Ad Network Prices Take a Hit

JANUARY 22, 2009

But past performance is not necessarily indicative of future results.

Ad network CPMs were down in Q4 2008 compared with Q4 2007, according to PubMatic. Prices for ads on Websites of all sizes had decreased; small, medium and large sites’ ad prices dropped 52%, 23% and 54%, respectively, from the previous year.

PubMatic reported pricing data for text and banner ads sold through advertising networks only. The data reflects publisher revenues, not total ad spending—it includes only advertiser spending on ad networks.

“Online ad pricing is a reflection of what is happening in the overall economy, and as a result, pricing has dropped significantly in almost all categories in the past year,” said Rajeev Goel, CEO of PubMatic, in a statement.

“However, with overall advertising budgets shrinking, the need for marketers to have more accountable advertising could bring more advertising dollars online in 2009 and start an upward trend as some vertical categories have already experienced,” Mr. Goel added.

Price drops leveled from Q3 2008 to Q4 2008. The company said that could have been because increased advertising during the holidays kept ad rates stable.

“These spending figures are best viewed in light of PubMatic’s sample bias,” said David Hallerman, eMarketer’s online advertising analyst. “As the company says, the data excludes inventory sold directly by publishers to ad agencies or advertisers.

“That exclusion is most apparent in the far higher CPMs for small versus large Websites, 61 cents versus 17 cents in Q4. That disparity seems counterintuitive. Shouldn’t sites with more traffic get higher CPMs? However, this research counts mainly inexpensive remnant inventory for large sites, while counting nearly all inventory for small sites.

“In fact, the direct sales of display ads by medium and large sites, along with performance-based deals—which exclude CPM pricing—means this research is only one snapshot of the current display ad market, and not the final picture,” Mr. Hallerman concluded.

The drops in ad network CPMs do not necessarily foretell a drop in total online display ad spending. eMarketer estimates that such spending will actually grow in 2009 by 6.6%.

If advertisers spend more on cheaper ads, that’s still a net increase. For those who buy ads on networks, that may mean getting more for their money. For publishers, it may mean working harder for it.