Avenue A/Razorfish: CPMs Rising, But Deals Exist

Brands fearful of rising CPMs (define) and evasive audience segments should consider casting a wider net in their 2005 interactive media buys. That’s the key takeaway from a “2005 Online Media Outlook” released today by Avenue A/Razorfish.

Avenue A/Razorfish bought media on 654 properties last year, up from 476 in 2003, according to the report. The top three portals commanded 11 percent of the $312 million in online media spending managed by the agency, or 15 percent of non-search billings.

Vertical content sites accounted for 39 percent of its clients’ spending on search and display ads. Of these, the technology and travel categories have seen some of the biggest CPM lifts year over year, whereas price increases remain modest on sports, finance, and news sites. Overall CPMs for the agency’s campaigns rose 21 percent in 2004, but the agency expects a more modest increase of about 15 percent this year.

Despite the escalating costs of online advertising, good deals remain, according to Jeff Lanctot, Avenue A/Razorfish’s VP of media and the report’s author.

“We buy very broadly and find a lot of success. That’s good news for advertisers in the face of rising costs,” said Lanctot.

The portals remain the top choices for Avenue A/Razorfish clients, according to the report, which names Yahoo and MSN as two of the most efficient, targeted buys online. Lancot praises Yahoo’s powerful combination of paid search and brand advertising, describing the portal as “by far the most complete media company online.”

Lancot issues cautious encouragement to America Online, which he says could have a solid growth year if it hews to ongoing improvements in its sales organization, product offerings, and platform. According to Lanctot, if AOL exhibits some flexibility on pricing and issues performance guarantees, it stands a chance of competing more aggressively with MSN and Yahoo. He grants those mandates will be a tough pill for parent Time Warner to swallow.

“To say they’ve got some consistency on the sales team is a relative statement,” he said. “Not to say I’m making a huge bet on them, but they’ve made some progress. If they behave like an underdog, they can catch up.”

Additionally, the report found behavioral targeting is a good opportunity this year, but advertisers should avoid over-targeting to maintain reach. Until the behavioral targeting players can expand their base of impressions by building larger networks of users, Avenue A/Razorfish predicts advertisers will do well to target loosely by region or demographic.

“Advertisers have gotten caught up in the hype of targeting, to the point where many of them are over-targeting,” said Lanctot. “The simplest segments can be the most effective and the most scalable.”

The report also calls video ad placements and video search a likely growth area, saying increasing relevance in video search will strongly affect the adoption of video advertising online. It says further opportunities await in the performance media and video game segments.

Avenue A/Razorfish’s “2005 Online Media Outlook” marks the first time the firm has issued a detailed report on the trends it’s seeing in targeted media.

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