Traditional rates clash with cost-per-click ad model

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The debate between cost-per-thousand and cost-per-click rages on as ValueClick raises its pay-out structure to Web publishers while a quarterly report by AdKnowledge shows a decline in CPM rates.

ValueClick, a Santa Barbara, Calif., online network that sells unsold CPM space on a per-click basis, previously paid its publishers on a sliding scale ranging from 6 cents to 12 cents a click-through, based on the number of unique visitors per day to the advertisers' sites from banners the publishers hosted.

Last week, ValueClick announced an increase to start pay-outs at 12 cents per click up to 16 cents for higher volume sites.

SUCCESS SUPPORTED RATE HIKES

The network says it's able to double its rate structure due to the success it has achieved since launching in July 1997. Since then, the company says it has sold out its inventory every month.

"We think we've helped establish a floor for Internet advertising," said Guy Hill, director of business development with ValueClick. "Legitimate sites don't need to deal with strong-arm tactics that force them to sell space for 5 cents per click just to appear sold out."

ValueClick guarantees publishers 100% of their inventory for 12 cents and above, meaning more significant revenue for smaller sites as well as a reliable channel for portals to offload their excess space. "We're confirming that there is in fact lots of revenue potential for this industry," Mr. Hill said.

But while ValueClick is raising its click-through payout, ad management company AdKnowledge, Palo Alto, Calif., recently released its third-quarter Online Advertising Report, showing CPM rates have declined by 4 percent from May to September 1998.

"I think the drop is indicative of the maturation of the marketplace in terms of publishers starting to have their rate card more accurately reflect where they are willing to do business," said John Mracek, VP-marketing at AdKnowledge.

But what this means for online advertising can be answered with as many different opinions as there are rate structures. For many advertisers, relying on the per-click model is more effective if they are launching a direct marketing campaign or if they are wary of the medium in general.

TRYING TO QUELL FEARS

But ad-serving companies such as AdKnowledge, DoubleClick and others are providing their clients with extensive campaign reports and post-buy analysis to help curb this hesitancy toward online advertising.

These companies say they would rather see their clients buying on a CPM basis because at the end of the day, whether it's cost-per-click (CPC) or CPM, the rates are calculated on the CPM model.

"To me, the fact that CPM is a common denominator to measure traditional advertising means that even in CPC deals, the publisher is having to calculate CPMs to see if it's worth doing," Mr. Mracek said. "It's important to keep in mind that the publisher will always do the math, and if they are going to lose out by doing a CPC deal then they are going to keep it at CPMs."

ValueClick says its CPC model is helping to improve the downward trend that the CPM model is experiencing lately.

However, others in the market are waiting for technology and the medium to mature before they speculate on which will survive and which will fail.

"I think cost-per-sale makes a lot of sense, but I also think branding and the CPM model are very highly regarded and more closely match what advertisers are used to measuring traditional advertising by," said Jay Friesel, exec VP of ad network 24/7 Media.

"I just think there is no one methodology that works better than the other," he added. "I would love to see an emphasis by third-party providers to give advertisers the resources that they need to make qualified choices."

Copyright November 1998, Crain Communications Inc.

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