• by Joe Marchese , December 19, 2006

Cost per thousand impressions, or CPM rates; they act as the currency for brand advertising online, as well as across many traditional mediums. But anyone will agree that not all impressions are created equal.

The value of an impression is determined by a number of factors. Obviously the greatest determinant of the value of an impression is the audience the impression is delivered to. Then there is the extent to which the context of the content surrounding the impression supports a brands message. The list of determining factors goes on, including the medium of delivery, execution of creative, even the profit generated by products advertised. Even if the incredible number of variables determining the value of an impression could be quantitatively calculated, the value of an impression does not determine the cost of the impression.

For the value of an impression to determine its cost, there would have to be an efficient market in place to allow each impression to be sold for its maximum value. While this type of efficiency may not be possible at this time, recent advances in content generation and advertisement delivery make a strong case that the near future of impression-based advertising will be increased efficiency leading to significantly higher price per impression costs and less overall audience impressions sold.

Why will this happen in the near future? They say that necessity is the mother of all invention; users aren't willing to sit through excessive advertising, necessitating increased relevancy of message with decreased quantity. Additionally, the fragmentation of media has necessitated new delivery and targeting methods, while presenting significant potential for advertisers. So how does this get us from a current higher end $15 dollar CPM rate to $101.25 CPM rates?

Let's start with most obvious. If people want to watch less advertising in total, the decrease in inventory will naturally increase the price. This makes sense because if the old maxim is true that half of all advertising budgets are wasted and improved delivery can eliminate that waste then the advertising delivered to the "right" half is just as effective (in theory), advertisers will simply pay twice as much for highly targeted impressions. A premium of 100%.

A recent study reports that pages with fewer than one million unique viewers have a higher effectiveness in delivering brand messaging. This, the report asserts, is due to an increased perception of intimacy between the viewer and the content. Now extrapolate the potential for millions of sites with less then one thousand unique views. In order for advertisers to leverage this highly influential inventory, certain technologies and systems still need to be developed to place emotionally relevant brand advertising within fragment content. But again, necessity = invention, so let's give intimacy a 50% premium.

Another trend that we are seeing in traditional media, as well as online, is a single sponsorship premium. One recent example was "NBC Nightly News," which, by offering single sponsorship, was able to decrease theist total number of advertisements and win rave reviews from its viewers. It makes sense that we will see an increase in single-sponsorships for content. Though in performance advertising increasing the amount of add inventory sold can add significant additional revenue, adding additional brand advertisers can decrease the effectiveness of each advertiser's message. In short, one plus one does not equal two; in fact, one plus one may equal less then one when it comes to the cumulative effect of brand advertising. For this example, we will give a 50% premium to single sponsorship.

As the single-sponsorship method gains significant ground, this will again cause a decreased in available inventory. Combine this with equal to increasing (online) advertising budgets, and you have the potential for supply to again drive up the value of quality advertising opportunities. Another 50% premium for decreased inventory.

As agencies are able to work with new advertisement paradigms, in which they focus on the development of 15 creative campaigns, each appealing to 50,000 individuals, rather than one creative campaign targeted towards three-quarters of a million people, they will be able to derive increased value for their clients. Here we will assign the final 50% premium for today's exercise.

So if we start with $15 CPM times 2 for targeting, times 1.5 for content intimacy, times 1.5 for single sponsor premium, times 1.5 for decreased brand advertising opportunities, we get $101.25. Now that's a calculation you just can't argue with (or the numbers are utterly meaningless and I just used them to illustrate a point).

There are a number of other areas that we didn't touch on, such as online brand advertisements including components of performance advertising, thus further increasing their value. Or social content, such as MySpace, offering unparalleled opportunities for brand advertisers to play a vital role in social media ecosystems, in turn deriving unparalleled value from their participation.

The bottom line is, new media advertising will not be bought by the billions of impressions even for the largest of campaigns, but instead by the hundreds or even the tens of thousands; therefore, budgets will need to be dedicated properly in smaller targeted groups at far higher CPMs. This necessitates a new type of bid system, new technology for targeting and determining relevancy, new measurement systems, and a consensus among agencies controlling brand budgets regarding metric and success criteria. All of this will lead to the higher CPM rates representing efficient allocation of advertising dollars and use of advertising opportunities. While advertisers might not like the sound of higher CPM rates the implications on brand advertising efficiency, publisher revenue generation and user satisfaction is a good thing for all. Some would even call a solution to this very complex problem a necessity, and although the calculation above is totally fictitious, one in this article has been proven over time as pretty precise: Necessity = Invention.

What are your projections for CPM highs and lows? Why?