Interesting article from the NYT: Ad Costs on the Web Are Rising, but Perhaps a Bit Irrationally.
If you ask Matt Coffin, CEO of LowerMyBills.com, he’ll say that the online ad rate market is experiencing a state of deflation. If you ask MSN’s corporate vice president and chief media officer, Joanne Bradford, she’s likely to suggest that the opposite is happening.
Who’s right. Well, truth is, they both are, sort of. As someone who has worked directly with both companies (LowerMybills was a client, MSN a partner), I can explain the phenomena.
In the case of LowerMyBills.com, the company has now had years to develop an expertise in narrowing down websites that will convert its offer. The company is not interested in branding, they want signups. It’s the archetypical CPA (cost pr sale, basically) advertiser. As such, they advertise in niche publications that match a very targeted audience. And within these targeted publications, they have determined which placements and ad formats convert best. If nothing else, it’s a buyer who over time has learned to control its user acquisition. When Matt Coffin says that “rates are falling,” it’s the experience talking. Actually, breaking down the art of advertising into a science, it could be (though not necessarily) that LowerMyBills.com is paying more for ad impressions but it is also getting fixed placements on a site that is effectively reducing the eCPM (cpm connotes an advertiser who pays for impressions, and not a click through or a sale). In fact, LowerMyBills.com might not even be paying a CPM, but rather a fixed fee that works out to a eCPA.
In the case of Joanne Bradford, it’s the opposite phenomena in the sense that she is a publisher, so MSN too has increased experience to better manage its ad portfolio:
Joanne Bradford would not specify the extent to which her site will raise prices next year, but she said that during the last two years “there’s been unbelievable price pressure.”
For instance, Ms. Bradford said that for the front pages of some popular MSN sections, prices rose tenfold. “That settled down quite a bit, and now we’re starting to see price pressure more evenly spread across the network,” she said.
A couple of years ago, for example, MSN created a new ad slot for Match.com. It drove traffic to a dating channel and then flipped that channel to Match.com for millions. That area did not exist. But by doing so, it reduced the demand pressure on other real estate and significantly created additional value to advertisers. It has no choice, the major advertisers pay a lot for its main page but MSN knows that long term, only a select few number of advertisers can afford that, so they rush to create value for others.
The key here is that people are also becoming more experienced, a successful media buyer and salesperson can structure a deal that backs out to satisfy a marketer’s internal metric and matches a publisher threshhold CPM to get exposure. That is what is happening here in many ways.
Of note, the article also mentions a figure from eMarketer for 2007 revenues:
Online advertising revenues are expected to grow by 31 percent to $16.4 billion this year, according to a report by eMarketer, an Internet consultancy. That spending represents 6 percent of the overall advertising market. Revenues for 2007, eMarketer said, would most likely rise 19 percent, to $19.5 billion.
Additional stats from eMarketer on search metrics:
Meanwhile, rates to advertise on pages linked to searches, a category that eMarketer said would represent 42.5 percent of all online advertising revenue next year, are rising but only marginally. According to Fathom Online, a search engine marketing firm, advertisers paid, on average, $1.44 each time someone clicked on their ad in the third quarter of 2005. For the same period this year, the rate was $1.48.
All in all, no sign of a letdown as traditional advertisers plan on spending 15-30% more online next year. While the 1994-2000 boom came as a result of venture capital (which is erratic and can change on the turn of a dime), the growth is now coming from corporate coffers who need to advertise to boost revenue, maintain and grow market share and get the word out. They have to advertise, and online simply happens to be a better place to advertise. And in light of their plans to boost advertising on the Web, 2007 promises to be a great year.
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