Display Ad CPMs Won't Recover

  • by , Featured Contributor, April 30, 2009

I'm hearing from a number of folks that the cost-per-thousand (CPM) rates for online display ad impressions are taking a big tumble this quarter -- buzz that comes on top of the fact that display ad rates have been sliding for the better part of the past year and a half. If all this talk is true, it's very bad news for companies that depend on premium pricing of display ads to pay their bills, whether they are premium content publishers, display ad networks, or companies that supply technology and services to Web publishers.

As my friend Brad Burnham of Union Square Ventures likes to say, "We've seen this movie before." Back in late 2000 and throughout 2001, when the Internet Bubble collapsed, we also saw online ad rates tumble in a similar fashion. This cleared the market of thousands of online ad companies with weak business models or capital structures. Eventually, once the general ad economy rebounded, so too did the online ad marketplace, with ad rates rebounding -- though substantially below where they were in the Bubble years. This time, however, I don't think that we will see a recovery once this recession runs its course. As a category, online display ads will continue to track lower and lower rates for years to come, with no floor in sight.



Why am I so pessimistic about display ad rates? It's pretty simple. Going forward, the supply of online display ad impressions is growing much faster than demand. I don't see that gap changing, ever. Here's why:


  • Exposure-based advertising is now a commodity. The media world used to be defined -- and valued -- by scarcity of distribution. In that world, audience exposures (impressions) were also scarce and thus served as a strong currency for the industry when they transacted with advertisers. Not anymore. In a digital media world, distribution is plentiful, as are audience exposures. It is audience attention that is scarce. CPM pricing, tied to impression, is no longer an appropriate currency for most advertising. Anchoring businesses to it is akin to tying yourself to a rock and throwing it off a cliff.



  • If marketers can cost-effectively buy measurable results, why would they buy anything less? As Jack Myers keeps telling us, marketers have for decades been shifting greater and greater portions of their marketing budgets away from advertising and into direct marketing and promotion. In the online marketplace, Google, and other online ad networks changed the world for marketers, delivering highly qualified leads and sales both cost-effectively and at real scale. Virtually no marketer today buys online ads solely on the basis of CPM. It is all "backed out" into a cost-per-click or a cost-per-lead or a cost-per-something.



  • Creating true "premium" exposures requires more than just creating artificial scarcity. In a world where audience attention is scarce, media companies that can truly capture and deliver the attention of audiences to marketers' messages will be able to drive ad rates much higher than just the direct marketing result of the campaign -- but it won't be nearly as easy as it used to be! Only those Web publishers that demonstrate they can deliver both unique and valuable audiences at scale, and also deliver measurable and premium results for marketers, will have any chance for premium rates. Exposure numbers won't cut it; neither will viewing time-per-page numbers. The Super Bowl, "CSI" and "American Idol" get great rates because they are unique in their ability to deliver large, attentive, simultaneous audiences -- and because they move stuff off shelves. It is a high bar.


    What should you do if premium CPMs (anything above the pure direct marketing value of your impressions) are a part of your business model? Prepare for a different reality. The future of media will require much lower cost structures, more flexibility, and the ability to deliver measurable results at scale for marketers. It will be hard to survive with less. What do you think?

  • 20 comments about "Display Ad CPMs Won't Recover".
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    1. Rich Lefurgy from Archer Advisors, April 30, 2009 at 3:27 p.m.

      All impressions are not created equal, so we won't see a difficult recovery for premium CPM's; I'm not even sure how much of a tumble there will be for the leading properties. There will be a difficult drop and recovery for undifferentiated inventory, but premium sites will be able to manage scarcity through strong ad programs that provide value in order to maintain their prices.

      I totally agree that undifferentiated inventory will have a hard time clawing back to loftier CPM's and they will have to do it through the demonstration of value. Exchanges will accelerate this new order, along with the help of the new data providers that are creating value by separating the user from the actual ad impression. The big disruptor in this whole equation will be the entrance of the online media holding companies using trading platforms on top of exchanges to exploit performance data in their buys.

      Pricing in our industry has long been plagued by an over-supply of inventory that makes it tough to maintain premium pricing, but the leaders will be able to weather the storm.

    2. Larry Allen from, April 30, 2009 at 3:27 p.m.

      You are spot on with this article. Publishers must build programs and packages that effectively combine defined audiences with high impact (or quality) environments to compel the consumer in a way not possible on other ad networks or publishers. This will drive better results, help maintain or raise rates and ensure that publishers have a thriving business for years to come. Gone are the days of posting a banner ad and sitting back to watch the money role in. We need a whole new set of tools to provide insights to our clients to make them smarter and keep them coming back for more quality products that meet their objectives.

    3. Steve Levy from Hype Circle Ad Collective, April 30, 2009 at 3:58 p.m.

      While there is certainly an abundance of poorly targeted inventory and it continues to expand, targeted audiences by their nature are still scarce so therefore worthy of premium pricing for advertisers. Certainly the CPMs for "shotgun" campaigns continue to fall--we are hearing these complaints from our partner sites using contextual feeds from ad networks and Adsense. However we are still seeing our advertising clients willing to pay higher CPMs to reach the right targeted audiences for their brands. Its just a matter of differentiating the high and low value inventory and presenting accordingly. As Rich said, "All impressions are not created equal."

    4. R.J. Lewis from e-Healthcare Solutions, LLC, April 30, 2009 at 4:05 p.m.

      Dave, while I normally agree with you on many fronts, I have to strongly disagree with you on this one. For both publishers and advertisers, BRAND matters.

      The publisher's with strong brands will always cut through the clutter and attract the most qualified audiences and thus carry a premium (CPM represents this today, and I think will for some time to come).

      Advertisers need to build their brands and brand BUILDING and CPA/CPC don't go as well together since unbranded creative is often better at drawing filling the top of the conversion funnel.

      Quality matters, and as the Internet fragments media even further.... publisher brands matter more than ever.

      I do agree that conversions in the end drive marketing dollars, I just don't see why that means the end of CPM advertising... premium brands convert better, but shifting from CPM to CPA is about the shifting of risk, and premium publisher brands don't want (or need) to do that, and advertiser's are willing to pay a premium as long as conversions and quality are great.

      It's a thought provoking topic though for sure.

    5. Dave Morgan from Simulmedia, April 30, 2009 at 4:26 p.m.

      To be clear, I also believe that BRANDS and BRANDING matters, I just don't know that that has to do with CPM and exposure-based pricing. Buying the latter in no way guarantees delivery of the former.

    6. Josh Miller from Performics, April 30, 2009 at 4:38 p.m.

      In terms of direct response results (leads, sales, etc.), I have yet to see a highly branded publisher (NYTimes, ESPN, etc.) that has CPM's in the $10+ range outperform sites with lower CPM's. Even from a brand awareness standpoint, most campaigns I have run have seen greater lift in awareness metrics on the smaller sites.

      I agree with Dave that CPM is not the best pricing structure for achieving online objectives, whether they are branding or response based. Cost-per-performance is much more in line with the measureablility & accountability that our medium provides.
      That said, we still run campaigns on CPM, just not at the premium rates. If we did, we wouldn't hit any of our goals.

    7. Cathy Taylor from MediaPost, April 30, 2009 at 5:04 p.m.

      Blogged on this subject today over at BNET Media, or at least on what Tim Armstrong's thoughts are finding value in premium content. If you care to take a gander:

    8. Jerry Shereshewsky from GrownUpMarketing, April 30, 2009 at 5:31 p.m.

      One-sided relationships don't last long. For most advertisers, cost per whatever advertising is simply a way to dodge their responsibility to create responsive ads. If they only pay for the click or the conversionthen they have no responsibility for the waste that mediocre offers and dreck creative leave in their wake. (After all, as Seth Godin again said today, even a blind squirrel finds an acorn occassionally.)

      Advertisers, their agencies and publishers all have to shoulder a share of the responsibility for performance. But for a marketer to put all the onus on the publisher - who, after all, has little or no input into either offer or creative - is shortsighted.

      We are happy to work with responsible advertisers who recognize that there must be a balance.

    9. Paula Lynn from Who Else Unlimited, April 30, 2009 at 5:54 p.m.

      Pre digital, a b2b CPM was higher than a consumer CPM. Now with volumes of volumes of volumes of content on all levels, does anyone really need 3 guesses where the CPM trail is going. Depending upon how much product a company needs to sell to earn a living profit contributes to a CPM value, too. How difficult is it to find and reach the decision maker purchaser - would a higher CPM have more value or less? The more content, the more opportunities to find an audience and the more opportunity to lose ad dollars. Have fun all.

    10. Marc Minardo from Crain's New York Business, April 30, 2009 at 6:12 p.m.

      Unfortunately what goes down does not come up. Publishers who deeply discount will have a very difficult time raising them back to where they belong.

    11. Jonas Halpren from Federated Media, April 30, 2009 at 6:39 p.m.

      While I do agree that prices for unoptimized, run of whatever impressions will continue fall. However, not all impressions are created equally. A targeted impression, running on a trusted site with a strong brand will continue to command a premium, just like a Super Bowl ad. Yes, the prices will fluctuate in good times and bad. However, brands looking to boost awareness buy leveraging a strong media brand will pay for the privilege. How much a pub can demand is a function of quality content, inventory management and an effective sales team.

    12. Ari Rosenberg from Performance Pricing Holdings, LLC, April 30, 2009 at 11:03 p.m.

      This topic always sparks a debate and our opinions (I don't believe) can ever be completely separated from our experiences and business biases.

      My biased experience comes from the buying and selling of brand centric advertising. Advertising paid for by people who intuitively feel better about their purchase when the content brands they appear alongside have substantial tenure and strength. These people are smart, strategic and well schooled in the business of brand management and are willing to pay an access fee for this intuitive feeling their brand prospers when seen in good company. As long as premium content brands don't cave to buying demands that over reach, CPM advertising should not only exist, it will prosper.

      The future truth on this issue lies in the hands of the publisher and the brand value they create.

    13. Conor Mullen from RTE Publishing, May 1, 2009 at 4:19 a.m.

      There is a consistent demand to ensure a measurable ROI in online advertising - simply because you can measure click and conversion.

      Just because you can doesn't mean it works - there is a value chain in all advertising and along this path consumers are touched by brand message, call to action and short term offers.

      To depend on performance only at CPA or CPC is a falsehood - if were any other way - no one would advertise brand and billboards would be blank.
      Jerry hit the nail on the head - there is a responsibility to create stimulating and attention grabbing advertising from the creatives and not just the publisher to deliver results on ad creative they have no control over.

      Whilst the supply vs demand arguement may hold in some traditional environments - the supply online is often based on the amalgamation of individual visitors to quality content and a value needs to be recognised in that.

      Reducing the available inventory is not the answer but neither is the assumption that because an wasn't clicked means it didn't perform or have impact further down the chain.

    14. Joshua Rex from AP, May 1, 2009 at 6:57 a.m.

      Let's not have any pity for businesses that suffers as a result of declining CPMs. The writing has been on the wall for a long time. Impression-based pricing models are antiquated relics of the print industry and from an era when there was really no better alternative. I think they have no place in today's environment where measurement, transparency and accountability are king. It's up to all of us to push for performance-based pricing models around new new display format that actually work. The Open IMU is leading the way.

    15. Evan Brown from Atlatl Media, May 1, 2009 at 10:41 a.m.

      Another factor you have not mentioned is the disparity in value between impressions that generate clicks and those that do not. We are conditioned to believe that online ads must generate a tangible response for it to have value.

      This means that today, 99.95% of all banner impressions are perceived to be worthless. In order to increase the CPM, it will be necessary to show that there is value in more than just the 0.05% that generate clicks.

    16. George Simpson from George H. Simpson Communications, May 1, 2009 at 12:17 p.m.

      This kind of gets to the heart of advertising doesn't it? Clearly advertisers have put billions into TV ads year in and year out with little to no direct response "proof" that their ads work, yet product moves and more ad dollars are spent. Surely by now someone has launched a “new” brand just within the online environment. Did the product move? Case closed.

    17. Chuan jer Lim from Yahoo! Southeast Asia Pte Ltd, May 3, 2009 at 9:46 p.m.

      I can't agree more with Jerry from Grandparents on the part that CPA/CPC is just an excuse for agencies/advertisers to be responsible for their creatives.

      By just focusing on CPC/CPA, they effectively transfer all responsibility to the publisher. Not only that, in the fast pace world, even if publishers advise against their creatives, they'll simply say this campaign must launch.

      CPM will not die as there's so many ways to doing a creative in the online space. Add rich media in, there's 1001 ways of creating a creative that engages the audience.

      supporting such customized rich media ads is unique to every publisher and that's where a publisher can justify its premium CPM rates by being involved in the set up of a campaign with its sales force. Compare that with an ad network owner or a mediocre publisher whose sales force just go around and sell inventories.

    18. David Steinberger from Gomper, May 4, 2009 at 4:49 p.m.

      I'm late to this thread. It simply comes down to supply and demand. 50 years ago, 10 media companies controlled the supply of consumer time and attention and set the prices and rules with near cartel-like control. Supply seemed scarce and therefore more valuable to those who demanded it.

      Today there are hundreds of thousands of media companies fighting to collect scattered consumer attention, fighting for scarce ad dollars, and fighting to stay relevant in a user generated world.

      Demand will never again meet or exceed supply. That drives down pricing of all inventory, from remnant to premium. It's economics.

      The solution is to fix the economics of advertising. That's what I'm working on at


    19. Steve Crozier, May 7, 2009 at 3:41 p.m.

      David, you're right and you're wrong. There will be two categories of losers: publishers with no original, interesting content and therefore no engaged eyeballs to sell; and good publishers who felt the pinch and had to lower their standards and give away their impressions. Neither will get their CPMs back up.

      We took a completely different approach: as our readership grew (and thus, our impression inventory), we gave this increasing inventory to the people who made us successful: our current advertisers, instead of diluting them off the page with $0.10/M impressions. Result: loyal advertisers and happy readers.

    20. Andrew Boer from MovableMedia, June 4, 2009 at 12:20 p.m.

      I missed this article when it came out. I think it is exactly right..I would add a fourth reason why CPM's won't recover. A significant percentage of inventory in the market is now sold by Ad Networks who aren't price sensitive due to "passbacks" or "defaults". While they certainly would prefer to make the maximum amount on an ad sale, they have no skin in the game -- and any price is better than zero as long as the Publishers don't shut them off. So they all compete with lower and lower bids, driving prices down.

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