Commentary

Ad Spending and Its Effect On Ad Pricing

Has anyone else noticed there seems to be some buzz generated surrounding ad rates from publishers as of late? I have been in a number of new business meetings and client meetings lately where the question has come up of how the continued increase in ad spending is starting to effect inventory avails and prices, and I think its time to discuss the topic.

Over the last few years, post-bubble-burst, ad spending has been steadily increasing while more marketers become reacquainted with the online space. At the same time, the online inventory has decreased as publishers have started listening to the audience and to the advertisers about limiting the number of ads per page. For the ads that are being utilized by advertisers, many of the sizes have either increased - thereby increasing the ratio of ad to edit, or they have started to incorporate more dynamic creative into the placements by utilizing third-party technologies such as Unicast, Shoshkeles or Eyeblaster.

What we may be seeing is the simple law of supply and demand coming to fruition.

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As supply of the advertising space is decreasing and the demand for this inventory is increasing, due to more advertisers and larger budgets, we may be seeing the beginning of a more competitive, slightly conservative correction in ad pricing. This is compounded by the research that states more of the audience is using online in place of other forms of media and the research that indicates the strength of the online medium as a reach vehicle capable of increasing core brand development metrics.

A correction in pricing refers to the fact that some ad units may be undervalued by marketers, which is certainly music to the publisher's ears. For larger, more impactful ad units there will no doubt be a rationale for slightly higher pricing (I can't believe I just said that), but the smaller, dime-a-dozen units such as banners and buttons may not see this increase as they are still primarily perceived as a reach tool rather than a tool for generating impact.

How will this affect the types of ad sizes that sites look to incorporate on their pages?

What does this mean for the ad-buying market at large?

My hypothesis is that a decrease in supply and an increase in demand will create a market where aggregate leverage is now much more important than it used to be. In the last few years, shops of all sizes were able to negotiate strong rates but in this type of a market the larger media buying shops will be the ones to secure the best deals and the best prices. There will still be strength in the relationships, but the ability to secure such elements as right of first refusal and flexibility for reallocation during optimization will primarily reside within the largest aggregate media buying agencies.

Another by-product of this correction will be the further standardization of the buying process. As inventory becomes scarce, clients will be forced to think in advance of each month and move to more semi-annual planning. Upfronts may or may not develop as a result, but more and more clients will start to lock in placements in a similar fashion to how they handle their offline marketing dollars. In addition, standard terms and conditions for other types of buying such as email, search, and video will be developed faster than before (if all goes well.)

It could be a very interesting year as we all work together to continue to drive the maturation of the industry, so keep an eye out and keep paying attention and let us know what you are hearing.

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