A well-capitalized ad broker would be able to pay its publishers promptly; it's part of the reason why such middlemen take a big cut of advertisers' payments. The only sensible reason why Glam can't pay Web publishers promptly is because it no longer has the capital to float its accounts receivable, despite raising $85 million earlier this year. I'm sure Arora will deny that he's running low on money — in which case he will be tacitly admitting that he's stiffing his partners.

Or what seems like a bargain. But even the bigger online ad networks are troubled. Take Glam Media, for example, the splashy ad network founded by Samir Arora, which he has pitched as "the future of all media." A dismal future indeed, if so. Glam grew quickly by promising publishers rich ad-rate guarantees, and then ran into trouble selling the inventory it had acquired at those rates. In the third quarter, according to two sources familiar with Glam's finances, Glam took in $14 million — $11 million short of the $25 million forecast Arora gave investors when he was peddling a stake in the company. Layoffs ensued. It's not clear how much of the $85 million Glam raised in February is left to buy up competitors.

And if the advertising market is due for a deep downturn, as many in the industry fear, then the more successful ad networks would be wise to husband their cash, rather than spend it on weaker rivals. Darwinian market forces will do away with the lesser ad networks soon enough. Roll up, or roll over? The latter seems wiser.

Glam has always described itself as an amalgamation of very focused sites. What I’m noting in this post is that the vast bulk of the users it is boasting about through ComScore come from games, social networks, personal publishing platforms and shopping bots. There’s nothing wrong with any of those sites, they simply are not what Glam has said its business is about. And I’m not entirely sure that ads on them deserve the premium price Glam hopes to charge.

I've noted an interesting new development in the comments from Glam publishers: They now argue that, in a stormy advertising market, Glam's guaranteed payments are a safe haven. But the guarantees are only as solid as Glam's business.

We're told the company is no longer offering them to all new publishers, and is desperately trying to renegotiate existing publisher contracts to get out of its guarantees. No surprise there: An insider says the company's revenues are running at almost half what it projected for investors. If Hansell really wanted to dig into Glam, he'd find out what those numbers are. Glam's vociferous commenters may well prompt him to do that.

Glam's whim-seeking CEO, Samir Arora, in his efforts to create the illusion of a game-changing new media company, is expanding willy-nilly into new fields, without the sustained effort or attention required, hoping that someone will buy his company before they notice all the failed initiatives that trail in Arora's wake. Our prediction: Brash will go the way of Glam's "wellness" channel, an initiative of Arora's wife, Rebecca Arora. Six months after its launch, Glam laid off all the salespeople involved in selling it, several sources confirm.

As an online ad network, Glam buys ad inventory from publishers and resells it — hopefully, at a markup. Some of those publishers are now becoming restive. We hear Lifetime, which signed with Glam less than a year ago, wants out of its deal. MyYearbook, the second-rate social network which provides much of the traffic count Glam touts to advertisers, is said to be disappointed with the revenues Glam has been providing.

And Global Grind, a hip-hop social network startup which only signed with Glam in June, may also be moving on. CEO Navarrow Wright tells me the company is already "seeing success" with its Glam partnership, but at the recent Mixx conference in New York, talk was that Global Grind was examining its options and thinking about breaking its Glam deal.

(Photo via San Francisco Chronicle)

Glam is a poorly run middleman operation which has been buying high and selling low, ad-industry players tell me. Glam has spent millions of dollars buying up sites' advertising inventory, to create the illusion of bulk, and hiring expensive salespeople, in the hopes of later reselling the ad banners at a profit.

Arora could argue he's cutting back in the anticipation of trouble in the advertising market to come. Or the company could be using layoffs to weed out salespeople, many of them recruited from the traditional media world, who aren't making their numbers. Glam, we hear, has been buying traffic at a $6 CPM, or cost per thousand pageviews. That is a rich price for traffic which is mostly low-end social-network content for which advertisers balk at paying, and it would not be surprising if some Glam salespeople found that challenging.

More worrisome, given the ongoing credit crunch: $20 million of Glam's last round was "revenue-based debt financing." The way Glam has been spending, if the revenue underpinning the debt is not materializing, Glam could face a hard time getting new financing.

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Some prize: Numbers from Hitwise give MyYearbook 1.5 percent of U.S. traffic to social networks. Compared to MySpace's 71.9 percent and Facebook's 16.9 percent, that's a limp into bronze. Norwest Ventures Partners, US Venture Partners, and First Round Capital participated in this second round of funding. MyYearbook says that it will "use the money to create new services and make more money." One likely way it will do the latter: Dropping Glam Media as its online-advertising network so it can keep more of its advertising revenues.

Glam Media Launches Glam Wellness Vertical:
Mind-Body-Spirit; Healthy Planet and Empowerment

EatingWell, EarthPledge, EcoFabulous, Natural Solutions Magazine, Lifescript and Others Join Glam Wellness Channel; SOYJOY is Launch Sponsor

SILICON VALLEY, Calif. and NEW YORK—July 28, 2008—Glam Media, Inc., the
pioneer of vertical content networks and number one in reach for women online, today announced the launch of Glam Wellness, a new vertical encompassing mind-body- spirit, empowerment and a healthy planet. Glam Wellness provides brand advertisers, including launch sponsor SOYJOY, with access to women passionate about wellness. More than 20 Web sites and publishers have joined the Wellness vertical, within the Glam Publisher Network of 640 sites, where Glam Media will represent their premium ad inventory. In addition, Natural Solutions Magazine and Earth Pledge, a nonprofit dedicated to promoting sustainable practices, both joined today as content partners on the Glam Wellness channel on Glam.com.

Launching with more than 3 million uniques, Glam Wellness is the fastest-growing premium wellness vertical network. Sites joining the Glam Publisher Network include: BeThree.com; Conscious Living TV; EcoFabulous; EatingWell; Lifescript; Low Impact Living; Spaparazzi and others. Glam Wellness is the most recent channel to launch in the Glam Media vertical content network, which brings together premium media content and 640 publishers to give advertisers a unique and diverse platform for brand engagement with their target audiences.

“Natural Solutions Magazine is excited to partner with Glam Media to inspire and inform readers (both online and in print) who care about well-being and healthy living,” said Rob Lutz, President & Group Publisher, INNOVision HEALTH MEDIA, Inc. “Glam’s Wellness channel brings together a premium community of Wellness publishers and content for consumers.”

“The premium Wellness sites and sought-after publishers in the Glam vertical content network offer brand advertisers both incomparable reach and the right environment,” said Joe Lagani, VP and GM of Glam Wellness and Glam Living. “Glam’s Wellness channel enables brands to reach a premium wellness audience on the Web and to connect with women seeking purpose, balance and healthy living.”

Glam Wellness will be overseen by Joe Lagani, former publisher of Conde Nast’s House & Garden and is run by Glam co-founder and Wellness Director Rebecca Arora. Glam Media’s vertical content network now features six separate channels, including: Style, Living, Entertainment, Wellness, Health & Family. Each channel offers a distinctive blend of original editorial, media partner content and curated content from the Glam Publisher Network. Glam facilitates the building of businesses for its hundreds of publishers by allowing them to focus on creating content and engaging their audiences while Glam Media’s vertical network connects branded display advertisers with the online audiences of the sites in the Glam network. Glam Media interfaces with a handpicked network of publishers and managed vertical networks to provide a host of media services such as display and video advertising, content syndication, advertorials, search and other applications.
# # #

About Glam Media
The founders of Glam had an epiphany about what it would take to bring brand advertising online –to niche and premium Web audiences. Today, Glam Media is the fastest growing Top 20 Media Company in the U.S. With a total reach of nearly 41 million unique monthly visitors in the U.S. (comScore Media Metrix) and 77 million global uniques, Glam Media provides a compelling mix of owned & operated web sites and the carefully curated Glam Publishing Network of more than 640 popular and influential lifestyle Web sites, blogs and magazines. For premium national brand advertisers, Glam Media offers an unprecedented array of reach and targeting that are singularly attractive to both upscale and aspirational consumers. Glam Media is backed by Hubert Burda Media, GLG Partners, Accel Partners, DAG Ventures, Draper Fisher Jurvetson, Walden Venture Capital and Information Capital. Glam Media is based in New York City and Brisbane, California.

The process is ably helped along by the Wall Street Journal, which breathlessly and inaccurately describes Glam both as a network with "450 partner sites" and as a destination site, in fact "the most popular women's site in the U.S." By glossing over the difference between a low-margin ad network and a Web publisher, the Journal serves as a mouthpiece for Glam's slick chairman and CEO, Samir Arora, who ends the article with a self-serving quote: "This will be the year that Glam goes global." Has he run out of suckers domestically so soon?

Namely, that Glam might be talking to European private equity firms. The kind, our source explains, that has more capital than sense, an eye on the sinking dollar, and a tendency to start funding conversations with American entrepreneurs by asking, "What would you do with $80 million?"

The theory goes that a European firm would buy Glam, pump a couple hundred million dollars into inflating its traffic with guaranteed revenues for new partners for its ad network, tighten the revenue share on older partners to get them thinking of selling out, buy those blogs to increase Glam's owned traffic from about 3 percent of its network to maybe 30 percent, and then flip the whole thing to an old-media behemoth desperate to make an online advertising splash with Glam's coveted female demographic.

Don't believe the bit about Glam lowering the CPMs it pays out to its partners in order to make them vulnerable to buyouts? Some Glam partners worry it's already happening. A partner tells us Glam used to pay $20 to $30 CPMs for premium ads and $7 to $10 for run-of-network ads. Now they pay $7 for the premium stuff and $2 for run-of-network "garbage." For Glam's publishing partners, these sources say, it's getting harder to sustain a business on Glam ads, and it's getting ever more tempting to sell out.

We hear that many Glam partners who want to sell have to offer themselves to Glam first, under right-of-first-refusal clauses. Industry watchers say Glam learned these tactics when it hired Richard Rocca from hardballing ad network Gorilla Nation.

Take the conspiracy theories with a grain of salt. Some of the CPM shrinkage is the result of Glam's increase in size. Selling inventory, it used to be able to go straight to marketing departments, which tend to spend more for less. But now a run-of-network buy on Glam costs so much that it exceeds the amount marketing departments are allowed to spend. Buys have to go through agencies, whose media buyers watch out for clients like Procter & Gamble by refusing to pay more than a $7 CPM. Just business, in other words — but Glam signed up those websites on the promise of better economic terms.

Even if Glam's partners are wrong in their suspicions, the very fact that some believe Glam's business model is so flawed it has to cheat to win begs the question: Who — other than more investors who want in on the shady action — is going to pay $1.3 billion for that kind of company?

Publishers rarely stick with ad networks when they reach a certain size, and Glam has a reputation for signing up new sites with expensive guarantees. (A Glam spokesperson claims it's not seeing sites leave after the guarantees expire.) Ultimately, though, Glam's sites have two fates: Either they never get large enough to matter, or they grow too big for Glam to justify its cut of sales. At that point, they'll likely leave or get bought outright by Glam — a considerable future liability for shareholders.

None of this means Glam won't sell. Glam CEO Samir Arora sold a majority stake in his startup NetObjects to IBM in 1997. Four years later, IBM sold the company off in parts for a pittance. Glam backer Tim Draper of Draper Fisher Jurvetson profitably sold similar lemons — Hotmail to Microsoft, and Skype to eBay. We doubt Glam's viability. We don't doubt Glam's backers ability to sell the company. To suckers.

One StyleMob cofounder, Adam Souzis, already works as an executive director of Glam Lab. Only Sasha Cagen remains with StyleMob. The Souzis connection between the companies and the fact that StyleMob was already a Glam Media publishing partner, however, lend credibility to the rumor.

It's also not surprising to hear that Cagen isn't happy to be acquired by Glam. Glam claims to be "largest women's network" on the Web, but it's really just an ad sales team looking to buy similar-looking inventory low, bundle it, and then sell it higher. It's a poor business model, because to survive in the long-term, publishers have to be able to sell their own inventory at premium rates.

Glam has a hefty publisher client list — websites it doesn't own, but for which it provides ads. (The list includes some sites which compete with Jezebel, owned by Gawker Media, the publisher of Valleywag.) Glam is also now the "largest women's network" according to ComScore, with nearly 45 million "readers."

Impressive? Not really. ComScore allows publishers to "assign" their traffic to another organization, letting ad networks pool the traffic from all client sites. If a widely used ad network like Google AdSense used this system, Google's network would be by far the largest. But, it's a disingenuous statistic, especially since Glam likes to pretend it's not an ad network.

Glam does have an argument that it's more than a network: That's because, like Microsoft has done with Facebook and Digg, and Google has done with MySpace, it buys up some sites' inventories at a guaranteed rate. That means the profit — or more likely loss — from those ad buys is entirely Glam's. But it's a very risky model. In a recent earnings call, Google executives complained that ads on MySpace weren't performing well. Google can afford that kind of risk. Can Glam? With only $84 million to play with, Arora hasn't raised the kind of bankroll that speaks well to that question.

What does an online-ad company have to do with an energy concern? Like Enron, Glam's true business isn't selling; it's arbitrage. Glam grows its revenues, rivals say, by acquiring ad inventory from websites and then attempting to sell it to media buyers at higher prices. Buy low, sell high is a time-honored business model. But it's not a recipe for exponential growth spurred by viral marketing, as Hotmail and Skype were.

Nothing in Glam's business encourages a Glam advertiser to sign up other advertisers; nor does it spread from publisher to publisher unbidden. All Glam has going for it is the size of its wallet, which is why it's so desperate to raise money. Only with fresh capital can Glam continue its ad-buying spree, providing the illusion of growth that will allow it to gather more money, preferably in an IPO. At some point, investors will be left holding the bag. Maybe that's where Draper sees a connection: He unloaded Hotmail to Microsoft and Skype to eBay long before their buyers figured out there was no money in them.

The diminished financing must be a disappointment to Arora. But it also could be a comedown for the crowded ranks of investment bankers working the deal: Allen & Co., Bank of America, Credit Suisse, and Deutsche Bank are all involved, we hear. Split four ways, the commission on the shrunken deal likely won't pay many bonuses. (Note: Glam represents some sites which compete with Jezebel, a women's blog published, like Valleywag, by Gawker Media.)

Talking up the ad-network business has had an unintended consequence for Arora: Drawing fresh competition from the companies Arora is seeking to displace. NBC Universal has quietly launched its own ad-brokering operation, the NBCU Extended Network, which places ads on NBC Web properties and third-party sites. Just like Glam, in other words, but without the established brands and sales force NBC has on offer.

Glam's Arora blathers on to Folio about exploiting the "mid tail" and operating a "hub and spoke model." To the extent that there's meaning behind those buzzwords, NBC and other established media operations have figured it out. Which leaves Glam, which is seeking to raise $200 million in financing, with little besides Arora's skills as a salesman to justify its valuation.