Ad Networks Appear to Drive Down CPMs

IAB Study: Publishers Should Reduce Inventory

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NEW YORK ( -- There's a conflict simmering between web publishers and online ad networks -- and a recent study by the Interactive Advertising Bureau and Bain & Co. may exacerbate it.

The research, released today, finds a link between the amount of inventory publishers release to ad networks and the price those publishers can charge when selling their own inventory directly.

Bargain-basement pricing
On average, the cost-per-thousand rates for network-sold inventory are less than a 10th the CPMs publishers were able to charge when selling it themselves. Because of this price differential, some publishers complain that ad networks drive down prices. Indeed, such sales "middlemen" accounted for 25% of all inventory sold but only 2% of revenue. Average ad-network CPMs ranged from 60 cents to $1.10, only 6% to 11% of the $10 to $20 CPMs publishers were charging directly. Between 2006 and 2007, publishers' sellout rates went up to 72%, from 2006's 50%, but because much of that was due to ad networks, the monetization value of that increase was rather limited.

But what might be equally interesting to some is that of the seven publishers included in the study, the four that used ad networks the most sold their own inventory directly for about half the rate of the three that used ad networks more sparingly.

The four most aggressive publishers used ad networks for an average of 21.2% of their inventory and commanded on average a CPM of $10.36 for the inventory they sold directly. The three others used networks for an average of 7.6% of their inventory and commanded on average a CPM of $20.17.

Of course, there's a definite danger in reading too much into this data. The study only looked at seven publishers -- not enough to make wide-ranging extrapolations. And that has some IAB members questioning the decision to put the information out there.

More research planned
When pressed about how members reacted to the study, Sherrill Mane, director-industry services at the IAB, whose members include both big, broad ad networks and independent, high-quality publishers, said that at first some expressed concern but those were mollified when they understood this was part of a series of studies the firm will be undertaking to "understand market dynamics."

The next studies will look at non-premium publishers and their use of ad networks and how publishers optimize partnerships and use yield management tools.

"It's not an indictment of either side," Ms. Mane said. "We're saying, 'Folks, there are tools there [that you can use]. There are relationships that you can capitalize on to do a better job earning money, pricing strategically and understanding what is going on in the marketplace.'"

Publishers use ad networks in various ways. Some use them to offload unsold inventory; but lately many publishers have launched their own vertical ad networks to extend the reach of their websites. This study only looked at the market effects of the former.

One lesson for publishers? They're creating too much inventory. They sell out only 70% of it after having increased their use of networks from 5% to 30% of impressions over the past year. "With limited ad-network monetization, publishers need to rethink overall pricing and inventory strategy -- not just the approach for remnant sales," advised the study summary.

Call for better tracking
For publishers that don't sell out all of their online inventory, the study advises a closer examination of how they manage that inventory. Does their total yield increase when they make more inventory available for an ad network to sell, even if that increased sellout rate happens at a lower CPM? Or should they withhold that inventory?

Ms. Mane advocates increased use of some of the technology tools that help publishers determine the best route. She didn't name specific examples, but one example is Rapt, a yield management system that Microsoft has acquired.
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