The tyranny of the CPM

By Felix Salmon
August 26, 2009
Jim Spanfeller:

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Why is online advertising so cheap compared to the cost of reaching 1,000 people in any other medium? Anybody whose answer involves oversupply or excess inventory should read Jim Spanfeller:

The only medium in recent history that has had true advertising scarcity is network television, and, with this year’s upfront, one might suggest that even this is no longer true. In every other case there has been either unlimited inventory available (magazines and newspapers) or limits that have rarely, if ever, been reached (radio, cable and spot TV).

Jim’s right that web publishers, in selling off “remnant” inventory at hugely discounted rates, are shooting themselves in the foot. All they’re doing is making it easy for media buyers to get bargains, and devaluing the very idea of online advertising. Indeed, in another sharp insight, he writes:

Some buyers will point to activation levels (clicks, signups or outright sales) as indicators of the relative worth of specific inventory. This is completely understandable as a guideline. But giving it too much weight is problematic. For example, we now know that 16% of web users generate 80% of clicks and that this 16% represents the lower income and education segments of the total user base. Do we really want to be held accountable as an industry by metrics generated by the lowest common denominator and a minority of users to boot? I can’t think of too many successful models using these types of metrics.

These metrics drive the conversation and the core objectives of online advertising away from demand creation (which is basically the definition of advertising) to demand fulfillment or, put another way, direct response. There is nothing wrong with direct response; every other medium has it, and the industry drives huge value for both marketers and media. But direct response is not advertising—it is something different.

In other words, if you’re looking at your clickthrough rate, you’re not participating in the web equivalent of an advertisement, you’re participating in the web equivalent of junk mail. If publishers don’t want to be in the junk-mail business, they should be very wary about going down the clickthrough path.

The irony of Spanfeller’s column is that he’s the outgoing president and CEO of, which was one of the first journalistic websites to aggressively maximize its pageviews at the expense of the user experience. Auto-refresh, slideshows, cutting stories up into multiple pages — all of these tricks make reading content online that much less pleasant, and thereby cheapen the value provided to advertisers. There’s a reason that Vogue doesn’t put ads in the middle of its fashion stories — it’s presenting the best possible editorial product it can to the reader, and advertisers are happy to pay a premium for that. Online, there are very few equivalents, because of the tyranny of the CPM.

I’d love to see a world where the price of online advertising was a function how many unique visitors saw that ad unit, rather than how many times it was served. That’s much more how the print world works. Instead, we’re stuck in a junk-mail paradigm which benefits no one.


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So basically, you like Conde Nast but don’t like Time-Warner, Inc.?

Who has the best model and why?

Posted by flippant | Report as abusive

Felix – can I request an analysis involving economics, advertising markets & blog economics?

Please run a model of the profitability of various advertising-supported business models (several each of print, online) under varying ad-revenues per metric (= clicksthrus, views, purchases, eyeballs, etc).

Back of the envelope is fine. Simplification and assumptions encouraged.

[aside: how could I buy an out-of-the-money call option on you? Felix Salmon Advisory Partners is worth $100mm+; how to monetize?]

I absolutely agree with you Felix.

If you are a quality publisher who has worked so very hard to create premium digital content and build-up a valuable audience – then you should not be devaluing your offering by selling access to this quality audience at a low price. Premium online publishers must learn to say no to the wrong deals and hold firm on minimum CPM levels or the battle is lost too soon. Too many quality publishers are taking the ‘junk-mail’ approach (as you rightly describe it) and giving their space away for next to nothing for a small short-term profit without protecting their premium for the long term.

With regards to measurement, this is a serious issue and it’s difficult to argue against display having to go back to using standard reach and frequency metrics used by TV such as GRPs, rather than always just talking about impressions, clicks or Share-Of-Voice. Once we can start producing clearer metrics for consumer engagement with display ads then we can look to educate marketers on how to focus more clearly upon the audience that they want to reach, the effectiveness of their client’s branding messages and the best methods of delivery to and engagement of these audiences online.

There is an obsession with the ‘final click’ and ad impressions and it is very dangerous. It has resulted in search (and direct response) profiting from the final click being the easiest way of attributing credit for conversion as search in particular sits at the bottom of the purchasing funnel. Recent research (from iProspect and the Atlas Institute) have shown how display makes the user aware of a brand or product and then inspires them to research things further via search. Marketers have long understood the value of buying both display and search concomitantly but may not be fully evaluating the impact that each has upon the other and due to the measurement issues are not evaluating everything correctly.

The strange thing is that the key plus points for online ads are their large captive audience, visibility in terms of performance and relevancy in terms of how they can be targeted. However, it is exactly these three qualities that are currently holding back the industry – as there are too many ads simply being desperately thrown around, we aren’t measuring their performance correctly and people currently aren’t 100% comfortable with the ways in which they are being targeted.

The online advertising industry may be young but it needs to grow up – and quickly.

Dear friend,
Interested,noted of your sayings.
Now a days,Online advertisements in all major websites.
It serves on many counts.
1.Easy way of targeting many social website users.
2.Very reasonable costs in regard to advertising through on line.
3.It will create more prospects in longer days.
4.This new technique is very widespread.

He says “These metrics drive the conversation and the core objectives of online advertising away from demand creation (which is basically the definition of advertising) to demand fulfillment or, put another way, direct response.”

As an advertiser, this is what first got me excited about the web. Pay-per-click wasn’t creating demand; it was capturing existing demand. Which is why it was so cost effective compared to other media. I understand it’s hard to publish a mass market magazine/website with this model, but I don’t want to scrap the capture-demand model just so big magazines like Forbes can make money on the web.

Posted by crimsongirl | Report as abusive

The web adverstising site Project Wonderful auctions ad space and charges based on how long it’s displayed, regardless of actual views. I think that’s a pretty effective model.

IMO, a fundamental difference with online advertising is how easy it is for advertisers to use web analytics to determine customer interest and ultimately profit from a campaign.

CPM and CPC are unimportant to advertisers. The important thing is the cost of each campaign and the resulting increase in sales and profit. Nothing says failure to an advertiser more than an analytics report showing tons of clicks from a campaign that yield just a single pageview with no time spent on the site and no conversions.

Content producers are slaves to the effectiveness of their advertisers’ campaigns. To maximize the value of product, content providers need to learn how advertisers can make the most money off each of their readers/viewers. That’s the variable they should optimize around.

Movies and TV shows discovered product placement as a new way to increase the value of their content to advertisers. Online venues need to experiment with similar out-of-the-box thinking.

My own experience is as follows: The more thinking involved with content, the less awareness of advertising. This is bad news for quality content pages, because these are the pages where I use my brain to sort out which article to read. If I am on a page where the trigger words are Real Madrid or Inter, I have much more unused processing capacity left, so I just might remember the ad.

And remember Felix: Noone paid Luther when he blogged on church doors. It is kind of funny that people expect to make a profit out of speaking their mind.

Posted by Gaute | Report as abusive

I don’t buy Spanfeller’s thesis that the other mediums are unlimited, they are relatively finite when compared with the web. And because of the low cost of entry into the web advertising business, the floor is much lower – a magazine won’t even consider lowering prices as low as the web, because they couldn’t stay in business, whereas many websites can stay alive at the low rates that prevail on the web.

The low cost of web advertising exposes the fraud that most advertising is. As companies shift ad dollars from conventional mediums to the web, they notice little change in sales. Media outlets and advertising agencies want advertisers to believe their campaigns have a direct impact on sales, but they really can’t prove it. Do branding campaigns and ads that project lifestyle associations really improve sales as much as the ad campaigns cost? I doubt it, but I can’t prove it any more than the converse can be proven. But don’t they realize that most people treat commercials and print ads the same way they do spam?

Posted by KenG | Report as abusive

Pricing based on eyeballs is one of the huge problems with traditional advertising. It does not make sense to perpetuate that problem simply to allign the two mediums. It is true that click-trhoughs don’t capture what the advertiser really cares about (increased sales including those in the future from enhance product awarenes/appeal), but going back to paying based on blind guesses isn’t really the answer either.

Posted by Ledbury | Report as abusive

Web ads once were sold mostly per-view, not per-click. The advertisers discovered that they could get away with paying for clicks only, so they did.

Posted by g | Report as abusive

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