Mobile Ad Rates Begin to Drop as Inventory Increases

CPMs for Some Categories Have Hit Single Digits

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SAN FRANCISCO (AdAge.com) -- It's getting cheaper to advertise in mobile as cost-per-impression ad rates hits single-digit pricing in some cases.

Games and iPhone applications continue to command a sizable share of the new mobile inventory.
Games and iPhone applications continue to command a sizable share of the new mobile inventory.
The economy isn't the only factor at work here: Also in play is the onslaught of inventory coming online as more brands beef up their presence in wireless; the proliferation of handset applications; and mobile applications for social media. With consumers spending more time on their increasingly advanced phones, it's all a sure recipe for an explosive ramp-up in mobile ad inventory.

CPM pricing
According to industry executives, mobile CPMs, or the cost to reach 1,000 consumers, now average about $15 compared with the average earlier this year of $20 to $25. And with the out-of-the-box, $40 to $50 CPMs of last year more or less history now, pricing is beginning to normalize.

"It seems to be part of a steady decline rather than a single event that sent CPMs tanking," said Eric Bader, managing partner of Brand in Hand, which buys mobile media for brands such as Procter & Gamble, General Mills and Esurance.

As more advertisers leverage mobile and remove its mystique, the market will get more adept at pricing, and arbitrary pricing will give way to a broad range of CPMs that vary in their targeting granularity. "The industry has matured quite a bit in the last couple of quarters to become a more efficient marketplace," said Lars Albright, VP-business development at ad network Quattro Wireless. "One of the trends we're seeing is that the range has expanded and you can have everything from a low CPM all the way up to a mid-30s CPM."

The mobile inventory that's being added now spans the gamut. Games and iPhone applications continue to command a sizable share of the new inventory. Sports-themed sites in the vein of NFL and ESPN have multiplied, as have sites that cater to Hispanics, a group that over-indexes in mobile.

Holding strong
To be sure, CPMs are not falling through the floor across the board, and some categories, including targeted placement on a wireless provider's deck that accesses the mobile web, still command a premium. Pricing for high-traffic, category-leading weather, news and sports channels has stayed firm, and endemic sites are still pulling in $14 to $16. And applications that drill deep on demographics and location can fetch as high as the mid-$30s, ad executives said.

But branded players don't always demand high CPMs. One advertiser said a major media site offered him $2 CPM buys while others say social-media sites now offering up oceans of inventory are likely to be pricing their CPMs below $5. Less-branded and -established sites will also come with a lower asking price.

"In the online world, there's the long tail of medium and small publishers, and in mobile that's developing as well," said Eric Eller, senior VP-marketing at Millennial Media. "I think it's that long tail that doesn't have enough brand equity to stand on its own. Most of it is aggregated into performance networks, which is sold on a CPC [cost-per-click] basis."

Naturally, buyers who have cut their teeth in mobile for years now or those signing off on six-figure buys will have even greater leverage to push down CPMs. Gene Keenan, VP-mobile strategy at Isobar Global, said those new to mobile looking to do their first run-of-network buy are likely to be paying anywhere between $10 to $15. That's a significant premium to what Mr. Keenan said he pays on average, and it's partly because he gets "sweetheart deals."

Costlier than online
Still, mobile impressions are costlier than online because the relative lack of clutter in the medium helps to deliver better returns: In mobile, the click-through rate is about 1.5% vs.0.15% for online.

Most mobile ad executives said CPMs are stabilizing and should hold steady through the coming quarters. However, Mr. Bader predicts that the recession could curtail some demand and sees opportunities in the price declines.

"2009 should see some erosion in demand, some cuts in budgets and therefore a drop in average CPM," he said. "Our clients happen to be among those who see economic downturns as an opportunity to keep spending and grab market share when competitors are falling out. We've been working with some clients on strategies for how to use lower advertiser demand to get great deals."

To be sure, those in the business of selling impressions are not lamenting declining CPMs, which they say may lure some advertisers off the sidelines. However, Tony Nethercutt, VP-sales at ad network Ad Mob, said that in its current incarnation, mobile is not a high-price elastic market. "It's still a market where price is somewhat of a factor, but the main thing holding people back is that it's new and more education is required."

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