• by Tig Tillinghast , July 18, 2002

Alright, so maybe I do have a bee in my bonnet. I keep thinking that Internet media prices are too high. The reason? The number of impressions keeps multiplying, so the supply continues to outstrip demand. This makes the effective prices go down.

This isn’t the media seller’s nightmare that some think it is. More supply is a good thing. We’re hopefully expanding the use and revenues coming from the Internet. That creates new content, jobs, web applications and executive shenanigans for me to poke my nose into. And when there’s only a finite number of dollars chasing the available online media, buyers can insist that their dollar purchase a greater number of impressions.

Imagine a farmer growing hay who finds his fields yielding more and more product. Presuming all the other farmers are experiencing the same trend, they have to sell their hay at a lower price in order to get rid of it all. This makes hay a pretty good deal. Horse farms that use a mix of hay, clover and grains to feed their animals might decide to buy more hay the next time around. That puts more money into the hay cycle. Both the suppliers and the consumers win because of higher productivity.

According to Nielsen//NetRatings’ AdRelevance, the number of online impressions increased about 77% year over year. In that same year, most companies’ figures show that there’s been a slight decline in advertising revenues. That all translates into a descending CPM rate, in fact one that was likely cut in half over the past year.

This is exactly why the online markets are doing much better than those in traditional media. The value the Internet delivers has consistently improved over time. Looking at it from a relative perspective, the online component of the media mix has been expanding rapidly relative to its competitors. This has everything to do with the fact that the supply and the delivered impressions figures have been growing non-stop.

This is Alan Greenspan’s fantasy: productivity increases spread wealth and value through the economy. Except it’s happening in the online space and not in the traditional media space. As a result, we should be seeing and desiring radical price declines in the online space. To the degree we do, that value cycle will continue to reward the online players over those in the traditional space.

We haven’t yet seen published rate cards lopped so radically, but this is deceiving. Sites don’t like to reduce CPM prices, so they try to stratify the buyers into different categories, depending on how much money can be extracted from them. Large brand advertisers and other “sucker” clients will pay by CPM. Smaller firms with lower budgets, direct marketers or just plain mean negotiators will get cost per performance deals. There really isn’t much different between them except that the performance-based deals wind up giving much, much more media for the same money.

Which brings up another interesting productivity play. Right now the Internet relies primarily on brute growth for its expanding value delivered to advertisers. As performance deals become more the norm, though, (already, more than half of deals involve a performance component) sites will develop better targeting mechanisms to improve the value in a completely new dimension.

With so much media inventory left unsold, targeting mechanisms haven’t been pushed very hard. In that environment, it’s often cheaper just to send a message to many people rather than a more expensive message to a smaller, better targeted audience.

We have a lot of growth yet, and certainly a lot more share to take from other media. When we see online media prices decline a great deal more, (when we start using the CPMM instead of the CPM) this will be the harbinger of the next big Internet advertising growth spurt.