There is a lot of talk recently about plummeting CPM rates online. More ad-targeting intelligence and more focused niche sites was supposed to be the CPM-boosting savior. But bloggers are "hanging up the pajamas" and advertising-revenue based startups are folding faster than ever.
What's next? I think that increasingly sophisticated ad-targeting is only part of the answer. Sure, US-based female cardiologists over 50 are a prized demo, and laser-focused ad networks targeting them might command $80 CPM's. But I think the real money is in pricing the final transaction: charging rich, impatient people 50% more than less affluent people with time on their hands. The kind of price discrimination we see in airline tickets, concert seats and clothing sample sales will emerge in increasingly sophisticated forms online.
So, with better and better ad-targeting, I might have one banner say "WSJ for students: only $45!!" and another say "WSJ for executives: only $85!!", and the difference in final sale price would justify huge CPM premiums for both segments. I know the price elasticity curve of a student is different than for an excutive, so I could algorithmically choose optimal prices for both groups, and thus higher profits for both groups.
Similarly, if my inventory data were dynamically fed into my online banner ads, I could generate promotions based on capacity. E.g., I could lower advertised prices if something isn't selling well and my inventories are too high. Or, I could detect surges in interest and dynamically raise prices in response. Essentially, banner ads could be used for price discovery, price-based promotions, and price-discrimination.
These sorts of pricing innovations are where the *real* money in online advertising is.
2 comments:
An interesting thought, and one which really extends the concept of targeting. One of the main reasons it's not done is that price discrimination based on classes on people is very often considered just discrimination, and is illegal. Are you just speculating or do you have some thoughts on how to keep it fair and legal? Student pricing, as you point out, is very common. I imagine if you could really iron out the technical issues by linking an ad network with an e-commerce provider, as well as the even bigger legal issues, you'd have a great business on your hands...
I've seen some start-ups going along the lines of dynamic ad generation and inventory tie-ins. Admission.net and Tancent come to mind.
I like both those concepts, but using price as a dynamic yield-management and promotional tool isn't something I've seen in banner ads yet. Maybe the travel industry is doing it by now.
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