Dealing With Price Pressure

If you’ve been paying attention over the past few weeks, you know that we prefer CPM pricing for publishers. At the same time, we fully understand why advertisers favor CPA price structures.

The latest IAB report on Internet advertising pricing says about 40 percent of Q4 ’98 revenues were priced on a straight CPM or impression basis, 6 percent on straight performance, and over 54 percent on some sort of hybrid of the two. Those numbers represent very slight increases in pure performance and hybrid pricing since Q3 ’98; a commensurate drop in wholly impression-based pricing.

It is our observation that strong site publishers with compelling audience data, experienced sales teams, and inventory (that advertisers value are still demanding) are getting mostly CPM and CPI contracts. The trend toward CPA is real, but is not equally strong for every site. The more serious and professional your approach to the ad sales and sales-related marketing operation, the greater will be your ability to hold the line on value.

Some people will read that last line and roll their eyes, thinking, “Does she think we haven’t tried to hold firm on pricing? There is so much pricing pressure. We’ve had to drop rates and agree to CPA pricing to get any revenue at all!”

True, there is huge pricing pressure. Let’s face it. There is a lot of unsold Internet ad inventory on the market, and a glut of inventory can generally be counted on to negatively impact pricing.

We are not naively suggesting that taking a firm stance is the sole answer. In fact, that strategy is doomed unless you’ve invested the effort to clearly demonstrate, even prove, a value proposition to your advertisers and prospective customers.

But advertisers and their agencies need real, reliable, defensible information to make advertising decisions. Where that information is not available from the seller, they are right in attempting to minimize their downside risk by pushing the cost of uncertainty back on the seller.

And they have good precedent for it in other, more traditional media, there is a real correlation between audience information and rates paid. Where advertisers pay for undifferentiated eyeballs, rates are very low. When an advertiser can be assured of who is being reached and the buying behaviors of that audience, the CPMs jump.

Online advertisers have the right to expect the same, and that means web sites and emailers have to gather, validate, and share audience information if high impression rates are to be achieved. Without that investment in profiling and understanding your audience, smart advertisers won’t pay anything but cost per action, because they can’t know what they are buying.

Over the next several columns we’ll be talking about what ad supported sites can do to address advertisers’ legitimate need for deeper insights into its visitors and members. We’ll also assure its own long-term ability to command the sorts of ad rates that will allow business to grow.

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