The Federated Media Problem

John Battelle's Federated Media, by many accounts, does a fine job of helping aggregate and sell ads for leaders in various spaces. If you've got significant traffic, something of a leadership position, in a space, but don't have your own ad sales force, they'll take you on and sell ads for you. But the difficulty in their business model is that they help folks grow and get bigger, to the point where those folks will either get their own sales force, or go with someone even bigger. Witness Digg, which decided to go with Microsoft. The good news for Federated in this news, though, is that Digg will keep them on for custom deals, which can be higher margin than the pure ad serving with scale offered by the Redmond, WA, giant.