Blogonomics: Gawker Kills Pay-Per-Pageview

A couple of interesting developments in the world of blogonomics:

First, Gawker’s Nick Denton has, at least for the time being, killed his pay-per-pageview model. It’s predicated on the idea that advertising revenues will rise with pageviews, but the outlook for 2009 is that pageviews will go up even as advertising revenues go down. Nick tells me he’s still a "believer in the system" and that it might reappear at some point, but I wouldn’t hold your breath.

Rex Sorgatz had a question for Nick about what this means for Gawker’s payroll; Nick didn’t answer, so I’ll try. Rex says that "doing some quick math, it looks like the so-called savings of $50K/month is comparable to the loss of adding 5% to base salaries", but that’s not quite right.

I’m not sure how Rex calculates the savings, but I assume he’s looking at the loss of 9 net jobs, and assuming that base salaries for 9 jobs will come to about $50k/month. The fact is, however, that almost everyone on the editorial side at Gawker is getting a pay cut — in some cases, a quite substantial one. And with 114 former editorial employees remaining after this downsizing, the savings there are likely to be quite large.

Remember that up until now, base salaries weren’t really base salaries at all, but rather advances against your pay-per-pageview bonus. If you didn’t exceed your base salary comfortably and regularly, you didn’t just make less money: you risked being fired. What’s more, in most months, someone somewhere in the Gawker empire would hit a home run and bring in a really big bonus check with just one post.

Let’s assume that 10% of Gawker writers fail to get any advance in any given month; that 80% get a bonus of about 20% of base salary; and that 10% have hit one of those home runs and get a bonus of about 100% of base salary. And let’s say, pace Sorgatz, that payroll is $1 million per month, including bonuses. Then base salaries would account for about 79% of total payroll. Increase them by 5% but abolish all bonuses, and you’re still saving $167,000 a month — which means that Nick is saving more money by killing off pay-per-pageview than he is by reducing headcount.

Nick is also, now, much less exposed to tail risk than he was. Of course he loves it when a blog entry goes viral and gets an enormous number of pageviews. But those aren’t particularly valuable pageviews, as far as advertisers are concerned — and at the same time Nick has to pay out a large amount of money to the author of that post. If a few Gawker writers manage to come up with a massively viral blog entry all in one quarter, that could really screw up Gawker Media’s budget and cashflow.

Meanwhile, there’s yet more proof, if proof were needed, that the easiest way to make money online is not web advertising but email advertising: Peter Shankman’s startup Help a Reporter Out, which has a relatively small email list of just over 30,000 subscribers, is reportedly pulling in $3,150 a day — or $800,000 a year — just through selling ads in emails at between $650 and $1,250 a pop. Not at all bad, for a project which Shankman reckons uses up about 90 minutes per day of his time.

I think that one of the reasons is that email ads are like radio ads: it’s much more difficult to tune them out than it is banner ads on websites. Have you ever looked for a link on a web page and not been able to find it, cursing the web designer all the time for overlooking the most obvious link they should have included — only to find it on a third or fourth look in bright colors right at the top of the page? You missed it the first couple of times around because you mentally skipped over it, considering it to be an ad. That kind of thing doesn’t happen nearly as often in email advertising — and email advertising, of course, is much more targeted, and reaches many people who simply don’t surf the web for content.

I briefly popped in to a "how to make money from your blog" panel when I was at Blog World in Las Vegas. I didn’t stay long, but I did overhear one panelist say that he really didn’t care at all about ad revenues from his blog, which he thought of first and foremost as a way of getting extra names onto his email list. With numbers like Shankman’s, it’s easy to see why.

Update: Rex points out in the comments that he wasn’t talking about base-pay payroll reduction when he was referring to the $50,000/month in cost savings — he was referring to Nick’s own estimate of $50,000/month in bonus costs. My bad. But this way at least Nick eliminates his tail risk.