Grasping Reality on TypePad, by Brad DeLong

Pre-Internet era publishers... employed journalists whose goal it was to reach as many readers as possible... were largely paid by advertisers, whose goal was to reach as many potential customers as possible. The alignment... was obvious, and profitable for the publishers in particular. It was also a great gig for the journalists.... They received... dispensation [from] needing to worry about making money. As for the advertisers, where else were they going to go?...

The shift from paper to digital... had two critical implications:... an effectively unlimited amount of ad inventory, which meant the price of an undifferentiated ad has drifted inexorably towards zero. [And] “Readers” and “potential customers” became two distinct entities, which meant that publishers and advertisers were no longer in alignment.... The divorce of “readers” and “potential customers”... [has] prevented even the largest publishers from profiting much from the massive amounts of new traffic they were receiving.... Ad networks don’t really care about the readers--which is a big reason Why Web Pages Suck--and on the flip-side publishers don’t really care about the advertisers, resulting in click fraud, pixel stuffing, ad stacking, and whole host of questionable behavior that is at best on the edge of legality and absolutely not in the advertisers’ interest. As with any other company or industry built on fundamentally misaligned incentives, this is unsustainable....

For niche publications, given their need to maximize their revenue per user, the most obvious revenue model is subscriptions. However, niche publications are also a great fit for native advertising; to use a random example, what model railroad company wouldn’t want to place content on the premier model railroad blog?... [While] niches... are likely to be dominated by just one or two publications, there are a massive number of niches in the world, most of which are underserved.... Broad-based publications will obviously be ad-driven; to reach the maximum number of people a publication must be free.... [But] more and more revenue is likely to come from places like Facebook’s Instant Articles or the recently-rumored initiative from Google and Twitter to build an open-source alternative.

Niche publications will be extremely focused... a highly-differentiated product that people are willing to pay for.. the most effective native advertising model is the ability to place content in a feed that people actively seek out and read to completion. Broad-based publications will be focused on stories that draw maximum interest, clicks, and especially shares... entertainment... amusement... [plus] creat[ing] stories that have a wide-ranging impact. Niche publications will be destination sites... [that] invest in site design or even per-story design.... Broad-based publications... should focus on keeping their presentation as simple as possible to better enable portability across the various customer touch points. Text and images work everywhere; custom layouts not so much....

Both of these models... fix the incentive problem: subscriptions tie niche publications to their readers... [so] the reader and the customer-to-be-reached by the advertiser are one and the same.... Broad-based publications... [are] everywhere with their content, wherever their potential readers might be. No company has nailed this point like BuzzFeed.... This didn’t happen by accident; to BuzzFeed founder and CEO Jonah Peretti’s credit, BuzzFeed was built from day one to be a business that earned money the old fashioned-way: by being better at what they do than any of their competitors...