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Why Are CPM Rates for Ads Falling?

  |  July 11, 2014   |  Comments

This column answers this important marketing question and others publishers may have about making money, such as how to handle "alternative" revenue sources.

We've been working with thousands of online publishers for the better part of a decade, and over that time I've been asked a lot of things. Each time I've answered their questions candidly and forthrightly. Most of the questions have to do with how they can make more money to effectively monetize their hard work. When it comes to advertising, here are some of the most common questions we get and some answers to consider:

Are CPM Rates for Display Ads Falling?

Over the past couple of years there have been two forces driving down CPMs: First, massive increases in supply of both sites and ads on sites; and second, marketers getting much more sophisticated with how precisely they can target audiences via data-driven buying. The first is an inevitable side effect of democratizing publishing as well as the underlying nature of humans as social creatures creating and sharing. The second is a blunt reality of digital and its ability like no other medium to be specific and measureable.

Interestingly, over the past several months, CPMs have started to reverse course a bit and rebound at least for some sites - even very small niche ones. I think the notion of organizing and segmenting quality sites and quality traffic has simply gotten more attention from the buyers. It turns out that reader engagement and content matters. This re-acknowledgement is conspiring to help those publishers with deeper reader engagement earn more. These sites that deserve higher monetization rates are finally getting more attention because advertisers are demanding better transparency and better data on where their ads go and they're willing to spend more when they get it. In order to level the playing field, publishers need to understand the value of their readers on an impression-by-impression basis. Only then can they set and receive attractive prices for those impressions.

If Online Advertising Is Growing so Quickly, Why Does It Feel Like Publishers Are Getting Less?

This one is tricky unless you zoom out to look at the currency of most online economic models. This currency is a combination of consumer data plus engagement. The big winners in this are Google, Facebook, Amazon, and Apple, since they've cornered the foundation services we all use. For the rest of us, the combination of more viewing options and increased mobile usage means that what spend from advertisers isn't sucked up by those four players is diffused among many more places and the effect of the increase in spend is effectively muted. To be sure, more money is coming online (both in terms of advertising as well as commerce) and a lot of it. The spend is growing, but going into many more places and with more direct targeting capabilities. It's the consumer-data-plus-engagement cocktail that matters most, and digital enables that like no other medium.

I Have a High-Quality Site, so Why Don't I Get More Money for My Ads?

Quality sites delivering great content are seeing very high CPMs for display ads, but the fill-rate of those high-CPM ads is relatively low. As the data-driven sophistication of both marketers and publishers increases, I think we will start to see a much more rational market develop when it comes to paying publishers what they deserve. That means that all readers are not equal in the mind of an advertiser. Content that earns highly engaged, highly desirable readers will continue to command high CPMs.

A major missing piece still exists that will blunt progress until it's resolved. This is the challenge of attribution. Today, publishers don't get fair credit for the intent they create. Too often, attribution credit is given downstream or from a search query. It's unfortunate that publishers that deserve it, still aren't yet able to receive proper credit for the value they create.

What About "Alternative" Revenue Sources Like Paywalls, Donations, or Merchandise?

Given the deflationary force the Internet has on advertising, publishers need to constantly explore additional economic models that let them grab more of the consumer data and engagement they create. In part this comes down to understanding the value, both long- and short-term of a particular reader. I expect there are some readers that may prefer to trade (money or more data) to access an ad-free environment. Paywalls are fine for a few, but in most cases drive readers away unless the content is so unique or compelling they can't get it elsewhere. Instead I think we need to find ways to bring commerce to the consumer, rather than try to corral them into some e-commerce destination. Why not enable publishers and readers to conduct commerce in the wild, where intent is being created and cultivated? If we can do that, it has the potential to unlock billions more dollars for publishers that deserve it.

Image via Shutterstock.

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Walter Knapp

Walter Knapp is the chief executive of sovrn Holdings. Most recently he was the chief operating officer at Federated Media Publishing and Lijit Networks. With more than 20 years of business and operations management, Walter has been an investor as a partner and principal for two very successful venture capital funds. He has also built and led large field organizations for two public companies, Novell and Cambridge Technology partners. Walter regularly speaks about monetization and data strategies at industry events covering both online publishing and advertising. Walter holds a Master's in Engineering from the University of Colorado in Boulder and a B.A. in History from Boston College.

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