How Sites Can Sell All Their Inventory

Buyers and sellers of online media are arguing more fiercely than ever about whether online pricing has been set at arbitrarily high rates. I’ve argued in this column that sites will make much more money by accepting more and larger orders while charging lower rates.

Many sellers call me naive. They believe there is no practical way to start the process of lowering rates to increase business without getting killed in the short term. That’s why I was delighted when reader Matt Dooley emailed with what seems an obvious solution.

Dooley asked, “What if the Internet sold ads using the pre-empt concept?” This approach is used to great advantage in broadcast. It works like this: Advertisers pay a very low rate for ads but aren’t guaranteed that the spots will run. The broadcaster can resell the same inventory at a higher rate if another advertiser is willing to pay a premium for guaranteed delivery at a specific time. The original advertiser (the one with the discounted rate) either receives a refund or keeps the money in the kitty for the next inventory opportunity.

Because most online buyers come from print (if they have traditional media experience at all), this isn’t an idea I’ve seen in the online world. It could be an opportune method to ease a site into a lower-price/higher-revenue model.

Dooley wrote, “Maybe the Internet needs to adopt a similar approach. Low ($1 CPM [cost per thousand]?) cost for most ads. This would sell out inventory and generate cash flow. Then you could have higher rates on those parts of the site that got interest from advertisers. Targeting, day-parts, etc… would all be ‘upper-tier’ prices.”

A regional general interest site, such as Boston.com, could sell inventory to advertisers at a very low rate. Companies such as Procter & Gamble could purchase media below a $1 CPM, as they can in some broadcast media, such as cable syndication. But Boston.com wouldn’t stop there. After selling out its media, it would then offer the same media in targeted packages to companies willing to swallow higher prices in exchange for better targeting and guaranteed delivery.

Today, sites only sell that “second stage” round of media. No one offers that initial, low-ball bid for media that can be pre-empted. My bet is that the advertiser who starts shopping around a few hundred thousand dollars in a general ad budget, looking for a $0.40 CPM, will find some takers. Once that happens, online media pricing might become more rational. And our collective revenues will grow mightily.

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