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.