July 25th, 2007
The page view may be dead, but page views are still the currency for online display advertising, with most display ads still being bought on the basis of CPM, or cost per thousand ad impressions — and impressions are a function of page views. The problem is that the page view-driven online advertising economy is suppressing online advertising growth and innovation. Here’s why.
Page view-driven advertising is a product of Internet 1.0 advertising, which was modeled after traditional media advertising. But its actually worse than that, because even traditional media values audience above all. Selling online ad impressions is a holdover from a time when online audiences were difficult to measure because people used different IP address and different computers — oh, wait! Online audiences are STILL difficult to measure, with rampant cookie deletion and the same problem of multiple access points for the same person. So instead of delivering advertising to people, we deliver it to pages. And when you charge by the page/impression, the more pages the better.
There’s search advertising, which ingeniously targets ads to keywords, which are a direct reflection of what’s on someone’s mind. No demographics, cookies, or individual identifiers necessary. It doesn’t matter where I use the search box — the advertising always works. A search results page is microcosm of the larger search advertising economy — it’s profitable at any scale.
The page view/CPM advertising economy is a raw volume game — the Web is awash in page views, and since advertisers are buying page views in large volumes, that forces publishers to bulk up their share, even as the over-supply drives down the price. Behavioral targeting is addressing the problem of huge amounts of low value page views by targeting people rather than pages, based on their use of the high value pages. This is akin to targeting search keywords, but unlike pay-per-click text ads, behavioral targeting display ads are still caught up in the page view economy, which makes it an uphill battle.
As Larry Allen of newly acquired behavioral targeting pioneer TACODA pointed out in an interview with me, online ad spending is still relatively low (particularly as a percentage of all ad spending), so those ad dollars get spread thin across the ever-increasing page view inventory:
There is still a large gap between the volume of ad inventory on the Web, especially when you consider news and social media, and the amount of ad dollars being spent.
But the biggest problem with page views/CPMs is that there could not be a more blunt, less nuanced metric for valuing online media. The newspaper industry, as with so much else in the rapidly evolving media industry, brings this problem into sharp relief.
The Newspaper Association of America just released the results of a custom study done by Nielsen/NetRatings, which had findings that sound like great news:
An average of more than 59 million people (37.6 percent of all active Internet users) visited newspaper Web sites each month during the first quarter, a record number that represents a 5.3 percent increase over the same period a year ago, according to Nielsen//NetRatings NetView custom analysis. During the same time period, the overall Internet audience grew just 2.7 percent.
Even better than the increasing headcount, these people who visit newspaper websites have great attributes:
- Nearly 12 percent (11.9 percent) of those who have visited a newspaper Web site have annual household incomes in excess of $150,000 compared with less than one in 10 (9.3 percent) of the overall Internet audience.
- Nearly nine in 10 (88.1 percent) newspaper Web site visitors have made a purchase online in the last six months compared with 78.9 percent of the overall Internet audience. Four in 10 (41 percent) newspaper Web site visitors are employed in professional or managerial occupations compared with one in three (32.7 percent) of the overall Internet population.
- Nearly three in 10 (28.9 percent) newspaper Web site visitors have sought out or posted a product review online in the past month compared with 16.1 percent of the overall internet population.
So where’s the problem? The only way that advertisers have to value newspaper websites at this media category level is by page views (via MediaPost, since this data is oddly not in the NAA press release):
These same visitors generated nearly 2.7 billion page views per month throughout the second quarter, the NAA reported Monday. That compares to slightly more than 2.5 billion page views during the same period last year. It represents a decrease from 3.0 billion page views in the first quarter.
OK, so page views are down slightly this year, but still, 2.7 billion page views is A LOT — except that, in the page view/CPM economy, it’s not as much as you might think.
Let’s say newspaper websites have an average of 3 display ads per page, which would be 8.1 billion ad impressions. If you divide 8.1 billion by 1,000, you get 8,100,000 thousands of page views. If an advertisers paid (a generous) $30 CPM, that would be $30 x 8.1 million, which is $243 million per month or $2.9 billion a year.
OK, that’s a lot of money, so where exactly IS the problem? Well, that’s $2.9 billion in CPM-driven online media value for the ENTIRE NEWSPAPER INDUSTRY! An industry that NAA currently values at $59 billion.
But this is all just silly back-of-the-envelope math, right? Well, actually…
Advertising expenditures for newspaper Web sites increased by 22.3 percent to $750 million in the first quarter versus the same period a year ago, according to preliminary estimates from the Newspaper Association of America.
So, $750 million per quarter is…that’s right, $3 billion a year. Looks like newspapers are indeed monetizing their page views at an average rate of $30 per thousand ad impressions, or $90 per thousand page views, using my assumption of 3 ads per page. Not too shabby by online media standards. Of course, newspapers don’t sell anywhere near all of their online advertising on a CPM basis, but it sure puts all the numbers in perspective.
That said, here’s the real scary math:
On a CPM basis, to make $59 billion in online ad revenue, at a $30 CPM, you need 1,966,666,666,666 ad impressions. That’s right nearly 2 TRILLION impressions, or 655 BILLION page views at 3 ads per page, which is 24 TIMES as many page views as newspaper websites currently have.
I’m picking on newspapers here because they are at the nexus of the transformation of media, but the problem with the page view/CPM economy applies to every online media company, including every traditional media company website and every Web 2.0 startup.
Google was the first online media company to break out of the CPM/page view trap in a big way — no wonder they have $10 billion in ad revenue.
Search advertising, driven by a dynamic marketplace for keywords, was a BIG idea. Behavioral targeting might prove to be a another big idea. But it’s going to take a lot of big ideas for the online advertising economy to cast off the page view/CPM albatross.