Most marketers don't realize that there are two distinctly different ways to buy Web advertising — upfront and real time. If you don't know the distinction, you could be paying too much to market online.
Upfront: The majority of Web advertising is purchased upfront. Here, you negotiate a cost-per-thousand impressions (CPM) rate for a guaranteed number of impressions well in advance. At least 48 hours notice is required. Most buyers find they need to plan their buys up to 12 weeks in advance.
The guarantee means that the marketer agrees to pay a certain amount for a certain number of impressions. The site agrees to deliver at least the number of impressions indicated. Most of the time, the site will end up delivering more impressions than it is contractually obligated to do. Why? The number of viewers coming to a Web site isn't something site owners can control. So when they estimate viewership, there is a natural tendency to estimate low.
As a result, campaigns negotiated at $25/CPM stand a good chance of actually costing the marketer more like $20/CPM. What most Internet marketers miss, however, those same avails they are willing to pay $20-$25/CPM for can be had in the real-time market starting at $5.
Real-time market: Some people call this the spot market, a term that comes from broadcast television, in which marketers are encouraged to buy upfront and lock an exact number of impressions. In the television spot market, marketers who can wait buy at great discounts. Hit shows on the major networks sell the majority of their inventory upfront. However, unless advertising absolutely must air on “Seinfeld,” it's usually better to wait for the spot market, where advertising is available at a significantly reduced rate.
On the Internet, the real-time market exists because so much of Web sites' ad-space inventory goes unsold. Industry analysts Forrester Research and Jupiter Communications both estimate that on average only 50 percent of a given site's inventory sells upfront. The remaining inventory will either expire or can be made available for purchase in the real-time market.
How it works: How the real-time market works is pretty simple once you understand the anatomy of a Web page:
At the top of every Web page is a code that directs the server on how to fill the page. Every Web page that carries advertising is delivered with one or more holes in it. The code tells the site to fill the hole with a banner ad that has been purchased upfront. If no banner ad has been sold upfront, an additional code tells the ad server to fill the hole with a banner ad that's sold in the real-time market via an ad network.
If no one buys a banner to serve on that page in real time, a public service announcement or other default banner can be served. Ad networks have pioneered the technology that allows Web advertising to be bought and sold in real time. Pricing in the real-time market is determined by bids. Sites set a minimum bid. Buyers bid on the inventory they want starting at the minimum bid set by the site and increasing until they secure the inventory needed.
Not an auction house: Because bidding is involved, some people think real-time advertising is like an auction house. Marketers often operate under the belief that the auction model only exists to make a market for “junk inventory” — impressions that are of no real value to the marketer. Real-time inventory is far from junk. It's exactly the same quality as the inventory available upfront. The only difference is that because that inventory is not sold in advance, it's available at a reduced price.
A better analogy than the auction house is to compare the difference between a department store and a discount store. If you want, you can buy a new DKNY jacket at your local department store. For department store buying, plan on buying one season ahead of time and on spending full price. If you prefer, you can wait until the season is upon you to buy a new jacket through a discount house at 40 percent off. Either way, the merchandise will be the same DKNY quality you are accustomed to. Only the timing and pricing will differ.
Larry Braitman is vice president of business development and co-founder of Flycast Communications Corp., San Francisco, which offers real-time advertising on a network of 400 Web sites.
