How do Publishers price up their ad space?
How do Publishers price up and then subsequently sell their ad space?
The Publisher sells the ad space as “inventory” on to Media Agency buyers across three core “pricing models”. The models are:
- CPM or cost per ‘mille’, offering a thousand ad views or “impressions” at a price. CPM reflects the value of the audience seeing the ads; the further down the purchase funnel they are, the higher value the ad space; if the ad spot is seen more often, by a less targeted audience, the lower the CPM. Also the more valuable the Publisher is perceived to be or the more niche the audience; the higher the cost to buy the space. How does a Publisher decide on the CPM pricing? This is more complex than it may sound. Prices for ad inventory vary enormously between sites, pages and Publishers. Considerations for coming to a reasonable and fair price include any variable that might influence the user’s visual exposure to an ad on the final purchase with that Advertiser. This will include: the Format of the ad, the audience type that it is shown to, the total amount of traffic that the ad spot is expected to be exposed to, the total time of exposure, the strength of the content and whether the Advertiser is looking to sell directly through the ad or just conduct an exercise in branding. Beyond these considerations the pricing needs to remain competitive with other publishers. In some cases Advertiser and Agencies help Publishers to determine the final price based on the pricing of similar ad spots in the market in the process of negotiating the cost of the inventory. CPMs are not an exact science or uniform across the web. For Agencies and Advertisers it pays to get a quote for ad spots with several different Publishers to get a good guide on a market price.
- CPC models dominated the early internet; forcing the Advertiser to pay for clicks not the number of times the ad is seen. Clicks are more valuable because the user demonstrates some intent to engage with the ad, product or brand. But clicks do not work in favour of the Publisher; if the creative is badly designed the Publisher takes the hit by showing an ad thousands of times with no clicks. As we will see later in this section the Publisher can also track the ad’s click by calculating the likelihood for a standard user to click on the ad over the course of a campaign the Publisher can determine what a good price would be to charge per click. If a Publisher can get away with serving just a few ads but expects a click for almost every user, it will be more favourable to charge on a CPC. Where CPC models exist “long tail” Publishers have been known to try and dupe the ad serving counters employing small armies of internet robot programs to mimic users clicking. Such techniques do not take into account that ad servers have filtering layers in place that do not pass fraudulent click activity onto the reporting part of the ad server.
- The last model is CPA or cost per acquisition. The presence of a conversion tracker on the Advertiser site (supplied by either the Publisher themselves or the third party ad server) ties a conversion back to the ad and publisher which drove that conversion, this can also be extended to a lead or sign up (more details on the pathway to conversion are covered in Chapter 4). For this model a “conversion” just means triggering a conversion tag” so this can mean the completion of any specific action. Due to the flexibility of this definition there are pricing models that exist like “CPL” (Cost Per lead) where the action of generating the lead will fire a “conversion tag” – so in this sense CPA and CPL are the same.
Running a business selling ad space is never quite as simple as three pricing models. Others which I have encountered: Fixed Price, CPM combined with a frequency cap, FOC (free of charge), CPMV (cost per visual impression), CPE (Cost per Engagement), Rev-share models (Revenue-Share), Sponsorship (a model particularly popular in the Chinese market) and a whole range of deals where online ad space is packaged with ad space for different channels such as TV. New technologies in ad serving will mean lots more options for inventory purchase in the future.
To find out more about the role of Publishers and their relationship with Ad Serving Technology, read my book: Ad Serving Technology – Understand the Marketing revelation that commercialized the Internet – available now from Amazon: http://www.amazon.co.uk/gp/product/1484867572/ref=olp_product_details?ie=UTF8&me=&seller=