What's the best online ad pricing model?
CONTENDER: John Ardis, VP of corporate strategy, ValueClick Inc. Six years' experience with online ad networks
There's no question that advertiser are looking for more accountability from their online graphical ad buys. The interest in cost-per-sale buying increases with every passing year. Marketers, including big brand name marketers, are asking for greater accountability in the way they spend online. They can't get enough of it.
One of the most appealing aspects of cost-per-sale is that they pay a flat percentage off of every dollar. That takes away all the guesswork. They have tons of control and tons of accountability.
Usually, if people have anything left in their budgets, I've found that the first place they want to spend it is in an accountable cost-per-sale model. While big brands are used to paying big media fees on radio or TV, when they come to Internet display advertising the first thing that they want to do is get more accountable. If that goes well and they have a successful search strategy set up they may dabble in CPM buying.
However, the online ad marketplace can't sustain itself on a cost-per-sale model alone. When you think of the 35 million to 45 million Web site publishers selling ads, only a very small percentage of them are wiling to take a cost-per-sale fee. Once marketers have perfected their strategies with cost per sale, in order to reach other people on other Web sites, they must branch out and test how other ad buys will work for them. To limit ads to the sites whose owners are willing to work only on a percentage of sale is to block out a large number of the inventory that is ultimately available.
CONTENDER: Rob Rasko, COO, CPX Interactive. Five years' experience in Internet advertising, experience with Oppenheimer & Co. and AIG
Cost-per-click has always been valuable as an optimization tool and as a hybrid between cost-per-acquisition and cost-per-thousand for performance marketers.
Of course, CPC also provides a built-in insurance policy against a straight CPM buy, since an advertiser is only paying for potentially interested users. This is the case even when the CPM buy is layered with targeting strategies that increase conversion, such as behavioral targeting or visitor retargeting.
For agency media buyers that may lack the time to monitor all their different campaigns and clients on a regular basis, CPC is still a convenient vehicle, providing a clear picture of a campaign's ability to deliver against a specific, concrete metric. Because it is closely tied to spend and customer action, it is very easy for the marketer to monitor spend and adjust it accordingly, without becoming weighed down by complex predictive models.
Another use of the CPC metric is as a governor for a newer hybrid pricing model, known as dynamic CPM, where a campaign is internally assigned a maximum CPM as a starting point and then optimized against a set metric, such as CPC.
This method allows a campaign to organically back into a desired return on investment, maintaining a level of price control. Ad networks that offer a dynamic CPM can share the upside of a real-time pricing optimization model with each of their clients. To use an old-school expression, we can pass the savings on to the customer.
THE DECISION IS A DRAW: Both of our experts agree that accountability is one of the driving reasons behind the growth of Internet display advertising. Online marketers know that today's marketplace has many options. Rasko's case for dynamic CPM sets up an interesting balance between controlling costs and measuring response, and Ardis looks at the reality of publishers' control over their inventory, acknowledging that diversity in pricing is here for now.