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Politico and the allure of the prosumer model
Why choose between consumer and B2B business models instead of having both?
Labor Day weekend is typically when people flee to the beach, but since I live at the beach now, I’m trying a different approach. I’m heading to Kyiv, Ukraine, where I’ll be speaking at the Mezhyhirya Fest about why the problems facing journalism right now are nearly all a result of broken business models, but there’s reason for hope. I’m excited to visit Ukraine for the first time. One quick thank you for Regina Buckley, U.S. CEO of The Guardian, who gave a very kind endorsement of The Rebooting on LinkedIn that brought in many new subscribers. Thanks, Regina -- and please consider sharing this newsletter with colleagues and friends; recommendations are definitely the biggest growth driver. This week, I’m taking a look at the prospect for “prosumer” (professional/consumer) media models in the wake of Axel Springer’s $1 billion deal for Politico.
When I joined Adweek in 2005, I knew very little about the ad agency business. I’d covered Internet businesses, and agencies were small actors there following the collapse of the frisky crop of “Webshops” like Razorfish, MarchFirst, iXL, Scient, Viant and Agency.com. I quickly learned of seemingly arbitrary lines the industry liked to draw: working dollars (ad spending) vs non-working (making the ads) and above the line (brand advertising) vs below the line (direct response). What the Internet did, as it often does, is eliminate these artificial boundaries. With data, all advertising becomes performance marketing, eliminating the divides of building brands and making sales.
On the other side, in publishing, artificial divides also thrived that, in truth, didn’t make much sense either in a digital world: church vs state, consumer vs business. Just like in the agency world, there was a value judgment at play. Agencies found direct marketing distasteful, the work of the junk mail guys in bad suits who lived in Long Island and spent their time trying to get a .0003% lift off putting “DATED MATERIAL ENCLOSED” on credit card offer envelopes -- a far cry from TV shoots at exotic locations. In media, B2B was the backwater, a wonky world of poorly designed magazines with dull copy that mostly served the role of cheerleading for industry.
That’s changed over the years. B2B gets a lot more attention now. B2B software was ignored by Silicon Valley for years until they ran the numbers and recognized how big these markets are — and how poorly built many of the product are. The same kind of “consumerization” is taking place in “modern B2B” media. In static industries, B2B could afford to be dull as dishwater and content to churn out Top Execs to Watch lists. But in dynamic industries, the role of B2B is different, understanding the details of industries in transition, often with billions of dollars at stake. At the same time, generalist consumer media has faded in prestige, as bad business models caught up to them and Google and Facebook swallowed the ad market.
Which brings me to Politico, recently snapped up by Axel Springer in a deal valued at over $1 billion. Considering Politico was built without the gushers of VC money that oddly flowed into digital media in the mid 2000s, the deal credibly makes Politico, in the immodest words of CEO Robert Albritton, “the most impressive and most enduring of the many experiments in new publications over the past generation.” Ben Smith has the juicy details of the drama, including the rivalry with Axios and some ill-advised potshots at warehouse workers. But from my view, the deal is a vindication of B2B media, since Politico pulled off the difficult balancing act of achieving consumer media-like reach and impact with a high revenue B2B business embedded in the form of Politico Pro.
The “prosumer” model is incredibly hard to pull off. Plenty of consumer publications are in the midst of dabbling in B2B. Vogue started Vogue Business a few years back. Sibling Architectural Digest has AD Pro. Media companies like PMC are building stables of brands that straddle both consumer (Rolling Stone) and B2B (Hollywood Reporter, Billboard, Variety) Axel Springer is clearly shifting in this direction. Insider, also bought by Axel Springer, is also engaged in a modified Politico, with its high traffic lifestyle content complemented with a subscription offering that is mostly B2B, along with the data assets of eMarketer now part of Insider. Morning Brew is similarly mixing consumer and B2B with its vertical newsletters in emerging tech, marketing, retail and soon human resources.
Pulling off the prosumer model is powerful, as Politico has shown. When I lived in Washington DC in the late 1990s, coverage was divided between the big consumer newspapers (The Washington Post, The New York Times) and the Hill publications (Roll Call, The Hill, The National Journal). The Capitol Hill publications, printed and delivered to member offices, focused on the mundane sausage making of legislation. It was meant for legislative aides, members and the lobbyists who wanted to influence them. They were, in the upside down world of Washington, industry publications. In the years since I moved, Washington DC the industry has exploded in size. The amount of money going into influencing legislation annually has doubled since my days in Washington.
Politico started heading into the 2008 election cycle with an approach that treated politics like sports, churning out articles at the speed of the internet and establishing itself quickly as a must read beyond wonks. That was the advantage of politics: It gave off consumer heat. Paring that influence and attention with Politico Pro proved to be a very powerful combination. Politico Pro is the nuts and bolts of the Thousand True Fans model. With 22 policy areas, ranging from agriculture to financial services to immigration, Politico Pro starts in “the high four figures” and is usually over $10,000 per seat.
The prosumer approach has another benefit: a lucrative niche ad category that can command high rates. The advocacy ads publications like Politico, Axios, Punchbowl and others rely on are a cash cow, a niche of the ad market that isn’t gobbled up by Google and Facebook. In fact, Google and Facebook are frequently on the buy side of this transaction. Influence matters. That’s helped Politico build a $200 million business with 30% margins, according to the NYT (gross or net is unclear). The $3.5 trillion infrastructure bill is another cash cow.
We’ll see more attempts to be the Politico of X, just as Silicon Valley was overrun by the Uber for X startups. Like everything, most of these will fail. It’s very hard to operate both consumer media and B2B media. But the models are converging to a degree. It used to be that consumer media garnered high ad rates and could rely mostly on advertising. If only. Nowadays, most publishers are preaching the need for direct relationship with their audience, recurring revenue at the core of the business model and diversified sources of revenue. This is a description of how B2B media businesses have long operated. Even the new obsession with email as a delivery mechanism (and source of first-party data) is old hat in a B2B context.
The assumption will be that consumer titles can add B2B. I’m not so sure. To return to the agency business, many executives realized the above the line stuff was fading, but they assumed the direct marketing guys would be subsumed. Then dowdy DR shop Draft took over iconic ad agency FCB. I’d argue that B2B is in a good position to move above the line, too, particularly as the fundamentals for sustainable media businesses are often found in B2B.
That’s it for this week. I hope you enjoy a nice holiday weekend if you’re in the U.S. As always, I love to hear directly from readers. My email is firstname.lastname@example.org.