We’ve all heard that page views are dying. Jeremy Liew of Lightspeed pointed out a few weeks ago the problem with scaling an online advertising business based on revenue per thousand page views, an analysis which has now been picked up by the Dan Mitchell at the NYT. Jeremy’s analysis is correct, on one level, but it also exposes a deep flaw in the way online media is currently valued and sold to advertisers.

According to Jeremy, untargeted, run-of-site page views are worth about $1 per thousand. It’s RPM because it’s taking into account ALL forms of advertising on the page, including display ads sold on a cost per thousand impressions basis, pay-per-click ads, and pay-per-action ads. $1 per thousand sounds about right, but it’s also deeply disturbing.

Part of the problem is that there’s a disconnect between page views and human beings. On a site with very low page views per user, a thousand page views could be generated by a thousand people. Or, across a month, it could represent the activity of a single highly active user. So imagine a page with three display ads sold on a cost per thousand basis. An advertiser could, in theory, be paying $1 OR LESS to reach a thousand people with all three display ads.

In what other medium can you pay $1 to reach a thousand people with three ads each???

At that rate, you could reach 1 million people for $1,000. Now, granted most thousand page views are generated by less than a thousand people (in many cases far less). And granted we’re talking about untarget advertising. A highly targeted site can earn a revenue per thousand pages of, say, $20. But still, $20 is a pretty good deal to reach as many as a thousand people with your advertising. And if you assume that $20 is from multiple ad sources on each page, then each source is paying less than $20 to reach a highly targeted audience of up to a thousand people.

Compared to other media, online publishers are pretty much giving it away. Because the reality is that EVERY page view is in viewed by someone who has some value to some advertiser. The problem is when you DON’T KNOW who your users are.

This is the problem with all the focus (particularly in Web 2.0 circles) on total traffic numbers — 10 million uniques is great, but not so much if you don’t know who these people are.

Of course, you know why so many sites are valuing their traffic in bulk — Google AdSense, which doesn’t care who your users are, as long as they click on ads. Pay-per-click advertising is, on one level, all about targeting, but on another level it’s a volume game.

Is it possible that Google, the great driver of efficiency in online advertising — and the great democratizer of online ad revenue — has in fact dragged down the average value of ALL page views?

So what is online media to do? It already commands a third of total media attention, rivaling television, the ultimate monopoly medium. So why can’t websites charge monopoly prices? Well, the handful of big online media brands, like Yahoo, AOL, MySpace (homepage), MSNBC, CNN, etc. DO charge premium prices for their premium inventory. The top online destinations can and do price like high-priced offline media.

But for as the long tail — it just doesn’t scale.

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