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RSSTwo weeks ago in this OPI offering, David Koretz pointed to the dramatic disparity between the spending allocated to online advertising versus the time consumers spend on Web sites. Why does this disparity exist? One simple answer: Online inventory is cheaper, so advertisers don't have to spend as much as they do with other media. And I can't think of a worse label for a medium to bear than "cheap."
According to Pubmatic's Q3 AdPrice Index published last week, which reports the effective CPMs delivered by ad Nnetworks to their publishing partners, the range, depending on the type and size of site, was from 18 cents to 86 cents. These revenue figures are post-split -- so assuming a 50/50 share, the ad networks are selling online inventory on a cost-per-thousand-impression basis of less than 50 cents in some cases.
According to a very compelling presentation I sat through at the DPAC conference here in New York yesterday by a financial analyst from Clearmeadow Partners, the "page view CPMs" at the three major portals range from $7.36 to $13.61. These figures sound terrific compared to the ad network prices, or those at the social networking sites (Facebook was reported at 63 cents per thousand page views sold, and Myspace at $1.34), but these portal CPMs pale in comparison to other media. For example, magazines, even at heavily discounted rates, are generally in the $20 to $60 CPM range.
OK, so the cost per thousand "impressions" or "page views" should be lower than the cost per thousand "readers" -- I get that. But it still doesn't make up for the widening discrepancy between how much online costs clients to buy, versus what they pay in other media.
We can blame the ad networks for deflating pricing. We can blame the search engines for training advertisers to only value an ad buy when a direct action occurs. We can blame the forefathers of online advertising, who adopted a pricing model that mimics direct marketing instead of advertising sales. And we can blame buyers for holding our medium to far greater ROI scrutiny than other media. But as Mark Knopfler of Dire Straits shares in the song "Solid Rock": "When you point your finger because your plan fell through, you have three more fingers pointing back at you."
We are to blame for this value problem. We are the ones who accept buys at CPMs that make the McDonald's Dollar Menu feel expensive. And we continue to do so using the crutch that, as perishable inventory, it's better than getting nothing.
But maybe serving no ads is better than shilling our space at these low rates. Peter Naylor, the senior vice president of digital sales at NBC Universal, who earns an audience's respect the minute he starts speaking, shared an interesting "what-if scenario" during a panel at DPAC. He prefaced it by saying that, as unrealistic as it might sound, just because there is an ad spot built into a page view doesn't mean we have to serve an ad. He explained that the content could restructure itself so no ads appear if there isn't one sold at a premium rate. And if that were the case, the user would not always expect to see an ad -- so when one does arrive, it may have more visual impact.
I applaud Peter for thinking of a unique way to increase the value of the exposure we sell -- when so many of us are focused on figuring out how to increase the performance of the ads we agree to run. The latter is a NO-WIN proposition, which is why CPMs for our inventory will continue to plummet. We as publishers have far less control than we pretend to have in impacting a campaign's performance. And even worse, the better the ads do perform, the greater the demand for even better results will occur -- and there is no faster way to improve a cost-per-anything metric than lowering our CPMs.
Another possible solution to this core value problem is making greater use of a preemptable inventory pricing strategy. Ad network buys we accept are preemptable -- so why not apply that same logic with our own direct sales force? Stick a stake in the ground and tell your sales force that anything sold below a CPM of X has no guarantee of running. Your smarter sellers (and sales managers) will figure out very quickly the best way to exceed their quotas is to sell inventory that will run, and you will lose the sellers that cut deals at the CPMs "the buyer demanded."
These are just some potentially viable solutions that may solve a problem it doesn't appear many are sincerely focused on solving. So for those in that camp, I've got to ask: If our solutions are so advanced and superior to those offered by other media, why aren't clients paying more for them -- instead of less?
RSS FEEDS
Well said. I think the problem goes deeper, and you touched on it briefly. I think the underlying issue has to do with assigning responsibility. When the online industry migrated down the path of pay-for-performance (CPC and worse, CPA) it simply represented a major shift in the onus of responsibility. Much of the cheap CPMs you refer to are simply the arbitrage of trying to deliver on CPC and CPA/CPL campaigns. In the end, CPM pricing for advertising is fair and reasonable and puts responsibility on ALL parties (not just the publisher) to deliver results. The publisher can do what it does best - put the message in front of the right audiece, but the agency must also produce good creative and the client must offer a great product at a fair and reasonable price and their site must offer an excellent customer experience for the campaign to work. CPC/CPA pricing takes accountability for results away from the agency (and even the client) and unfairly places the entire burden on the publisher. Premium brands with high quality targeted audiences realize this and have smartly refused to go down the CPC/CPA path. Even at "premium online CPMs", online is an incredible deal for advertisers, offering fantastic efficiencies compared to the various off-line alternatives.
Great article. This subject needs more advocates like yourself.
Best Regards,
R.J. Lewis President & CEO e-Healthcare Solutions
One point that was missed is the fixed costs, and the costs to maintain a web site are a lot less than other media. Consequently, market forces will keep the cpm's of the internet low, and other media higher. Newspaper CPM's have always been higher than radio, which has always been higher than television. One can very easily and inexpensively, compared to start up costs of other media, set up an internet site. The billing needed to recoup the investment, and maintain the site, is much less than other media. Look how easily and quickly Google started up, and grabbed share from Yahoo. This scenario will repeat itself over and over again because of the low costs and virtually no barriers to entry. The cpm's will remain low. The "what if" scenario would never work. There are too many other options. Advertisers would simply buy around any "what if sites". Those sites would very quickly either have to change the strategy, or have management lose their jobs to new managers going back to the previous strategy.
Again, a good article.
Jerry Adams WWLP-TV22 Account Executive
I think there are other possible options besides limiting the inventory. How about selling the true value of the online content and audiences? The act of going online to find and read editorial, to scroll and click, to decide which source a reader trusts and which article is important among all the content, takes a large amount of cognitive processing. I argue (and we teach this process in our classes) that this “lean forward� mode of the audience who chooses, reviews and reads online content should be valued more than a less engaged, more passive audience. Our ability to guarantee delivery of an ad unit to a page when readers (eyeballs) are there is a huge value. No other media can demonstrate actual delivery of eyeballs to an ad or content on a page.
So maybe we need to retrain the sales reps to sell the real value of their content and audiences, re-think the pricing of the media that appears in an interactive and cognitive environment, as well as limit the inventory as part of the value of online ads. Ad networks can have a role in this environment, but that role, as far low-cost/discounted advertising is concerned, is to sell the “real� remnant, non-premium inventory of the premium brands. Premium inventory, whether sold by the brand or an ad network, should be sold at its full real value.
Leslie Laredo, President, Laredo Group
This created a better experience for the advertisers that did run and certainly helped drive a higher CPM for the placement.
Not a novel concept - but one that certainly makes sense for publishers to explore.
I think the preemptable idea is a good one, and one we have actually adopted.
I think the most important thing the Publishers need to do: forget the ad network daisy chains -- the policy that ad networks essentially have the inventory on contingency, and they can pass you back defaults.
Defaults encourage the ad network salespeople to race towards the bottom in pricing ... they don't have a floor, because all of the inventory they have is essentially bought on contingency.
At our company, we have a policy that any network who works with us must guarantee 100% fill...no cherry picking just the inventory they want, and passing us back the bowl of pits. If the salespeople at the networks start to realize they have to make at least $1.50 CPM in aggregate, they will no longer be able to price their inventory down at $.50 cents each.
Of the six networks we work with, four were willing to shift to this model. (They will typically require freq. caps).