E-COMMERCE Knock-down, drag-out CPM vs. CPA (991 words)
For several years, the market for online advertising has boomed, even as it struggles to find a stable pricing structure.
Initially, banner and e-mail pricing resembled a WWF free-for-all with traffic juggernauts dictating terms to hungry marketers. When the recent technology bubble burst, it brought sanity to stock valuations, but added increased instability in the online advertising industry.
Fueled by a deluge of excess inventory, low barriers to entry and a slow down in the U.S. economy, many advertisers are attempting to fundamentally alter the rates and manner in which they pay for advertising by striking performance-based deals.
These cost-per-action (CPA) deals mean a Web publisher only gets paid when the advertiser registers a sale instead of the traditional cost-per-thousand (CPM) pricing structure where the publisher gets paid based on the volume of advertising delivered.
The acceleration of CPA deals is due to advertisers' attempts to rein in customer acquisition costs during these tight times, combined with publishers who are hungry for revenue. Both publishers and marketers have valid complaints about pricing. Advertisers argue they should not have to pay for low-quality placements, low click-throughs on banners and e-mail lists that are of questionable quality.
Sales, they continue, are the actual barometer of worth, and "a good ad spot or list should convert"—thus the publisher will be paid.
Publishers counter that they have limited creative control and can only put an offer in front of the right audience. Why should their compensation be dependent on an advertisers' ability to generate compelling creative, competitively price their products, keep their servers up or have good products?
This is why a complete transition away from traditional CPM pricing, despite many predictions, is not inevitable and is not in the best interest of the involved parties.
If publishers are only paid based on performance, they are inherently bearing 100 percent of the risk of marketing a product over which they have no control. Publishers may accept this risk in the short run for a few well-branded products, but they are unlikely to build infrastructure, commit resources and grow around such an arrangement.