Barnes & Noble Nook's $4 billion ad slot

Want to find $4 billion? Look at the design coincidence of Barnes & Noble's new Nook e-book reader, which has a second color screen at the bottom that is somehow the exact same dimension as a web banner ad. Perhaps this is not happenstance at all -- perhaps B&N realized there is still one vast untapped corner of the world that marketers have missed as a channel for their messages, and the humble book is it.

That's right. Banner ads inside books.

If being served banner ads for Masonic meetings as you read Dan Brown feels unreal, well, let's first size the market. The average U.S. adult reads four books a year; with a population of 250 million you get 1 billion books digested annually. At 200 pages per book, that's 200 billion potential ad impressions if we stuck just one ad at the bottom of each page. Now, charge a $20 CPM for such premium placement and -- voilà -- you've just unlocked a $4 billion advertising market. College textbooks with coupons for Starbucks coffee, here we go!

Of course, the challenge would be adoption. Advertising isn't always welcomed in new spaces, so we might need an intermediary to push the idea along. Let's see -- what part of the publishing industry is desperately experimenting with new revenue models?

Newspapers, your defense beckons

Why, newspapers. Their circulation dropped 10% in just the past year, and the graveyard is beckoning. So here's a little more free math: If The New York Times gave you a free Nook, you could be served 60 ads a day (assuming the stickiness of the device made you click around only NYT content) ... at a $20 CPM giving $1.20 in ad revenue to the Times. That's $438 in revenue a year per reader. The Times could buy Nooks wholesale for say $100 and break even after only three months, and grab huge interest among new readers (because who wouldn't want a free gadget and free subscription). Sign up 100,000 new readers, NYT, and in Year 1, after device costs, you'll make $33.8 million. Triple your CPMs, given the impact of the ad unit, and you're at $121 million.

That's a drop in a bucket for a company that made $571 million in the last quarter, but as costs come down from giving up wood pulp and presses, specialized devices tethered to protected content could be a survival strategy. And The Times, like most newspapers, is growing desperate to survive. Would an advertiser pay a $60 CPM for the only ad in front of a reader, who signed up for a device with detailed demographic information allowing rich targeting? Why, since most advertising is surrounded by clutter and thus ignored, we think yes.

Careful, it's a walled garden

The punchline is this: Newspapers or book publishers would win more consumer attention, because you can't easily surf away to other web sites on such devices. Advertisers would win higher response rates, because the ads are much more noticeable and could be contextually targeted to content and the user's personal information disclosed when they signed up. And consumers could win with a device that's more convenient than smudgy newsprint.

E-readers, in the end, are walled gardens of technology that wring more value from users because they control access while providing the illusion of high-tech convenience. Of course technology will soon leap ahead with 3-D mobile screens ... but given the enduring power of printed words on paper, we think users might go along for the read.