The Remnant/Premium Double Standard – Part 1
Since the early days of internet advertising, premium publishers have quietly sold online display advertising under a Double Standard:
While the largest, most powerful advertisers in the world pay single-to-triple-digit CPMs for premium inventory, smaller direct response advertisers pay pennies on the dollar for the exact same impressions.
Supply and Demand
At face value, the existence of a Double Standard is puzzling. Why would brand advertisers, with significantly greater clout and purchasing power than DR advertisers, overpay for media?
There are many factors that led to the emergence and longevity of the Double Standard, but the fundamental cause is rooted in simple supply/demand economics.
Although brand advertisers are willing to pay significant CPMs to reach a qualified audience, there’s simply too much inventory available on the top web properties for them to buy all of it. Many of the world’s most respected web sites are simply unable to sell their entire inventory each and every month.
Rather than let these excess impressions go to waste, top publishers sell their remnant inventory to highest bidders in direct marketing…usually at a cost well below $1 CPM.
A Quiet Behemoth and the Dangers of Inconsistent Pricing
This simple Double Standard has led to the emergence of a huge sub-vertical within online advertising. As eMarketer reports, of the $15.9 billion spent on online advertising in 2006, $10.5 billion was spent on direct response media.
Although less publicized and even less understood, the DR industry is worth almost twice the entire market for online brand advertising.
As brand marketers better understand the level to which they are overpaying for inventory, publishers will face significant pressure to either open up their unsold inventory directly to the brand marketers or to stop selling unsold inventory at the discounts currently allowed.
The stakes are high. Many premium content publishers cannot afford to publish quality content without the high CPMs garnered by brand advertisers. If brand advertisers stop paying premiums, the entire content industry could fall apart.
At the same time, publishers count on the income provided by selling their entire inventory – even if much is sold at bargain basement rates.
Reader Comments.
I posted some thoughts here — http://www.mikeonads.com/2007/08/10/adotas-premium-v-remnant-series/
Looking forward to the rest of the series.
- Pingback from Let’s Not Forget Service | The Myriad Things
I am the CEO of ZEDO Ad Serving so see a lot of this. Here are 2 examples.
MSN in the recent past seemed to allow advertisers to buy the SAME INVENTORY for either $3 CPM or 30 cent CPMs (as remnant). How they decided which advertiser paid $3 and which paid $0.30 is a mystery to me, although the guys who got 30 cent CPM ads often seemed to be in Seattle. They were also big buyers and the inventory was pre-emptable (if someone offers more then they lose it). The brand advertisers would not be happy about this if they knew – but I am not sure if MSN still does this.
Another example is the inventory on Web 2.0/ social networks.(ZEDO serves ads both for big direct marketers and big web 2.0s.) These sites sell the brand advertisers inventory on the high CTR pages. They also do a lot for the brand advertisers including e.g. frequency caps, age and gender targeting and some behavioral targeting. Direct marketers pay much less but get the low CTR inventory on the photo pages and no age/gender targeting and often no frequency caps. That seems more fair: lower price, higher volume and lower quality inventory.
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