• by Cory Treffiletti , Featured Contributor, July 21, 2004

Is advertising pricing on the rise? Is inventory selling out?

As we all learned in Economics 101, pricing is based on supply and demand. As supply decreases and demand increases, prices go up. Prices drop when demand falls and/or supply increases. The Interactive Advertising industry has now strung along a few consecutive quarters of post-bubble growth and inventory is once again becoming scarce when you examine the premium, high-reach placements. Does this signal the beginning of a price increase for online advertising?

If you do an informal polling of online media buyers (as I just did two days ago), you will hear that publishers are "trying" to raise rates or that the rates have begun to see an increase. If you speak to the publishers they will tell you that they never lowered their rates on premium inventory, so somewhere in the middle lies the ugly truth - that needs to be voiced.

The truth is that rates are starting to go up. Inventory has been reduced as many companies have started to phase out pop-ups and limit the number of ad opportunities on their premium pages. As click-through performance has decreased, view-though analysis and brand favorability metrics have started to see more attention paid to them. The advertisers are finding a value in the exposure of an ad to a target audience and not just from the immediate or latent reaction that they may initiate. This is coupled with a growing trend toward accountability in offline media to aggregate all advertising into this middle ground where ad dollars are analyzed in whole and parsed out based on transitional metrics by vehicle for success to determine which elements are truly driving growth.

As prices start to increase, advertisers need to plan accordingly. Business projections and forecasting models need to be based on today's metrics rather than on metrics from two years ago. This is a crucial period in the growth of the online advertising industry as more advertisers are coming online every day, spending more budgets and testing the medium with more fervor than ever before. It will fall onto the shoulders of the agencies and the publishers to manage expectations correctly. We must all manage expectations to include the correct type of metrics and true forecasts that reflect actual industry performance. If we overstate metrics and forecasts are built on incorrect metrics, then we are setting ourselves up for failure and we are setting our clients up for a misrepresentation of a media vehicle that is extremely effective when evaluated correctly within the media mix.

If you are currently building your forecasts using outdated data, I stress you to take an objective eye to the numbers and be truthful with yourself. It's always better to set expectations lower and over-deliver than it is to set expectations too high and not be able to meet them. Don't you agree?