One of the maxims of running a business is as it starts to get traction, folks will notice, and when they notice, they will start to question it. That's happening more and more here at FM, and it's happening to one of our partners, Digg.com, as well. Today, both of us were questioned - via Digg, no less. It's worth taking a look at.

A Digg user linked to a blogger who questioned why Digg would work with us, as opposed to having their own sales force. The Digg posting, which can be found here, started quite a conversation on Digg itself.

The author of the post which got Dugg said:

Most online advertising is still sold by teams of real people employing antiquated technologies such as the telephone, in-person pitch and liquid lunch. Federated Media have chosen to follow the Google model, offering a self-service approach where advertisers must sign up and deploy advertising campaigns via a series of interconnected web pages. Hardly the exciting, kick-back enhanced world of advertising the market knows and loves.

Had the poster done his homework, he'd realize FM has a large (12 and growing) direct salesforce, which is very focused on selling Digg, as well as all of our other sites. He'd also realize that we represent a limited number of sites (around 85 today) and are very much human driven, as opposed to alogorithmically driven. Sure, we have a self service platform, but that's just a (small) portion of our business. I was getting ready to respond in this fashion (on the Digg thread) and correct the record, but I didn't have to - as Jay Adelson, the CEO of Digg, jumped in and did a better job than I could have done. (Chas, our VP or Sales, also has a nice write up here.)

As we build FM, I've realized that our period of relative obscurity is drawing to a close. We are under increasing scrutiny, and should be, given the high profile sites we now represent. Besides Digg, we are also working with Dooce, Boing Boing, GigaOm, Newsvine, TechCrunch, TechDirt, AutoSpies, Freakonomics, Make, and nearly 80 other sites. The authors behind those sites have high expectations of us, and we are totally focused on meeting them.

Perhaps the most common criticism of the FM model is that once a site gets to some scale - a figure of one or two million pageviews a month is often cited - that site should leave FM and hire its own salesforce. It sounds smart, but in fact it doesn't consider any number of factors which go into the reality of running a sales-driven media business. Sure, if you want to run a traditional media business - where 10-15% of the costs are in content creation, and 85-90% of the costs are in stuff that have nothing to do with content - well, go right ahead. But be prepared to be surprised when your margins are consistently in the red. Have you hired a finance person? A traffic person? A business development chief? How about collections? IT? Operations? I'm guessing that many sites prefer to focus on what they do best, and let us focus on the stuff we do best. Not to mention, the advertisers out there have very little time to have 50 meetings with 50 sales folks from 50 different sites, each with 1-2 million pageviews. That model does not scale. (And, by the way, good luck hiring those 50 sales people. They are nearly as scarce as good developers these days, and just as expensive.)

In the end, the economics are far better if you, well, federate. FM's model is based on the idea that content creators should get 60% of the dollars, not 10-15%. Sounds a lot better, doesn't it? Plus, advertisers get access to high quality sites at scale. So far, GM, Sony, Apple, Intel, Audi, BMW, Home Depot, Hitachi, and about 250 others have shown they agree by coming on board with FM sites. Yes, we are not selling out most of our sites. And yes, we'd sure like to. But launching media businesses take time, patience, and commitment. All of our partners understand that. Why? Because they're in the media business too.

I'll be posting more on these topics in the coming days - it's time to talk more openly about what we're doing. Now that folks are asking interesting questions, it's time to communicate our model more explicitly to the world.