted them to actually buy something.

You can imagine that this has created an environment where online advertisers and publishers have different expectations than traditional advertisers and publishers. This might not be so bad if the online groups keep to themselves, and vice versa. But that hasn’t happened. Every radio station, television station and newspaper has a website where they are putting their content. And every bricks-and-mortar retailer that wants to stay in business has an online storefront.

Since publishers and advertisers need to work in both the physical and online worlds, they had better learn how to navigate both environments. And that means that traditional media companies need to start accepting some of their online ads from advertisers that are used to paying on performance.

I’m not saying that traditional media companies need to wholly adopt the performance-marketing approach used by online advertisers. If a newspaper can sell a banner spot on its site for $10,000 a month, it shouldn’t give that up for a cost-per-sale campaign that is not likely to make $10,000 in commissions that month. After all, a newspaper probably doesn’t have a demographic targeted closely enough to generate the necessary number of sales for a specific product to produce the kind of revenue they are used to producing in their print products. But that’s the kicker. If advertisers feel they can get more sales out of a more targeted online publication, why would they want to run ads on a newspaper’s site anyway?

The answer to that is, just like a stock portfolio, an ad campaign should be diversified. If a shoe store advertises its products just on a shoe blog, it will miss out on newspaper readers who don’t read shoe blogs but still buy shoes (and just might be in the market for buying shoes when they see the ads on the newspaper’s website). Although the shoe store may be able to track a greater return on the ads running on specialty sites, it could still be getting a good return on ads running on a more general site.

The same argument for diversification can be said for the publishers. A traditional publisher needs to fill its online ad inventory with traditional and online advertisers. Although the publisher will probably make more money off its traditional advertisers, every little bit helps. So if there is some excess inventory, the publisher is better off taking a commission of sales from online advertisers than letting the inventory sit with no revenue coming in.

I’m starting to see some traditional media companies adopt this approach on their Internet sites, but the majority are still sticking to their old way of running just the campaigns they sold directly to their advertisers. You can easily tell the campaigns apart. Go to your local newspaper’s website and hover over the ads. If the links reference the advertiser’s site directly, that ad was probably sold directly to that advertiser by a sales rep at the newspaper. If you see a redirect link (one that doesn’t look like it has anything to do with the advertiser) it is probably an online ad the newspaper picked up through an affiliate network. When clicking those ads, your click will be recorded by the network’s tracking software before redirecting you to the advertiser’s page.