Premuim CPMs Are Dead

There is an interesting post on MediaPost today about how display CPMs won't recover from their current low levels. While I agree with most of the article, I do disagree that this is a problem for technology providers. Here is how I see it breaking down.

First, CPM rates have been declining since before 2000. IMO, it's not two disjoint instances of decline it's actually a continuous trend with some plateaus thrown in for good measure. This decline is partly because online advertising is all about measurement. Advertisers are not going to continue to pay high CPMs without appropriate, measurable ROI. Any site who still believes that a marketer will spend premium dollar for a placement on their "premium" site without measurable return is nuts. Direct marketers don't care where a customer came from just as long as they have money and they're interested in buying. This is the main reason why PPC search advertsing is so valuable because typically when you search for something, you're interested in buying it.

In order to save their precious CPMs publishers must be able to link advertisers with users who have some interest in the advertiser's products. Individual publishers cannot accomplish this on their own. They need a strong network effect and the help of the advertisers themselves to recognize these interested customers. Cue the ad networks and exchanges. These third party technology solutions are ushering in a new world where publishers can now receive higher dollar for their inventory all through the magic of auction mechanisms.

Technology providers win in this new world. As it stands publishers and marketers can strong arm tech providers into lower CPMs by playing the competitive landscape. However, with ad exchanges and advance CPA technology like re-marketing, tech providers now possess the means to add more value to every impression. Plus, they also hold the keys to the revenue via re-marketing lists, etc. Yes, their clients own their re-marketing lists but that list is useless without their technology.

I would rather get a small cut of every impressions, as a tech provider, than to allow advertisers and publishers to use my technology for a low lump sum price.This new model also allows the moms and pops to get involved. While they don't have tons of money they do have some. Selling their technology on an impression basis allows tech providers to get to some of that money. Obviously there are a lot more moms and pops than there are WPPs, OMDs, and NYTs. Adwords, anyone?

So "what should you do if premium CPMs (anything above the pure direct marketing value of your impressions) are a part of your business model?" First, run head first into a wall because you're an idiot. Second, trash the model, go user generated, target an audience who actually has money, and..... oh yeah, pray.