CPC Curtails Growth of Display
While 63% of publishers price display advertising using CPM, 30% of publishers now use CPC according to a survey by Econsultancy and the Rubicom Project cited by eMarketer in December 2009. JP Morgan notes that in the past 5 years, performance based display advertising, such as CPC, gained market share over the CPM based models. The report projects that in a recession environment, spread of performance based models is likely to accelerate, as advertisers place a higher value on a clear ROI.
In CPM, or Cost per Mille, the advertiser is charged a fixed amount for every one thousand impressions. CPC, or Cost per Click, is a pay per performance scheme, in which the advertiser is charged only for clicks.
While some may argue that publishers should be paid according to their ability to generate clicks, publishers only carry a partial responsibility for the generation of a click. The CTR is also affected by the vertical, ad size, format and particularly the ingenuity of the creative. Thus, when publishers are paid by the click, their compensation is at the mercy of others in the advertising chain who make decisions that affect the success of the campaign. Another concern is whether clicks are the proper metric for discerning the success of a campaign. In many verticals, the actual purchase is made in off-line stores, and therefore the value of the ad is in its retention rather than the click.
On the face of it, CPC sounds like a far better scheme for advertisers— publishers only “eat what they kill”, and therefore share the risk with the advertiser and marketer. A recent Research Note by Eyeblaster suggests that CPC payment schemes are not only impaired because of inequitable allocation of incentive and risk, but also that the spread of CPC may curtail the growth of the display advertising industry.
The Research Note also shows that moving to a predominantly CPC pricing scheme in the display advertising industry will have the following effects:
• Some publishers may go out of business.
• Media cost in display advertising is likely to increase.
• Some advertisers may switch to other channels.
• The growth in display advertising is likely to slow down.
Advertisers favor CPC schemes because it reduces the risk from an unsuccessful display advertising campaign by ensuring adequate levels of ROI. Nevertheless, at the end of the day, what may sound as an attractive proposition in the short run, can do an irreparable damage to display advertising in the long run.
Download the CPC Research Note at the Eyeblaster Resource Library.
Ariel Geifman | Research Analyst
Very interesting input and happy that one of the enablers of the display raises attention in the industry and hands over some facts on the problematic of this topic. “CTR is also affected by the vertical, ad size, format and particularly the ingenuity of the creative” … and the content …the offer itself (product or service), we might add. Someone might create great ads, or produce great social media activities, which does not mean that you are selling a lot of i.e. cars as well. Neither does the CTR tell us what the brand impact on a banner on the user is and how much time he has spend “watching” the ad.
So, the question might be: What’s next? CPV (cost per visit), cpu (cost per unique user) or CPE (cost-per-engagement)? Curious what kind of thoughts, ideas or solutions Eyeblaster has?
Martin,
Many thanks for your comment. I think that any pay for performance scheme should align incentives with desired behavior. CPC is an example for incentive for publishers on an action that they have little impact on.
One of the options that may be considered is Cost per Dwell. Eyeblaster’s Dwell metrics measure engagement by touch, interaction or click. This may incentivize publishers to place the ad in a visible location to encourage users to play with it.
Nevertheless, pay for performance should only be a portion of the compensation for publishers, and should not amount to the full compensation. There should be a combination between CPM and pay for performance. The share of pay for performance should reflect the extent to which publishers can impact the success of the campaign, while the CPM portion should reflect all other variables that affect performance (the creative, the product etc…) which publishers have little impact on.
Prove to me outdoor billboards don’t work.
All display advertsing works by sight – from print to billboards to television. Online banners are no different.
The fact that TV benefitted from combining audio saw an enhancement in retention, similarly the advancement of touch will see a similar physiological enhancement in retention for all future advertising.
However, with data saying clickers are NOT converters, with the majority of purchases happening at affiliates like Amazon, or offline for most brands – the concept of click-through is both floored and dangerous. It also has very little neurological basis as a proven metric for anything other then a consumer was already looking for something – as seen in search, and in the rare instances within display.
Similarly, any concept of ads NOT interacted with are worthless suggests that all display media unable to be touched is ineffective. I don’t buy this – and shows we have misunderstood advertising, not become technologically superior.
We are scratching for answers in things that ‘can’ be measured as opposed to any intelligence on how consumers do engage with media using multiple senses – and then finding ways to measure and monetise this.
It might seem ‘safe’ or ‘advanced’ to jump on the CPC bandwagon – until you realise the track up ahead is heading over a ravine…
I think the answer is CPP – cost per person – moving towards people-centirc metrics which highlight something of intent and weighting the measurement in those exposed visually against those who interacted/dwelt (or potentially clicked)
Dean, good argumentation… like it!
The visual exposure of the individual with ads (online and offline) is definitely the right approach in my eyes. On the DMEXCO blog I discussed this aspect (guest posts in German) last year and came to the conclusion that CPU (Cost per unique user) could -at least for some near time in the future- be a realistic measurement criteria…
“… 1 unique user = 1 potential customer …”
Nevertheless, the challenge will be in changing the sales culture of media people and agencies as well as the acceptance of companies/marketers when the new measurement criteria enters the market.