Display Ad Prices Plummet: Huge Opportunity To Buy!

Remnant display prices for a long time have just been totally out of hand. Fortunately the recession has brought these prices down back to more of a realistic level, half of what it was in Q4 of 2007 compared to what it is was in Q4 2008.

So why are prices down so much this year versus last year? Simple. All the clueless media buyers out there spending on branding (another word for blind spending). Ok, clueless is to harsh, but coming from a performance perspective it is really all that makes sense to me, where all in this to get accountable and verifiable results, not theoretical results.
Looking further into the statistics provided this week by PubMatic, it’s clear that there are a few verticals in particular that have taken a nice hit.

Here are some of PubMatic’s key findings taken from there site:

* All sizes of websites (small, medium, and large) were down dramatically from Q4 2007; small, medium, and large sites dropped 52%, 23%, and 54%, respectively, from the previous year.

* All sizes of websites were also down from Q3 2008 to Q4 2008, but the drops were not significant, bucking the trend of larger drops from quarter to quarter throughout 2008; this may be an indicator that the online ad sector got just enough of a boost from holiday advertising to keep ad rates steady.

* Similar to sites by size, all vertical categories also experienced significant drops in their ad pricing from Q4 2007; the biggest drop by a vertical was Business & Finance, which fell from an average price of $2.13 in Q4 2007 to $0.83 in Q4 2008 – a 61% drop.

* Also similar to sites by size, no vertical categories dropped by a significant amount from Q3 2008 to Q4 2008, and some verticals even improved from the previous quarter; the Technology, Sports, Entertainment, Gaming, and Music verticals all had higher ad price averages in Q4 of 2008 than in Q3 of 2008.
*Source: Pubmatic http://pubmatic.com/adpriceindex/index.html

So what does this all equate to? Major opportunities to buy! There are approximately 400+ ad networks out there right now. These networks traditionally have not wanted to work with advertisers on a CPA (cost per action) because it was not as profitable for them. This started noticeably changing in the winter/spring of 2007, and now many of these networks are openly offering CPA pricing. You don’t have to push for it the way you did in the past.

Don’t be fooled into working on a dCPM model where the networks “try” and back out into a CPA. Advertisers no longer need to pay for the networks to “learn” where to place ads on this model. Instead, due to the decreased market demands, advertisers should demand that the networks solely take this risk – the technology supports this and networks focused on long-term relationships should just do it!

The most ironic thing is how so many networks that were so keen on the CPM model are beginning to show signs of turning into CPA or performance based networks. So why are these networks moving into this performance-based space? The answer is not all that simple.

Ad networks that traditionally priced on CPM models have some pretty impressive targeting technology these days; some using the right media exchange technology (amongst many others) which actually had the opposite desired effect – where the technology actually made the rates drop! But this rate drop due to the technology was not exclusive to the networks, many publishers that initially used this technology to manage their unsold or remnant inventory saw similar overall drops in ecmp’s.

Companies like The rubicon Project allow publishers to get the highest effective CPM for their inventory not only through one network, but hundreds of them. According to the Rubicon Project’s website there are 368 networks at the time of this posting. With all this technology came negative repercussions for those networks and publishers or individual site owners that relied too heavily on this technology for their unsold inventor (or even total inventory).

This robust technology, which can go by “hyper-targeting” can learn which creative performs best at which location and at what frequency (day-parting and view sequence, etc.) based on user information (age, location, sex, relationship status, browsing habits, etc.) advertisers found sweet spots. Many of these sweet spots performed much better than did other locations on network/publisher sites. This all combined with the imploding recession and need for accountability (marketing and ad-spend is usually one of the first corporate expenditures to be cut) that no one wanted this bad inventory. Because of the technology, it has created even more unwanted inventory. There is so much bad inventory now that just doesn’t convert in relation to the inventory that does, that it went unsold or became unwanted remnant.

So what does this all equate to? With a recession that is getting worse and deflation now taking place, some of the traditionally large spending verticals such as Finance and Technology, which made up a large piece of the combined online ad spend will continue to pull back. You combine these pull-backs with the technological advances available to advertisers and you have a recipe for network destruction.

For the publishers, this means lowered returns or lower eCPM’s on their sites. Many sites have even tried to take away or pull back from the technology. Technology such as Right Media’s yield manager that managed the inventory on their sites, because it lowered their eCPM’s during a very troubling time when advertisers where already pulling back.

So why did sites turn to these exchanges, and why didn’t publishers see this coming? You figure about two or three years or so ago that a site could sell say 70% of its inventory and 30% went through an ad-exchange. This 30% that was remnant and being, “bonused” or sold at a very minimum price was not very profitable. Along comes 2006 and particularly 2007 and a huge implosion of exchanges, largely legitimized by Google’s purchase of DoubleClick followed a few weeks later by Yahoo’s acquisition of the Right Media Exchange and publishers are monetizing this remnant inventory like never before, all by simply placing some code. Networks are making huge margins, some as high at 40%+ (Right Media Exchange was reported to take about 7%) and everyone is making all kinds of money and for the most part all through automation, no need for large staffs with salaries.

Publishers are hugely satisfied; networks are raking in the money. Publishers turn more to the technology to mange not just their remnant inventory, but their premium inventory also. The technology is so good that it creates sweet spots, and the rest of the inventory becomes increasing worth less. Then comes the recession and BOOM. You have what we have today, a wonderful opportunity for performance buyers to purchase on a no-risk CPA basis or at a minimum with very competitive CPM’s.

Look for huge consolidation in the Network space this year, I don’t think there are going to be 400+ networks around by the end of this year. The fire sales have reportedly already begun.

-Download the full PubMatic Q4 2008 AdPrice report here.