Word has it that you can make a living from blogging these days. But very few enterprising essayists are being paid directly for their content—the money is all in advertising. And the best bloggers develop devoted followers, who increasingly use a technology called RSS (really simple syndication), which helps them stay updated on the most recent posts, but strips out formatting and ads.

Those dedicated readers are an advertiser’s dream: consumers who have “opted in,” tune in often, and have high regard for the content alongside an ad. But RSS feeds, which get aggregated in “readers” on a desktop or in a browser, are useful precisely because they are so simplified. Many bloggers feel conflicted about deflowering this territory and serving up ads to their most loyal readers.

Heather B. Armstrong faced this dilemma in September. Her humorous and startlingly honest personal blog, Dooce, gets over 1 million unique visitors a month, and is ranked as the seventh-most-popular blog in the world by Technorati (in terms of the number of links from other sites). A week after starting to run ads managed by Pheedo in her RSS feeds, she wrote in her blog, “I seem to have violated a sacred RSS rule that has resulted in a lot of email where the use of multiple exclamation points has been taken to a whole new level.” (However, a few weeks later, she reported no significant changes in readership.)

Advertisers are cautious about bloggers, as well; some of their clients might not like to see their names next to Ms. Armstrong’s frequent mentions of poop—no matter how hilariously described. But bloggers are a growing force as tastemakers and influencers of mainstream media. Technorati tracks 19 million blogs, and the total number, though many of them are inactive or spam, is easily more than triple that. Any blog can be syndicated, and most blog software and services set up an RSS feed for ease of use.

New Market for Marketing

Despite the proliferation of RSS feeds, actual RSS users remain a small group of early adopters. But they’re turning advertisers’ heads. Fifty-seven percent of marketers told Forrester Research in February 2005 they were interested in marketing through RSS, at a time when 2 percent of North American online adults said they used RSS. Advertisers—worried about their emails being blocked by spam filters, and potential customers deleting the “cookies” used to track site visits—are increasingly open to experimenting with new methods. Overall online advertising spending is expected to be a $14.7-billion market in 2005, rising (albeit a bit slower than in years past) to $26 billion in 2010, according to Forrester. Meanwhile, the population of RSS users is seeing rapid growth; in October, 4 percent of Internet users knew they had used RSS, and an additional 27 percent consumed RSS content on personalized start pages like My Yahoo without knowing it, according to Ipsos Insight and Yahoo.

Already, the young, tech-savvy RSS user base is drawing big-budget advertisers such as Sun Microsystems, Subaru, Verizon, and Microsoft. Those ad dollars—somewhere around a dollar per click or $5 per thousand views, on par with or a little below ads in blogs and email—are being spent with a new category of tech startups that offer intimate knowledge of the RSS ecosystem, among them FeedBurner, Pheedo, and Feedster. “In this environment, you have to be very careful,” says Bill Flitter, founder and chief marketing officer of Emeryville, California-based Pheedo. “You can’t just take your search ad haiku and jam it into a blog.”

Instead, most RSS ads today are a kind of sponsorship, indicating that a feed’s author supports another blogger, says Gary Stein of JupiterResearch. “It’s probably better if you’re trying to link a deeper connection between two sites than to sell a product,” he says. But the landscape is changing. Startups, which tend to manually match advertisers and publishers based on topic categories, face competition from paid search specialists Google and Yahoo, which have huge inventories of ads ready to be associated with the keywords in a post.

And while it’s easy to conflate “publisher” with “blogger,” monetizing RSS feeds of mainstream media’s online content is also a sizeable opportunity. The New York Times got 9 million page views stemming from RSS feeds in August, and it has experimented with targeting special ads at visitors who come in through RSS. News organizations are also testing branded RSS readers, literally trying to put their stamp on the emerging technology.

The Competition

FeedBurner has been a leader in the RSS space since it was founded in September 2003, offering services for publishers to manage, analyze, promote, and monetize their feeds. The Chicago-based company now manages over 100,000 feeds, with a total circulation (counted by subscriptions, not people) of somewhere around 4.3 million per day, growing 30 percent per month. That reach gives FeedBurner an advantage in placing RSS ads, says CEO Dick Costolo. “When advertisers come to us we’re able to provide them with a syndicate of feeds,” he says. “An advertiser could go track down the top politics blogs individually, or come to us, and we pool an entire network of blogs about politics.”

Though bloggers are hardly a unified bloc—most probably don’t stay on topic long enough to be grouped in a category like “politics”—their collective reach is powerful. But FeedBurner currently doesn’t drill beyond that point, for example to liberal or conservative bloggers who might be more in line with a particular advertiser’s politics. “We would specifically not pull out sites that always say nice things,” says Mr. Costolo.

Like FeedBurner, Pheedo sells bloggers feed management and analytics, and helps them make back the difference with RSS ads. In July, the company reported a click-through rate of 7 to 11 percent for its ads, a healthy step above the low single digits for pay-per-click, email, and banner advertising. Pheedo works closely with publishers on everything from placing a particular ad campaign to controlling the frequency with which an ad runs. It gives publishers about 65 percent of ad revenues—much higher than the estimated 10 to 20 percent from Google’s AdSense program for blog ads. Pheedo’s Mr. Flitter says the program also pays off well for advertisers. Its client Citrix Online, which sells an online meeting service, reportedly decreased customer acquisition costs by 50 percent using Pheedo ads.

But the startups are all aware that Google’s AdSense program—which revolutionized small publishing by placing contextual ads on blogs and giving authors a cut of the take—is a natural companion to ads in feeds. Fulltime bloggers like Ms. Armstrong (as well as would-be “Dooces” still holding down a day job) could manage the whole kit and caboodle in one place. But so far, Mountain View, California-based Google is just testing the waters. Its “AdSense for feeds,” in trials since May, currently runs as a separate program, though it does place the same ads with the same keywords. However, the search giant has been watching RSS ads for a while; it filed a patent application covering automated methods for placing and billing contextual ads in RSS feeds in December 2003—right after FeedBurner and Pheedo got into the business (the application has yet to be approved or denied, and the potential for overlap is unclear).

Google rival Yahoo also wants to get into the mix, but it’s tight-lipped about its plans for unrolling RSS ad placement. The Sunnyvale, California-based company only started allowing a small group of blogs into its publisher network at the beginning of August. Yahoo admitted it is developing methods for pushing ads through feeds. “Yahoo is working to use several different new matching methods that decipher feed concepts and overall intent to increase accuracy,” says Ben Fox, a product manager for the company’s search marketing team. Many publishers, especially news outlets, use feeds as teasers for their content, offering only a partial excerpt and pointing readers to their web sites to get the full version. An artificial intelligence approach like the one Mr. Fox suggests might solve the problem of evaluating the few words in an excerpt that target a contextual ad. But there may be a simpler approach: Google says it addresses the same problem by following a feed’s permanent link to the web site it came from and targeting the full text of a post.

San Francisco-based Feedster will soon offer a different take, which combines aspects of search and content matching. Because it has been monitoring blog content since March 2003, Feedster can audit a blog’s history to engineer a good fit with an advertiser. “We know how frequently they post, what they talk about, if they use profanity,” says Chris Redlitz, vice president of sales and business development, who has run the company following the September departure of CEO Scott Rafer. Despite the outwardly amicable leadership change, the company seems fairly healthy, with a deal to drive RSS on America Online’s new portal, new funding from Japanese investor Mitsui, and the planned early 2006 launch of an automated platform that would make use of its trove of blog history.

RSS Evaluation

If you ask John Palfrey, a general partner at new private equity fund RSS Investors, “FeedBurner and Google are way ahead,” with FeedBurner taking a lead in the vertical RSS-centered approach and Google controlling the horizontal ad system. Still, knowing the ins and outs of RSS might not be the most valuable part of the equation; actually selling the ads is vital. “FeedBurner stands the risk of having their entire lunch eaten by Google,” says Mr. Palfrey, who is also executive director of the Berkman Center for Internet & Society at Harvard University Law School. He says to pay close attention to Google patent application, if only to note that a juggernaut is trying to stake out a chunk of the space.

However, startups can also partner with large-scale ad sellers like Google, as well as traditional online marketing agencies, an option most of them are exploring. One advantage an RSS-centered company has for now is its understanding of the differing nature of casual web page readers and devoted feed readers—a distinction that Google glosses over. Mr. Costolo uses the example of an Apple Computer-centered site, which wins readers by placing a search ad or winning a high search ranking for its review of the new iPod Shuffle, and then gets high returns for AdSense ads directing readers to online shops selling the hip little music players. However, people who subscribe to the same site’s RSS feed are likely to be Mac fanatics who bought the Shuffle the day it came out. A better ad for that readership, Mr. Costolo contends, might be for a MacWorld Expo pass.

Growing Up

Across the board, some best practices for advertising in RSS feeds are emerging. To work with the quickly proliferating numbers of feed publishing platforms and feed readers, companies favor displaying the ad as a graphic inserted at the bottom of a feed item. That also helps keep content and advertising separated, stops spam bots from inflating the number of clicks on a text ad, and ensures that the most up-to-date spot gets shown. And in the metric-hungry advertising world, an ad server can track how many times it renders the graphic. To that end, an asset sure to give a startup a good shot at staying in business is metrics. RSS acts as a bit of a shield for users, who don’t have to supply any personal or contact information to subscribe. There’s no equivalent of a cookie to follow subscriber activity. And a future problem could be verifying that the feed’s publisher was the creator of the content, and deserves to profit from it.

But even in the experimental world of blogs, some say RSS isn’t ready for ads yet. Carrboro, North Carolina-based Blogads.com—which has been tremendously successful, driving 29 percent of site traffic in a recent Audi campaign after accounting for only 0.5 percent of the budget—is still pondering placing ads in feeds. “It seems to me that RSS is where HTML was in 1992 or 1993,” says Blogads founder Henry Copeland. “It’s a very basic tool, something like thread, and we need to create garments that actually keep people warm.”

However, putting ads in feeds is crucial to the proliferation of RSS itself, says Google’s Shuman Ghosemajumder, a business product manager for the team working on AdSense for feeds. “That monetization opportunity is really something that is necessary to unlock that fear and to allow publishers to put that content into the feed so that users will be able to benefit from it,” say Mr. Ghosemajumder. Putting the full text of content in a feed, rather than just a teaser to click through to a web page, will make RSS aggregators much more useful and probably much more popular.

Mr. Palfrey of RSS Investors agrees that publishers will shift away from using RSS itself as an ad for their own content. The scope of RSS feeds is starting to rapidly expand, in some cases tying in directly to e-commerce with “deals of the day”—in other cases to come in the next few years, alerting a business to changes in supply or demand, or monitoring patients remotely. “The idea is anything you want to keep track of, you can now get access to through RSS,” says Mr. Palfrey. Monetizing a feed by stapling in matched or contextual ads will be just one of multiple options. The best thing any company can do is to keep experimenting as syndication evolves.