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:
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?
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Dave Morgan is the CEO of Simulmedia. Previously, he founded and ran both TACODA and Real Media.
Online Spin for Thursday, April 30, 2009: