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Federated Media, a web site that sells and runs ads on more than 150 blogs and websites (including VentureBeat), is restructuring to focus on “conversational marketing,” announced founder and chief executive John Battelle — and that means job cuts. Specifically, Marketing Manger Matthew DiPietro tells me that means seven of FM’s 90 employees are being laid off today, almost exclusively from the display advertising department.

Those cuts aren’t surprising given the broader economic environment, and specifically the doom-and-gloom around the online advertising market. If anything, it’s surprising the cuts aren’t deeper, and that DiPietro doesn’t seem more pessimistic about FM’s prospects. The Sausalito, Calif. company’s revenue has been growing by more than 90 percent for the last two years, and DiPietro says that while the digital advertising market will remain basically flat this year, FM expects to grow 35 to 50 percent. As ad budgets shrink, advertisers are focusing less on display ads (basically, traditional ads like the one you see at the top of this web site) and more on the high-return, interactive campaigns that FM has been moving towards.

“That’s not to say that we don’t do display anymore,” DiPietro says. “Display advertising for a long time for us has become more and more something that we do to support conversational marketing, and kind of the other way around as well. They’re both necessary for each other.”

In fact, DiPietro says many of the eliminated positions will probably be replaced by new hires on the conversational side in the coming months. And if you’re not sure exactly what conversational marketing means, DiPietro points me towards campaigns like those seen at Intel and Asus’ WePC site, where users can submit and vote on “dream PCs.” Asus plans to build the best one.

Another example is a campaign Federated Media helped orchestrate for computer manufacture Dell last year, designed to help brand Dell as an environmentally-friendly company. Dell sponsored a drawing contest on the Facebook app Graffiti, where people submitted digital renditions of “what green means to you.” Federated Media worked with Graffiti and Dell to organize the contest, and sold banner ads about the contest on other sites to help drive participation.

Federated Media raised $50 million last April.

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