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Friday, August 22, 2008

Online Ad Yields Too Low to Build B2B Profits

Fascinating research from the IAB and Bain based on a US study examining online advertising and the growing dependence on ad networks. It makes for scary reading and every business publisher should take note.

I guess this isn't news to most of you, but the study points out that as traffic grows, (and everyones traffic is growing, there is more ad inventory than the market requires. As a result a growing proportion of inventory is sold through ad networks but the achieved yield is only around 1/25th of that obtained from a direct sale.

The implications of this are obvious. First we risk devaluing the brand by allowing the networks to sell our premium audiences cheaply. Second, it is hard to ring fence the direct customers (high yield) and many will work out that they can get there stuff on their favourite sites with a 90% discount if they buy from a network (low yield). Third, an ad driven model based on a CPM achieved rate of $1 or less is not going to be a sustainable business model for b2b. A million page impressions a month is very respectabel for a UK b2b site. On ad network rates that inventory is worth £6000 a year!

So what should we do? Offer more to our advertisers than banners and skys and MPUs. Offer lead generation opportunities, section sponsorship, online events, new product presentations etc. Do things the ad networks can't and charge a premium for it. Secondly, resist the tempation to get rid of all that spare inventory by doing a network deal. In the long run it isn't a model that can sustain you, so why do it in the short run?

Third, focus your web development on how to get your users converted into leads for your advertisers. One major online b2b advertiser told me recently that their average CTR on campaigns was 0.1% and falling. No wonder the ad networks look attractive to them.

We know the print ad model is dying. Whilst online ads are growing, if we are not careful, we risk building a model of expectations that produces a business model which is completley dysfunctional.

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