Commentary
Why Search Means We Can't Charge CPM Anymore
- by Paul Knegten , May 7, 2009
Search advertising existed before Sergey and Larry introduced their baby to the world, but innovations such as Quality Score and bidding on CPC pricing turned search into the internet juggernaut it is today, comprising 45% of all online spend in 2008, all on a product that only began serious use a few years earlier.
It wasn't about technology, it was about business at that point. But, technology had to drive it, and the ability to capture what people want -- the customer's intent -- was something Google had been working on for years and now they'd found a way to best deliver ads based on that intent. This is something any good marketing campaign strives to do, and it's something display advertising never understood in Web 1.0 and decided not to for the 10 years following it.
Only now are we seeing the technology part begin to deliver some promise for display. Semantic advertising, behavioral advertising, remarketing, and dynamic ads targeted by any of those methods are beginning to crack the nut of how we can deliver consumers a tailored message based on what they want. I knew things were finally changing in the old "billboard" method of online advertising when I began to see even actual billboards going digital and intelligent on the Jersey Turnpike.
Nevertheless, the overwhelming majority of media companies still see the world in terms of CPM -- exposure, share of voice, and impressions -- yet marketers who have ever put a dollar into search don't care about any of these things. Google ruined it for everybody, people, and now we have to deal with it. It unearthed the true underlying (and measurable!) motivation of direct marketers: to maximize revenue. Before search, marketers were placated by a series of proxies for revenue, each more distant than the last. CPM is the prime example of this.
But years ago search became cheap and easy enough for any marketer to use and whose accountability and measurability actually spoke in terms of unique visitors to their online store (not quite revenue but far closer than "share of voice" or "number of impressions"). The reason that display is still primarily a CPM based model is quite simply because traditional display ads can't deliver nearly as much ROI as search when compared on the same metrics. So, we revert again to the print advertising and billboard model of pricing and measurement.
But they say denial is the first step toward getting over the death of a loved one. Demand will drive the market, and demand for more accountability (CPC, CPA) and performance is something we'll continue to see more of. With display technology finally catching up to search in performance marketing, isn't it time that the business model grew up to accept that?
Good post Paul!
I agree the future of display is in performance based advertising, CPM doesn't make any sense any more. Especially these times - advertiser are looking only for proven ROI.
Ben, ContextIn.com
CPM is not the problem. There are distinct advantages to CPM for publishers. For a marketer, clearly every CPM based buy needs to result in real conversion metrics that the marketer cares about, and so the real metric is eCPM or effective-CPM which takes into account the CPC or CPA and computes CPM.
Given that publishers work hard to produce content, present and drive traffic to their properties, they deserve some level of predictability in terms of revenue. And CPM buys from advertisers based on forecast impression volume is a reliable one.
The drive on the part of all constituents should be to discern intent of the user, respect their privacy concerns and deliver the most relevant messaging possible. This means publishers, networks and exchanges should leverage information that they already have on a given user, impression, page et al. Advertisers should have a way to leverage that information into more intelligent, dynamically constructed, optimized advertisements. The underlying platforms need to be smart enough to make use of all of this and scale!
Tumri and others in the dynamic, smart ad platform realms are getting at intent and delivering high performance. It is important to understand that Search does NOT deliver any significant brand awareness, and brand still matters a lot. TV still works, and so do many print outlets (not newspapers). Display will surely catch up to search in terms of intent capture and performance via efficiencies in the eco system, and will deliver a branding punch that is significantly more attractive to advertisers, to the detriment of some broadcast channels. This is my prediction. And display inventory is huge...
Hey Pradeep,
I agree that publishers certainly lose control of the risk equation without CPM. And I agree that brand awareness is a different goal, but I'm speaking primarily from a DR bias -- and I think the web is the most under-utilized platform for creating effective DR campaigns, and the pricing model we've stuck with is one of the reasons for Display not realizing its potential.
Good post and I share some of the comments from pradeep. Couple of addtional comments- and these we see have seen based on our firms expereince in building revenue recogntion solutions for a variety of online ad pricing models:
1. Display - for most its a brand/name awareness effort. We see a number of companies tracking "clicks" CPC for the impressions served though revenue is recognized only on CPM's delivered - which i believe is similar to eCPM
2. Search advertising (ex: adwords) has made is very affordable for small businesses to get their name out and the CPC model helps to track CTR and see effectiveness of campaigns - as opposed to display which requires significant effort and cost to develop content/creative etc...
3. Finally, with emerging video and in-gaming ad models which rely on "engagement" rather clicks or impressions, both CPC or CPM models may become get replaced with other pricing models...
Rajiv