The Slow Decline of CPM Advertising?

If you’re involved in selling online advertising, it’s all sunshine and puppies after the Interactive Advertising Bureau and PWC reported that U.S. online advertising for the first six months of the year was nearly $10-billion, a healthy 27% increase over the same period last year.

The growth is definitely positive but not surprising given the attention the Web is getting as an advertising vehicle at a time when traditional media, particularly the newspaper business, is struggling. If you go through the IAB’s numbers, there are a few interesting tidbits. One item that jumps out is the break-down between the different forms of online advertising.

It may not be a trend yet but it is noteworthy to see that CPM’s market share fell to 45% from 48%, while performance deals climbed to 50% from 47%. (CPM ads are the “traditional” online tool in which an advertiser pays a certain amount based on every 1,000 page impressions. Performance deals are things such as pay-per-click/AdSense in which an advertiser only pays if something happens such as a click-through).

A growing number of advertisers are moving to performance deals because it’s easier to get a handle on what’s happening, how much they’re paying, and whether they are getting a reasonable return on investment.

On the other hand, CPM advertising is much like traditional advertising because it’s based on the assumption people are seeing an ad and, as a result, brand awareness will grow – the same model applied for magazines, newspapers, billboards and TV.

The problem is many Web users are paying less and less attention to banner ads based on CPM. For example, the horizontal ads that used to dominate the top of Web sites are increasingly seen as ineffective, and being replaced by smaller boxes (known as 125x125s) used on sites such as TechCrunch. These ads use less real estate, provide Web sites/blogs with more ad slots, and seen as more user-friendly.

As the online ad market matures, the market share gap between performance deals and CPM will continue to widen. This will mostly happen because the next wave of advertisers and media buyers will want accountability and ways to accurately gauge ROI. CPM ads will remain a viable and popular but they will take a supporting actor role while performance ads will be the stars of the show.

This will obviously be great news for Google, which dominates the performance market. HipMojo calculates that Google generates $7.53-billion of ad revenue during the first half of 2007, including $3.97-billion in the U.S. Staggering numbers, indeed!

Links: MediaWeek’s Mike Shields looks at the IAC’s numbers, noting that the big online players (Google, Yahoo, etc.) continue to dominate the market.

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  • Leigh

    Couple thoughts to ad to the mix:

    1. Agencies sold their clients a bill of goods in early days that interactive media is “measurable”…while in some cases this may be truer than in traditional advertising, it’s still by and large a crock (and that includes pay per click). The decline of CMP should come as no surprise as many of us in intereactive, never really believed in the banner ad to begin with. It’s just that clients were so damn comfortable with it and in a medium that still feels experimental to many, they went to the place they understood. Things are changing and therefore it is not surprising that the numbers are changing along side it. However, as more people are online, clients will have to find other ways to have customers expeirence their brands beyond clicking through a google ad word….

    2. The way “online advertising” has been defined continues to be driven by organizations that are often run by traditional Agencies and/or publishers – this means that we continue to get standards that mimic traditional models and those that report numbers continue to measure the success of “online” by those same standards. Why wouldn’t a corporate Website be considered advertising? But it’s not and those budgets are not included in things like the IABs calculations.

    If i get around to it, I actually want to write a post about this but you know, it’s the long weekend. so for now, gobble, gobble

  • Ryan

    I would speculate that the percentage shift can be largely accounted for by increased spending on social networks. No one buys CPM deals on those sites because they simply don’t perform. Niche sites still seem to be sold largely on a CPM basis.

    I can only really recall seeing 125×125 ads on blogs, so I don’t know if that’s a larger trend or simply part of the blog advertising trend.

  • Mark Evans

    It will be interesting to see how new types of online advertising emerge. Video, for example, could offer some pretty interesting ways to advertise (pre-rolls, post-rolls). One thing I hope goes away is the concept of click-throughs on banner ads given they’re so low, it hardly matters.

  • Magnus

    They are going to have to make pre-rolls and post-rolls more interactive and interesting, right now the CTR is hit and miss unless the advertising very niched targeted to the video, which I am not seeing a lot of, epsecially in the age of FREE.

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  • Pay Per Play

    I think this will put cpa and adsense out of business. The newest form of advertising called Pay Per Play that allows websites to earn revenue from every visitor to their site and they don’t even have to click on any ads. The audio ads play automatically when visitors enter a page on the site that has the code. They are 5 second audio advertisements from major corporations that bid for their ad to be played. is where you can sign up and all sites are accepted. The bidding starts in February 2008 and they are looking to get as many websites in their network as possible. This is destined to be as big as or bigger than Google’s AdSense program. Time will tell.

  • Karen

    I think Pay Per Play sounds a little too limited. Great for certain sites, I suppose, but I’ll leave a favorite community or site over audio ads. I’d sooner use a paid service than a free site in the habit of using my speakers.