Pricing online ads: impressions versus performance

Online as in traditional media, the basic unit for pricing advertisements remains the CPM, or cost per thousand. Its persistence has defied predictions that performance‐based pricing schemes would sweep aside the old‐media habit of selling exposure. However, the online CPM differs from its offline cousin. In broadcast, CPM is based on households or viewers, and in print on audited circulation; thus an advertiser can roughly compare the cost of reaching 1,000 people via a TV spot and a magazine spread. Online, though, CPM refers to impressions rather than viewers or readers, making cross‐media comparisons difficult. One session at a news outlet online may generate a dozen impressions as the reader clicks around from story to story. The most sought‐after inventory online is usually sold on a CPM basis. However, several other pricing models exist, including CPC, or cost per click; CPL, or cost per lead (usually determined by a user registering for a newsletter, account, etc.); or CPA, meaning cost per action or cost per acquisition (for users who convert to customers). Less desirable inventory is often sold on the basis of performance, so the advertiser only pays for the desired result. These distinctions may not be as defining as they are made out to be. An advertiser who buys media on a performance basis knows the total number of impressions delivered and can easily calculate CPM, for instance in order to compare two sites on an apples‐to‐apples basis. The reverse is true as well — an advertiser who buys on a CPM basis also has records of click‐throughs and purchases and so can derive the various performance measures. And again, all of these approaches differ fundamentally from offline cost‐per‐thousand deals in that on the Internet, the thousand impressions (or clicks or actions) are recorded one by one, not based on audience estimates. Two tiers of online inventory From a publisher’s perspective, online pricing schemes creates a clear caste system based on the distinction, inherited from offline media, between premium and remnant inventory. Online the two categories are not formally defined, but still fairly clear:

• Premium inventory sells for a relatively high rate; it is usually sold

by the media owner, rather than a third party like an ad network; it is more often the province of “brand advertisers”; and it typically sells on a CPM basis or as a sponsorship package.

• Remnant inventory sells at a low rate; deals are usually transacted

through an ad network or aggregator, often on a performance basis (CPC or CPA); and buyers, who hail from the direct‐response end of the spectrum, may have little idea where their ads end up running. Talking Points Memo offers a good illustration. The site sells roughly onethird of its inventory direct, one‐third as remnant, and the final third through Google’s AdSense, though the ratios fluctuate from month to month. TPM’s Karimkhany suggests that premium inventory might command a CPM of roughly $10. Unsold or less desirable inventory is offloaded through remnant optimizers for a much lower price, ranging from perhaps 40 cents to $2. Meanwhile inventory sold through Google’s AdSense network varies even more unpredictably depending on advertiser demand for a given keyword, from an effective CPM of about $2 to as much as $20 in extreme cases. “All this is very dynamic,” Karimkhany explains. “Sometimes we sell a lot of direct ads, such as when BP needed to get its message out and environmental groups wanted to give the counter‐message. This crowds out AdSense and remnant. Sometimes AdSense goes crazy, like during elections when campaigns buy keywords. And sometimes, like January and February and summer vacation months, remnant predominates because thereʹs very little active purchasing.” It is entirely possible for an advertiser to buy inventory on a single site that is both premium and remnant, if the advertiser is negotiating directly with the site and also working through an ad network. However, top‐tier sites often have a policy against selling any inventory as remnant. This is the case at both the New York Times and the Wall Street Journal, which sell most online inventory on a CPM or sponsorship basis and do not participate in ad networks (other than Google’s AdSense, which the Times uses). “We sell brand, not click‐through,” declares the Journal’s Kate Downey flatly. “We’re selling our audience, not page counts.” Marc Frons echoes the sentiment, pointing out that the Times can afford to take the high road. “For us as the New York Times, brand is important,” he says. “You really want to make the Internet a brand medium. To the extent CPC wins, thatʹs a bad thing.” Other newspapers take a hybrid approach. The Providence Journal negotiates cross‐platform, multimedia packages whenever possible — for instance, combining a quarter‐page print ad with a certain number of banner impressions, a search term, and (via a partnership with Yahoo!) a behavioral targeting profile. These bundles arguably help to resist any erosion of “projo.com” into a second‐class, performance‐based ghetto. However because traffic is hard to predict and can vary greatly from month to month, the paper unloads “oversupply” as remnant inventory through Yahoo’s ad network.