Social Networks Sink Online-Ad Pricing

Facebook and Its Ilk Might Be Reducing Overall Pricing of CPMs

by Edmund Lee
Published: July 12, 2010

NEW YORK (AdAge.com) -- Social networks and their endlessly growing page views have dominated every sphere of the web -- from audiences to ad impressions. But there's one area where they still can't seem to catch up: ad prices.

A recent analysis by ComScore shows social networks, primarily Facebook and MySpace, have over the last year drawn an average CPM of only 56 cents, compared to the $2.43 average for the internet at large. Looking more closely, the ComScore data show that the average pricing for online ads exclusive of social-networking sites, namely Facebook and MySpace, would be much higher, about $2.99 for every 1,000 views; social sites dragged down the average online CPM by as much as 18% over the last year.

Source: ComScore

Some industry executives are concerned that Facebook and its ilk may in fact be reducing the overall pricing of CPMs, or the cost-per-thousand impressions, that are the basis for online ad pricing.

"Social networks are going to be a challenge for everybody, as the sheer dominance of the impressions they're making flood the marketplace with inventory," said Keith Lorizio, Microsoft's newly installed head of U.S. sales. "And it's especially a challenge for every publisher, as they drive down CPMs."

The low-cost rates on social sites don't necessarily mean they're driving down the pricing for other publishers. In fact, much of the collective downward pressure on ad prices could be attributed to the mass of inventory altogether -- it's supply simply outstripping demand.

"There's just an overall glut of page views on the internet," said Richard Jalichandra, CEO of ad network Technorati Media. "And with all that inventory, there's an overall drop in CPMs."

Still, Mr. Jalichandra said social networks may be a large part of that inventory production. Among the top five U.S. publishers of display advertising, Facebook delivers the largest share of online ad impressions -- serving 16.8% of total online ad impressions in the U.S. for the month of May, according to ComScore. Fox Interactive Media, a property that is primarily made up of MySpace, served 6.3% of total impressions for the same period. To put it another way, in the United States, Facebook and MySpace together are responsible for more than a fifth of all advertising traffic, while at the same time bringing in the lowest rates for those ads.

Facebook's share of display ad impressions "doesn't mean Facebook made more money than Yahoo," said senior eMarketer analyst David Hallerman. "[Facebook's] volume far exceeds the cost per unit."

According to the firm's latest projections, Yahoo is on pace to book $3.04 billion in net advertising revenue for 2010, and AOL will bring in about $890 million. Facebook will see something just shy of AOL's projected mark, according to Mr. Hallerman. For its part, MySpace is projected to bring in around $360 million this year. So, while accounting for over 20% of display advertising volume, Facebook and MySpace bring in less than 5% of total display revenue.

Part of the reason why Facebook serves many more ads for a much lower price is because most of its advertising is small and veered toward text. In fact, the company recently proscribed the serving of any banner advertising, as well as any of the other large display sizes as sanctioned by the Internet Advertising Bureau. The site now serves all its own uniquely sized units; they are smaller and, therefore, come at a lower price point. The company also recently launched a self-serve ad model similar to Google's. �