Two weeks ago in this OPI offering, David Koretz pointed to the dramatic disparity between the spending allocated to online advertising versus the time consumers spend on Web sites. Why does this disparity exist? One simple answer: Online inventory is cheaper, so advertisers don't have to spend as much as they do with other media. And I can't think of a worse label for a medium to bear than "cheap."
According to Pubmatic's Q3 AdPrice Index published last week, which reports the effective CPMs delivered by ad Nnetworks to their publishing partners, the range, depending on the type and size of site, was from 18 cents to 86 cents. These revenue figures are post-split -- so assuming a 50/50 share, the ad networks are selling online inventory on a cost-per-thousand-impression basis of less than 50 cents in some cases.
According to a very compelling presentation I sat through at the DPAC conference here in New York yesterday by a financial analyst from Clearmeadow Partners, the "page view CPMs" at the three major portals range from $7.36 to $13.61. These figures sound terrific compared to the ad network prices, or those at the social networking sites (Facebook was reported at 63 cents per thousand page views sold, and Myspace at $1.34), but these portal CPMs pale in comparison to other media. For example, magazines, even at heavily discounted rates, are generally in the $20 to $60 CPM range.
OK, so the cost per thousand "impressions" or "page views" should be lower than the cost per thousand "readers" -- I get that. But it still doesn't make up for the widening discrepancy between how much online costs clients to buy, versus what they pay in other media.
We can blame the ad networks for deflating pricing. We can blame the search engines for training advertisers to only value an ad buy when a direct action occurs. We can blame the forefathers of online advertising, who adopted a pricing model that mimics direct marketing instead of advertising sales. And we can blame buyers for holding our medium to far greater ROI scrutiny than other media. But as Mark Knopfler of Dire Straits shares in the song "Solid Rock": "When you point your finger because your plan fell through, you have three more fingers pointing back at you."
We are to blame for this value problem. We are the ones who accept buys at CPMs that make the McDonald's Dollar Menu feel expensive. And we continue to do so using the crutch that, as perishable inventory, it's better than getting nothing.
But maybe serving no ads is better than shilling our space at these low rates. Peter Naylor, the senior vice president of digital sales at NBC Universal, who earns an audience's respect the minute he starts speaking, shared an interesting "what-if scenario" during a panel at DPAC. He prefaced it by saying that, as unrealistic as it might sound, just because there is an ad spot built into a page view doesn't mean we have to serve an ad. He explained that the content could restructure itself so no ads appear if there isn't one sold at a premium rate. And if that were the case, the user would not always expect to see an ad -- so when one does arrive, it may have more visual impact.
I applaud Peter for thinking of a unique way to increase the value of the exposure we sell -- when so many of us are focused on figuring out how to increase the performance of the ads we agree to run. The latter is a NO-WIN proposition, which is why CPMs for our inventory will continue to plummet. We as publishers have far less control than we pretend to have in impacting a campaign's performance. And even worse, the better the ads do perform, the greater the demand for even better results will occur -- and there is no faster way to improve a cost-per-anything metric than lowering our CPMs.
Another possible solution to this core value problem is making greater use of a preemptable inventory pricing strategy. Ad network buys we accept are preemptable -- so why not apply that same logic with our own direct sales force? Stick a stake in the ground and tell your sales force that anything sold below a CPM of X has no guarantee of running. Your smarter sellers (and sales managers) will figure out very quickly the best way to exceed their quotas is to sell inventory that will run, and you will lose the sellers that cut deals at the CPMs "the buyer demanded."
These are just some potentially viable solutions that may solve a problem it doesn't appear many are sincerely focused on solving. So for those in that camp, I've got to ask: If our solutions are so advanced and superior to those offered by other media, why aren't clients paying more for them -- instead of less?