Thursday, April 30, 2009

OnlineSpin: Display Ad CPMs Won't Recover

Last week Dave wrote "Congress Opens Up New Front On Digital Privacy Issues."

Chad Little wrote in response, "Dave, Do you and other readers assume legislation is inevitable?

If so -- at what point (if at all) do we shift from fighting it and move to spend our energy on influencing what it should be?"

Max Kalehoff wrote, "Dave, I think our federal government has bigger issues it should be dealing with right now.

But to answer your question, no, the interactive marketing industry won't solve these problems before Washington steps in."

Thursday, April 30, 2009
Display Ad CPMs Won't Recover
By Dave Morgan

I'm hearing from a number of folks that the cost-per-thousand (CPM) rates for online display ad impressions are taking a big tumble this quarter -- buzz that comes on top of the fact that display ad rates have been sliding for the better part of the past year and a half. If all this talk is true, it's very bad news for companies that depend on premium pricing of display ads to pay their bills, whether they are premium content publishers, display ad networks, or companies that supply technology and services to Web publishers.

As my friend Brad Burnham of Union Square Ventures likes to say, "We've seen this movie before." Back in late 2000 and throughout 2001, when the Internet Bubble collapsed, we also saw online ad rates tumble in a similar fashion. This cleared the market of thousands of online ad companies with weak business models or capital structures. Eventually, once the general ad economy rebounded, so too did the online ad marketplace, with ad rates rebounding -- though substantially below where they were in the Bubble years. This time, however, I don't think that we will see a recovery once this recession runs its course. As a category, online display ads will continue to track lower and lower rates for years to come, with no floor in sight.

Why am I so pessimistic about display ad rates? It's pretty simple. Going forward, the supply of online display ad impressions is growing much faster than demand. I don't see that gap changing, ever. Here's why:


  • Exposure-based advertising is now a commodity. The media world used to be defined -- and valued -- by scarcity of distribution. In that world, audience exposures (impressions) were also scarce and thus served as a strong currency for the industry when they transacted with advertisers. Not anymore. In a digital media world, distribution is plentiful, as are audience exposures. It is audience attention that is scarce. CPM pricing, tied to impression, is no longer an appropriate currency for most advertising. Anchoring businesses to it is akin to tying yourself to a rock and throwing it off a cliff.



  • If marketers can cost-effectively buy measurable results, why would they buy anything less? As Jack Myers keeps telling us, marketers have for decades been shifting greater and greater portions of their marketing budgets away from advertising and into direct marketing and promotion. In the online marketplace, Google, and other online ad networks changed the world for marketers, delivering highly qualified leads and sales both cost-effectively and at real scale. Virtually no marketer today buys online ads solely on the basis of CPM. It is all "backed out" into a cost-per-click or a cost-per-lead or a cost-per-something.



  • Creating true "premium" exposures requires more than just creating artificial scarcity. In a world where audience attention is scarce, media companies that can truly capture and deliver the attention of audiences to marketers' messages will be able to drive ad rates much higher than just the direct marketing result of the campaign -- but it won't be nearly as easy as it used to be! Only those Web publishers that demonstrate they can deliver both unique and valuable audiences at scale, and also deliver measurable and premium results for marketers, will have any chance for premium rates. Exposure numbers won't cut it; neither will viewing time-per-page numbers. The Super Bowl, "CSI" and "American Idol" get great rates because they are unique in their ability to deliver large, attentive, simultaneous audiences -- and because they move stuff off shelves. It is a high bar.


    What should you do if premium CPMs (anything above the pure direct marketing value of your impressions) are a part of your business model? Prepare for a different reality. The future of media will require much lower cost structures, more flexibility, and the ability to deliver measurable results at scale for marketers. It will be hard to survive with less. What do you think?

  • Dave Morgan is the CEO of Simulmedia. Previously, he founded and ran both TACODA and Real Media.

    Online Spin for Thursday, April 30, 2009:

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