The reality: Battelle's dream of conversational marketing has turned into something more like the schlocky endorsements radio hosts get paid to do. By falling so short of his rhetoric, Federated's experiments have mostly ended in embarrassment, both for him and the bloggers he represents. Last year, he roped Malik and other writers into a scheme to have them recite a Microsoft slogan. And though Battelle apologized for that advertising campaign, he's conducting a similar campaign for Intel — though he has wisely picked so-called "social media marketers" with less journalistic credibility to lose; most already willingly shill for products on Twitter, Digg, and the like.

That's the insult. But Battelle's company has also delivered an injury, in the form of an abrupt slashing of advertising rates. GigaOm, TechCrunch, Silicon Alley Insider, and a host of other tech blogs represented by Federated have had their official rates cut 35 percent; deals negotiated with large advertisers are presumably being struck at even steeper discounts.

So Malik has taken his business elsewhere, to IDG, the publisher of PC World and several other large technology trades. As with Federated, IDG will sell ads, keep a large portion, and share the rest with Malik's company; 30 to 40 percent is a typical commission in the business. IDG has a vast army of salespeople to serve its print publications; as the print business vanishes, it makes sense to busy them with selling online advertising. Federated, meanwhile, has had to assemble its sales team from scratch.

Federated's slogan is that it is "author-driven." What does it say that an author has been driven from its ranks? Malik and Battelle are both savvy businessmen who know each other well. (I have known both for a long time, too, and edited their columns at the late Business 2.0 magazine.) IDG simply cut Malik a better deal, I believe — and no amount of rhetoric about "serving authors" from Federated could make up for the financial shortfall. In every negotiation, the time arrives to wrap up the conversation and strike a deal.

(Photo by Scott Beale/Laughing Squid)

—-—-—-- Forwarded message —-—-—--
From: Federated Media
Date: Thu, Nov 13, 2008 at 9:05 AM
Subject: A Holiday Gift from FM, $5 CPM's
To: melissa@melissagira.com

Believe it or not the holidays are already fast approaching! To make planning your holiday advertising campaign quicker and easier, we've created a Holiday Shopping Federation that includes the best gift and shopping related content in the Federated Media family of sites. Sites in this category include Uncrate, Mighty Goods, The Bargainist, and many more.

The Holiday Shopping Federation reaches the savviest of shoppers. They are avid readers of product reviews, and hunt down everything from the best in fashion to the coolest new tech gadgets. This is where engaged shoppers peruse gift guides, and look for suggestions for everyone on their list.

Here's the best part, for a limited time only, we're offering access to these high-quality sites at a low $5 CPM.

Reserve your campaign now through November 28th to lock in this low rate, and get access to readers on some of the best content on the web.

Start Planning and take advantage of these low CPM's before holiday inventory gets booked up!

Cheers and Happy Holidays,
Federated Media

FM Self-Serve Homepage
Online Marketing Idea Exchange

Right: Because it's an awesome branding opportunity. The draft is a self-parody of corner office drama, full of Honorary Co-Chairs, Leaders, and Former CEOs. But the real story is: Who's missing? Sergey Brin and Eric Schmidt are here, but not Larry Page. Twitter's Ev Williams is here, but not Digg's Kevin Rose. Federated Media: Present. TechCrunch: Absent. Mark Zuckerberg is not here, but Sheryl Sandberg pulled a John Hancock: She's right up top, where Owen can't miss her. Oh, look, she's trying to make nice! She's going to be sorry.

When Frauenfelder appeared in an Apple TV spot a few years ago, his fans loved seeing their fringe-culture hero take over the boob tube. But today ads are jammed full of Internet hipsters. Boing Boing's "band manager," John Battelle, has turned old-fashioned host endorsements into an online art form at Federated Media, his advertising agency. He's holding a conference right now in San Francisco's Presidio, telling eager brand managers that endorsers like Mark Frauenfelder make them part of a conversation with Internet consumers.

Battelle builds sites whose ads feature authors on whose blogs he also sells ads. It's a reputational Ponzi scheme far more complex than a George Foreman grill. Maybe that's why I flinch when Frauenfelder's face pops up on my screen with an Adobe logo and a button that says Grab Widget. Mark, if I want a widget, I'll open your magazine and make one myself.

FTC rules forbid deceptive advertising — such as an ad from Dell which suggests a New York Times reporter has endorsed its vision of mobile technology, when he hasn't. The agency also has strict rules governing endorsements, not all of which seem to have been followed here. Bottom line: Santora seems to be the victim of a sleazy new Internet-enabled advertising tactic. He does offer this amusing side note: The one time he wrote about Dell was when the computer maker's "Dude, You're Getting a Dell" spokesman was arrested on pot charges. Here's his note to us:

I am not really sure what to say about the item posted on your website about my being a "shill" for Dell. I was asked to do an interview fror a starter web site called "Big Think." I checked them out and they have interviewed a good number of respectable people and I had heard of no problems. They wanted to discuss the role changing technology has had in covering things like the war in Iraq. Seemed harmless. I received absolutely NO compensation. And I have no idea how they do their advertising.

I am on vacation and on my way to India so will not be checking in much, but thought it might be worth clearing up any improper suggestions linger.

BTW, if it matters — and I can't believe it does because this all seems a bit silly — the only piece I ever wrote about Dell was when "the Dell Dude" was busted for using pot. I think I wrote a couple of pieces on that actually. http://query.nytimes.com/gst/fullpage.html?res=9A0DE7DA1F3BF931A25751C0A9659C8B63&n=Top/Reference/Times%20Topics/People/S/Santora,%20Marc

Anyway, going back to my vacation. Hope this helps.

Cheers,
Marc Santora

At no point does Santora mention Dell's name. But his underlying message, that new technological gear helps us all do our jobs better, certainly serves Dell's purposes. I would have thought that the strict Times ethics code would forbid such an endorsement, paid or otherwise. Why bloody the reputation of someone who's taking a bullet to get stories for the newspaper? I've asked the Times what's going on, but haven't heard back yet. Update: Marc Santora has written in to let us know he had no involvement, financial or otherwise, with the ad — which just adds to the headscratching.

I can't get anyone at Federated Media to confirm or deny the claim by 10 Zen Monkeys that Federated Media accountant Molly Johnson is formerly Molly McCann, and sister to Alaska governor Sarah Palin, now the Republican vice presidential candidate. Sausalito-based Federated is the agency that sells ads for Boing Boing, TechCrunch, and many more sites. It matters because Palin — and hence McCann, who may now be Johnson — will be heavily scrutinized over Palin's alleged ... oh, just read the whole thing on Wikipedia. Honestly, 10 Zen Monkey's report drips with a bit too much eagerness to take down Palin, so I don't trust their judgement yet. I'll believe it — or not — when permatanned Federated founder John Battelle gets back to us.

I'd long thought that Battelle's flip-the-bird photo, used here, was a reflection of his charmingly combative personality. As a founding editor of Wired, which set the tech world on fire in the '90s and helped inflate the bubble, Battelle failed to stack up the tall dollars. He founded The Industry Standard, which sold more pages of advertising than any other magazine in American in 2000 and then went bankrupt in 2001. Battelle, in short, has been adept at chronicling booms, but not profiting from them. Until now.

Battelle is just the latest entrepreneur to cash out before his company goes public, a practice once frowned upon in Silicon Valley. But Federated Media turned profitable last fall, we're told. Being cash-flow positive means never having to say you're sorry. And it also gives entrepreneurs leverage with investors that they never had in the '90s, when building Web companies was much more expensive.

So at last he's earned what they call in the Valley "fuck-you money" — enough money to simply walk away, should a job turn unpleasant. In fact, we hear that's what Battelle is planning to do, albeit temporarily. He's told investors in Federated that he plans to take a leave from the business to work on his next book, The Conversation.

Where Battelle's profane wealth may get him in trouble is with the bloggers he represents. Unlike him, most of them have yet to cash out, or even turn a profit. Federated Media's take of their advertising — typically 40 percent — strikes many as too high, though most have yet to try their hands at hiring and managing their own salespeople.

But they shouldn't worry. Having enriched himself, Battelle is now thinking of them. After hearing rumors that one of Federated's blogs was in merger talks, he approached the blogger and encouraged him to come talk to Federated first before taking an offer.

In other words, Battelle is now contemplating a blog rollup. Rather than see his customers picked off one by one, with their ad inventory walking out the door, Battelle may use some of the money he's raised to buy blogs himself. It only makes sense. He knows his customers' businesses well, since he organizes conferences, orchestrates redesigns, and performs other services besides for them, in addition to the mundanities of selling advertising.

Battelle likes to think of himself as more than just a business partner to his bloggers. He's their buddy. He's their pal! This bubble has everyone frothy, and the valuations may be making some of the bloggers under his care unduly giddy. While Battelle may enjoy a tipple now and then, friends don't let friends sell drunk.

The problem with running a network is that you don't own the pageviews, and websites can always bolt, or be sold. It's hard to imagine AOL won't switch that inventory over to its Platform-A ad network as soon as it can. Not all pageviews are created equal. Sphere's blog-search inventory likely garnered less revenue than some of the high-prestige tech blogs Battelle represents. Still, this is the kind of thing one is happier to have investors learn about after they've committed their money, not before.

Some question whether or not FM is actually worth this much money, as there are many advertising options available to its publishers.

He saw Wired, where he was a founding editor, sold to Conde Nast for a pittance. The Industry Standard, which he launched and ran, crashed and burned. Federated Media, which caters to independent bloggers like Boing Boing and Dooce, could well be more successful than either, redeeming his reputation as a businessman. And with the economy teetering, now's a good time to take the money and run, before people deepen their questioning of the blog business model. Still, taking that much money from investors now — if Battelle can even get it — only increases the odds of a sale down the road.

The overwrought emotional style parodies Jakob and Julia's. Early on, Jen wrote:

John apparently doesn't always understand that his "internet experiments" aren't priority number one for the rest of the universe. John doesn't always understand that someone else has finals for the next two weeks, and might have some important life responsibilities aside from responding to nonsensical emails and participating in the public airing of our personal "dirty laundry", if you will.

John replied:

Well, I have to admit, that is not what I was expecting for a first post from Jen. It was very angry and, also, alluded to some things that were very unnecessary. Why do you have to bring things like that up in your first post?

John and Jen make constant references to Jakob and Julia (such as the above comparison of Jen's stubbly "pit" to Julia's lasered "underarm"), which are hilarious to the dozen of us who actually followed that relationship.

To Ritholz, this spells some kind of Internet apocalypse, bringing an end to reliable measures of traffic. The big media companies, in their efforts to become ad reps for smaller blogs, are insidiously "buying" traffic. "Reuters is creating a new financial 'blog ghetto,'" Ritholz fumes. And advertisers, he claims, should be wary.

Nonsense. For one thing, blogs are already in a ghetto, too small, one by one, to even show up in Nielsen's and ComScore's measurements. These agreements are routine, and, in fact, required by Nielsen and ComScore, rather than pushed by the media companies — that explains why the contracts Ritholz has seen are all so similar. And why are they required?

For advertisers, of course. Media buyers understand that they're buying ads that run across a network of websites, and of course want to know the traffic for the entire network, not just the flagship property. So if, say, Reuters salespeople are now selling ads on a bunch of financial blogs, they'll naturally want to report that traffic as part of the advertising buy.

In his effort to spin this as some kind of industry-destroying conspiracy, Ritholz misses out on the natural trend. Naive bloggers like to think that their websites are unique, and that advertisers will want to seek out their audiences, however microscopic, for their special charms.

Charming, but false, of course. Advertising remains a numbers game, a scale business. And Ritholz's hand-waving conspiracy theories just serve to obfuscate the main issue here.

Small blogs have a number of hard choices. First, there's signing up with the likes of Google AdSense, the online-ad networks which pay ludicrously low amounts — low, of course, being better than nothing. Then there's striking an alliance with an online ad-rep firm like Federated Media, or a large media company which chooses to have its salesforce act as third-party ad reps. Lastly, there's the hardest choice of all: Actually spending money to hire your own salespeople. Which, of course, will be tough going if your blog traffic isn't high enough to register on Nielsen or ComScore's listings. (Photo by ">king-edward)

• Wednesday: Stirr is back with another "Founders' Hacks" event, this time up in the city. Schlep your way to Mighty in Potrero Hill to hear founders from Lookery, Vadver, and OoogaLabs try and say their companies names without looking foolish. [Eventbrite]
• Don Clark of the Wall Street Journal heads up an evening of rock music at the Rockit Room, as a fundraiser for the Girls for a Change charity. [Upcoming]

Like, seriously obsessed. The way that Apple geeks are obsessed with Steve Jobs dolls, except with more hair-braiding.

American Girl follows a specific formula — create a plucky pre-teen character and set her in a romanticized historical setting. Model a matching doll with pretty hair, clothes, and accessories, sit back and profit. If you're unfamiliar with the brand, then you've never known, or been, a 9-year-old girl. Federated Media, brilliant job on serving up these ads to someone who might appreciate them. Too bad you delivered them about 20 years too late.

WebbAlert discloses on its website that it has "barter arrangements" with other FM-represented sites. But that's not the sales pitch that Webb's husband, Listen.com founder Rob Reid, gave some FM bloggers. Contrary to what the WebbAlert site claims, Reid made suggestions of link-swapping that went beyond mere ad barters. And from the appearance of things, Arrington, among others, took the bait, linking generously to WebbAlert after its launch. Federated Media executives, of course, insisted it was all just a coincidence. Of course. We'll just try not to notice the ethical bald spot here.

Here's the pitch:

Recently, you guys ran a piece comparing Google versus Yelp, and while Yelp gets a lot of 'cool' buzz, they only reach a few big cities and have not captured the practical, business side of the puzzle. MerchantCircle (one word) is about to announce tomorrow that we've passed 200,000 local small business owners signed-up. That number makes us the leader in a space that everyone is trying to get a piece of right now.

We have more merchants than Google, Yahoo Local, CitySearch, Insider Pages and any other local directory site you can think of.

Well, that's nice. Suspect, but nice. But then we started digging.

• MerchantCircle might have businesses listed, but it has practically no users. Site traffic, according to Compete.com, is a fraction of the nearest competitor's.
• No wonder: It's theoretically possible to browse the directory of listings, but the MerchantCircle site itself is designed as a roach motel for merchants.
• The boasted merchant listings are questionable. Many appear to be prepopulated from databases, or possibly "scraped" — copied wholesale — from other sites. Take this listing of San Francisco restaurants, for example: Most have little more than addresses.
• MerchantCircle appears to be using automated systems to cold-call local merchants. Like Yelp, MerchantCircle touts user ratings as a reason for businesses to sign up for the site. But unlike Yelp, MerchantCircle isn't waiting for there to be any actual user reviews. For some time, MerchantCircle has been autodialing businesses in an effort to convince them that users may have left bad ratings about them on the site. Never mind that the reviews — and the users — may not exist in every case. For local businesses, which rely on the phone to attract customers and make sales, autodialing is a thousand times worse than email spam; wasting time with an automated system is the same, in their minds, as taking money from their pockets. Lying is just the icing on the cake.
• MerchantCircle CEO Ben Smith promised to stop the autodialing — but it's continued. John Battelle, founder of the Federated Media online-ad network, contacted Smith about the practice in September 2006. Smith claimed "that he's on it." According to the comments businesses are still leaving on blog posts about MerchantCircle, the practice continues to this day.
• The company is counting on search-engine optimization, or SEO — the art of tweaking websites to make them rank highly in search results — for traffic. So far, it's failed. But even if MerchantCircle's attempts at SEO worked, Google and the other search engines would rapidly catch on and banish MerchantCircle's pages from their indexes.

MerchantCircle's business model has evolved into a circle jerk: Rather than persuading actual users to visit its listings, MerchantCircle is styling itself as a social network for local businesses which link to each other's profiles on the site. But if you ran a local shop, would you rather raise your profile with the Chamber of Commerce, or get actual customers in the door? As with any such arrangement, this circle is likely to leave local businesses exhausted and unsatisfied.

Which raises the question, why are Valley notables giving this company a hand? Among the company's investors and advisors are Scale Venture Partners, Disney's Steamboat Ventures, Ron Conway of Angel Investors, Auren Hoffman of Rapleaf, and — ironically enough — Chas Edwards, a vice president at Federated Media. His boss, Battelle, must be so proud.

It's a deal similar to the one Facebook signed with Microsoft last year.

Bonus! Hakia attached a song about "searching for better search." If you had a really great night last night, and you need a sledgehammer to bring you back into the desperate hopeless drudgery of your life, this song is better than "Birth School Work Death." One line goes, "Your childhood is posted on eBay, starting bids 25 cents."

The BW missive actually brought the Battelle Watch blogger out of retirement. He points out that the writer of this BW article (Spencer E. Ante) also penned a review of James Ledbetter's book chronicling the flameout of Battelle's Industry Standard. Summary of review: book "good, if incomplete," Battelle "brilliant." In the current piece, Battelle also brags that "[FM client] Boing Boing is never going to get into the offices of General Motors. But Federated Media does all the time." Sounds like a challenge, BBers.

But in his spare time this fall, Joel started a new men's blog, Dethroner. Its eerily simple business goal: make money, but not a fortune. Given the blog's increasing influence—ur-blogger Jason Kottke memorably praised Dethroner's "low level of desperation"—it's interesting to read Joel's three-month status report on the state of the business.

He posted this on Dethroner earlier this week:

Following typical blog launch patterns, we launched to an exceptionally strong burst of initial traffic, only to quickly fall to a lower but slowly rising rhythm, averaging around 16,000 page views a day as of last week. That's a solid but not stunning level of traffic; it's expected to remain at those levels or below through the end of the year, as holiday traffic numbers tend to be low in general, plus we're going to an abbreviated posting schedule next week.

Our internal traffic goal is to quadruple traffic by Q2 of next year.

At current traffic rates and average level of ad placement by Federated Media, we're making between one and two thousand dollars a month, with a infrastructure overhead of about $200 a month (for hosting and occasional web development costs). Amazon referral fees are generating between $50 and $300 a month. I do not currently take any funds from Dethroner as a business, and will be putting all revenue back into the site, primarily through the hiring of full-time writer.

Read Joel's whole post for more thoughts on the microblog biz.

State of the Blog t + 3 months [Dethroner]