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Wednesday, December 28, 2005

Remember 1999? (Revisited, again...)

Let's hope another thing that happens soon in this industry is that we all get over this obsession with averages. Let's call it a Trend to Watch for 2006 through 2008, or so.

The awesome spectacle of efficiency in online advertising pricing that we saw unfold from 2002 to date has taught most advertisers and publishers that user behavior is highly specialized, granular, and context-specific.

I just glanced at some CPM equivalents from a keyword campaign, as I'm wont to do. Let's assume that the current CPC's we're paying are fairly rational as we've been managing this account for two years now. Some of the CPM's are well below $1. On important core keywords -- and again, this is proven to be a rational price -- the effective CPM rate is over $600.

Oh, the folly of the 1998-2000 frenzy of fixed-price CPM's. Instead of CPM rates "declining," or softening, they collapsed. If $35 was an "average" CPM at a certain point in online history, was that meaningful? Likely it was, but only if you were selling ads, or stock. That average is surely much, much lower today. But on impactful customer acquisition opportunities, the CPM equivalent is much, much higher. Basically, online, CPM rates range from 10 cents to $1,000. That's great news for buyers and sellers alike. It's the equivalent of assessing the quality/density of a mineral ore, or a diamond mine. It just makes sense.

I'm not suggesting at all that all media should be pay for performance, because no ad seller should be forced into becoming an equity partner in an advertiser's business. But it is always instructive to ask how much uncritical acceptance there is of the prevailing metrics in any industry. Imagine being led to believe that one impression is much like another, for the purposes of pricing ads.

Will television be the next major area to be affected by a more critical analysis of such metrics? Ratings, impressions, all those old saws... we know that cable came on the scene and that ad prices got "differentiated" in the TV world. But that differentiation meant that CPM rates shot up for some very specific cable channels, and flattened out or "softened" for prime time network spots. That's not nearly radical enough, of course. Fasten your seat belts.

Posted by Andrew Goodman




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