Two (More) Hypotheses on Low Online CPMs

1. If low online CPMs were a result of oversupply, why haven’t CPMs in other media dropped by the same amounts? If oversupply were why prices are so low, not efficacy, then online media would be a substitute for other media and ad spend would shift to the low-cost medium, equalizing prices. This is not what seems to be happening.

But if online ad spend has not yet caught up with online attention, that supply is temporarily exceeding demand. One way to test this would be to see if offline CPMs are increasing (because demand there would exceed supply, driving up prices.) If it were true, it means that online CPMs should increase over the next few years back to “normal” levels.

2. Since media sells attention but is paid by the impression, then the fragmentation of time spent on media might lower CPMs as the “bad money” of low-attention impressions drives out the “good money” of high-attention impressions.

One Comment

  1. I spent a few years thinking about this (2000-03) and I think it is simply a lot of comparisons of sausage to filet mignon while purporting to analyze the meat space.

    Media attention online should not include communications (email + IM + social networks) unless you include minutes spent on cell phones + letter writing + whatever in the offline world.

    If you exclude communications from online calculations you get a pretty comparable revenue basis. But then you realize something else: search represents ~5% of user online time but more than ~50% of revenue.

    There is nothing like search in the offline world but shopping aisle slotting fees are a pretty big industry (think around $5bn) and in-store advertising is even larger. Those are the better comparisons for search.

    For display advertising, I just think the industry is disappearing deeper and deeper into a rabbit hole of trying to make communications services ad-supported when there are no offline analogs to suggest this would ever be a good business.

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