Index Shows Ad Prices Decline 23 Percent in April

  |  May 14, 2008   |  Comments

Researchers suggest the drop is evidence the sagging U.S. economy is having an impact on the online advertising market

An index that tracks online ad prices for publishers shows that rates dropped 23 percent, from 49 cents in March to 38 percent in April, based on the effective cost-per-thousand impressions (eCPM).

Researchers working on the PubMatic AdPrice Index suggested the slowdown is evidence that the sagging U.S. economy was beginning to impact the online advertising market.

"When we looked at the data, what we found was that the shift was pretty broad-based," said Rajeev Goel, general manager of PubMatic, a company that helps automate ad-serving decisions for Web publishers. "It cuts across verticals, it cuts across different [regions] within the U.S., and it cuts across different types of publishers. That's what led us to the conclusion that it is probably an artifact of the slowdown in the U.S. economy."

The results were particularly severe among social networks and large Web sites.

eCPMs for large Web sites, meaning those with more than 100 million page views per month, experienced a drop of 52 percent, with an average of 38 cents in March to 18 cents in April. Social Networking sites were even worse off, as monetization dropped 47 percent, from 37 cents average CPMS in March to 19 cents in April.

Small Web sites -- those with fewer than 1 million page views per month -- were the only bright spot, fetching $1.29 in April compared to $1.17 in March.

The index also found a number of common tactics used by Internet publishers to counteract the decreasing monetization. Most common was using multiple ad networks to deliver ads, occasionally bringing in foreign ad networks to protect against the declining value of the U.S. dollar. Doing so allows U.S. publishers to make the most from the international segment of their audience, said Goel. "That's why the 30 percent of a publisher's traffic that is international can count for more than 30 percent of their revenue," he said.

Also, given the success of smaller publishers -- who appear to benefiting from more targeted and relevant ad tags -- larger publishers are increasingly segmenting their sites to operate like those smaller sites. For example, "if you've got a consumer electronics site, you want to [divide into] cameras phones, PCs. Those tags will drive better performance," Goel said.

Evidence that social networks are struggling with monetization is not surprising given this month's financial news, most recently News Corp.'s announcement that Fox Interactive Media, which includes MySpace, would fall 10 percent short of revenue projections for the fiscal year.

The index is based on data from 3,000 publishers who work with PubMatic for ad network and layout optimization services. PubMatic launched the index in March, and intends to produce it monthly.

In response to news of the Index today, online advertising blogger Mike on Ads suggested the real reason behind the drop in monetization last month wasn't the economy, but the cyclical nature of media spending. "Agencies have quarterly budgets," he wrote, and they frequently have additional goals to meet or money to spend at the end of a quarter, which means a spike in media spending during the final month of any given quarter. "March, June, September and December [are] always high in revenue," he wrote, so "what we're seeing is a normal cyclical trend, where Q1 budgets moved to ad networks in March, disappeared in April."

While Goel conceded that quarterly budgets may have played a small role in the March-to-April drop, he said it could not fully explain the decline. "If this were the case, then we should expect that April 2008 vs. January 2008 was relatively flat. In fact, it was not," he wrote via e-mail. Rather, large Web sites saw a 42 percent drop in monetization from 31 cents to 18 cents from January to April. Meanwhile the aggregate monetization rate for all sites dropped 10 percent, from 42 cents to 38 cents between January and April.

This story has been updated.

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Douglas Quenqua is a journalist based in Brooklyn, NY who writes about culture and technology. His work has appeared in The New York Times, Wired, The New York Observer, and Fortune.

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