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The use of “ad networks” surged from 5% of total ad impressions sold in 2006 to 30% in 2007, according to the “Digital Pricing Benchmarking Study” from Bain & Company, conducted in coordination with the Interactive Advertising Bureau (IAB).

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As online publishers experience growth rates of 20-30% in ad revenue, the race to create advertising opportunities has left publishers with excess inventory that they are selling via ad networks at up to 90% discounts versus direct sales rates, Bain said.

That trend is particularly foreboding for branded online publishers, which traditionally earn $10-$20 CPM (cost per thousand ad impressions) and therefore risk severe price erosion.

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Other key findings from the study:

  • Overall, online publisher revenues grew by a healthy 32% in 2007 versus 2006, yet ad network revenues grew more rapidly (more than 50%), as marketers boosted online spending.
  • High demand for premium video inventory resulted in CPMs 2-3 times greater than display ads’, on average.
  • Most publishers in the study lack information to closely measure the impact of cross-platform sales, though most indicate focus on using cross-platform to drive volume, not price.

“Online publishers are producing more inventory than the market demands, and risk devaluing the premium nature of their brands, particularly in light of ad networks’ growth and their dramatically lower pricing,” said John Frelinghuysen, a partner in Bain’s Global Media Practice and study author.

“Building more effective relationships between publishers and ad networks is critical. In the longer-term, both parties will benefit from gains in ad network CPMs.”

Another finding of the study is that publishers who actively manage and use multiple ad networks can achieve higher revenues on display ads sold via networks.

The benchmarking study finds publishers vary in their adoption of ad networks, the approaches used and the results attained but overall finds that the keys for success for online publishers are having dedicated staff, better tools and metrics that allow constant vigilance in managing ad pricing, reported sell rates and channel conflicts.

About the study: The Digital Pricing Study was developed as a benchmark to explore the impact of online ad intermediaries on ad rates, profitability and ad inventory management for media companies (publishers). The study methodology included executive interviews and in-depth analysis of proprietary company data, including direct, ad network and cross-platform sales, pricing (CPMs) and impressions volume for seven leading online media publishers. The selection criteria included having leading brands, publishing premium content, and selling advertising on a national basis.

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