• by John Nardone , Op-Ed Contributor, November 3, 2008

Publishers are trying to raise the value of their "nondirect" inventory. Are they trying to solve the wrong problem? In almost every medium, ad inventory is a finite resource. Magazines only have so many pages. TV shows offer about 16 minutes of ads per hour. Billboards are limited in their number and location. But the Internet is different. Display ad inventory is an almost limitless resource. Anyone with something to say can publish; everyone with nothing to say can have a Facebook or MySpace page. So the pages keep multiplying, with the supply already so far ahead of demand that it might as well be infinite.

And what happens in a market where there is infinite supply? Commoditization happens. Buyers recognize that in all that supply, they have plenty of alternatives. And prices fall. This is the situation faced by the big online publishers today as they struggle to increase their ad inventories' total dollar yield.

Almost every publisher in print or broadcast occasionally has unsold inventory, remnant space that they push last-minute at a discounted price. But for most healthy publishers, remnant and unsold inventory account for a very small percentage of the total inventory - except online. Online, the 80-20 rule applies: 20 percent of the publisher inventory accounts for 80 percent of the revenue, leaving 80 percent (or more) of the impressions selling for a tiny fraction of the rate card.

Finding a way to raise the price of this inventory is now an obsession for online publishers. Until recently, most have been happy to sell massive amounts of their otherwise unsold inventory to ad networks for whatever price they could get, all the while lamenting that this inventory was being undervalued in the market. Lately, more publishers are holding this inventory back, fearful that their "premium" inventory is being degraded by the cheap impressions being resold by networks. Whether this is true is a matter for debate, but one thing is for sure: Not selling impressions will not put more total revenue in publishers' pockets. Why? No publisher can create artificial scarcity just by taking their impressions out of circulation.

Online CPM values are driven by a handful of traits: Reach of a desirable audience composition. Editorial context that's relevant to high-margin advertisers. A media brand that confers credibility on advertisers (or at least, doesn't detract from it). The ability to meet advertiser goals at a price that is ROI-positive. A scarcity of alternatives.

Home pages sell at high CPMs because they deliver reach. Specific content sections that align with auto or travel or financial services command premium prices because they're scarce. Run-of-site impressions that lack specific context get priced as low as they do because there are plenty of alternatives.

So, what is a publisher to do? Stop trying to fix the wrong problem. Publishers don't have massive amounts of undervalued inventory. They have a scarce amount of high-value inventory. They should be putting their efforts into building audience for the areas of the site that command high prices. In other words, cultivate more high-priced inventory to sell. Here are some suggestions to get started:

Employ editorial strategy and targeting technology to create more engagement with high-value audiences - get them to consume more high-value content.

Let low-value impressions drive more visits to premium inventory. Within the site, use those impressions to target occasional visitors to the high-value content and bring them back with the equivalent of tune-in spots. Then, barter some of the remaining low-value impressions to reach them elsewhere. Essentially, trade remarketing targets with other publishers to mutual benefit.

Target modeled look-a-likes for your most valuable audiences. This is a cost-effective way to acquire net new visitors to the site and is relatively simple to do using predictive targeting technology.

I've seen each of these tactics work very well, and for different publishers. I'm willing to bet that publishers who combine them in a coordinated campaign will find these steps more productive and less frustrating than their current efforts to prop up the prices for commodity inventory.

John Nardone is CEO of [X+1]. (jnardone@xplusone.com)