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 Forbes.com, 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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