Mike Seiman is the CEO of CPX Interactive, a member of the Right Media Exchange.

eCPM vs. Total Revenue

While it is true that not all ad networks are created equal…it is also true that any publisher planning to analyze their ad network chains should select their comparison metrics wisely. My hypothesis…and I am always interested in hearing from publishers on their agreement or disagreement…is that most publishers have been trained to look only at the eCPM currently earned on selected inventory — rather than the total revenue they could be making on their entire inventory. If publishers are interested – as I suspect they are – in the total amount of revenue to their bottom line, they would be wise to read on….

In The Beginning

When ad networks first gained popularity, they focused exclusively on publishers’ “premium” placements – those served to only the first few impressions per unique visitor. As the first movers, these early networks (many of whom remain the most commonly known names today) had the luxury of filling only those publisher impressions that would make them the most money per impression. Naturally, publishers where too busy thanking these networks for the ease of “one point entry” inventory management to question if there wasn’t a more advantageous way to deal with their lower-tier impressions…rather than simply sending them to non-paying defaults.

Enter the “Lower-Tier” Networks

Progressive new entries to the growing landscape of ad networks soon realized that there was an opportunity… in fact, a need…for a platform that could monetize the very inventory that the original networks were declining. These networks, because of their ability to convert passed-over inventory into revenue, became known as “lower-tier” networks…delivering value for a publisher’s “lower-tier” inventory. In truth, allowing this moniker to stick was probably a PR mistake. While the term “lower-tier” carries unjust negative connotations…the reality is that these are more accurately described as “100% fill” or “no default” networks.

How They…(We)… Do It

So what’s the magic? How can these networks monetize 100% of a publisher’s inventory…and guarantee no defaults? The answer isn’t so complicated, really. By removing frequency caps and floor CPM restrictions on specific “less desirable” inventory – and then selling this inventory through in a real-time market-driven environment – the real value of this inventory is identified and secured. The market’s Invisible Hand defines maximum value where, before, there was seemingly none.

It was not long before publishers saw the value in this proposition, and enlisted these “100% fill” networks to fill their “lower-tier” inventory….while still leaving their “premium” inventory in the hands of their long standing relationships with higher profile networks. The “premium” networks were happy to default unused inventory to their “100% fill” counterparts, publishers were happy to be getting both their “higher-tier” and “lower-tier” inventory filled…and the “100% fill” networks were happy…for the time being…to have carved out a piece of the pie. But letting this scenario cement itself as the industry norm was likely another PR mistake made by the newcomers….

The Slight of Hand

High profile networks soon realized that their position could easily be in jeopardy if the newcomers started pitching their powerful market-driven platform for selling premium impressions. To reduce the likelihood of this, they cleverly focused publishers’ attention on the coveted metric of eCPM (effective cost per thousand). They would tout their ability to deliver higher eCPMs than the 100% fill networks as a way to scare publishers away from giving the newcomers a chance to deliver the premium inventory. And the truth is that these limited inventory deliverers did have higher eCPMs to show….of course they did…and here’s why:

If network A (a limited inventory delivery network) sells 5,000,000 of your impressions at a $1 CPM and another 5,000,000 at an $.80 CPM…then they have delivered and eCPM of $.90 and paid you $9,000. Meanwhile, if network B (a 100% fill network) delivers the same 5,000,000 impressions at a $1 CPM and the same 5,000,000 impressions at an $.80 CPM…but also delivers another 10,000,000 impressions of your “lower-tier” inventory at a $.50 CPM…then they may have delivered an eCPM of only $.75, but they have paid you $16,500…$7,500 more than the so-called “top-tier” network!

Which network has delivered greater value? Which network truly understands your ROI needs? Which network deserves your inventory management business?

The Misconceptions

Publishers have been trained to believe that “lower-tier networks deliver lower eCPMs.” But the truth is that eCPM is a metric based upon an average. To compare two entities using an average-based metric, you must be comparing apples to apples. Premium and lower-tier inventory are definitely not both apples…though both are found in the same fruit basket. A much better metric for comparing networks is obviously total revenue delivered.

Publishers believe that “lower-tier” networks can only deliver inventory with no frequency caps and no minimum CPM restrictions… characteristics of a typical “lower-tier” strategy. But this simply isn’t true. Have you ever asked your “lower-tier network” if they could offer you a second account with a frequency cap or a floor CPM in order to test out some higher end rates? This “premium” account could easily default to your already existing “lower-tier” inventory account and suddenly you could be monetizing your entire inventory with the same network.

The trick is simply to change your perspective, focus on the right metric and actual delivered value, and follow the ROI.

Greater Revenue May Be Right Under Your Nose

Though I cannot speak for every “lower-tier” network – I can certainly speak for ours when I say that, with the right software in place, a progressive network can optimize placements across all of their publishers to find the highest paying ad for each impression on each site, making every publisher as much money as possible on every ad call. Utilization of a market-driven ad delivery platform and dynamic yield management and CPM optimization technology, has positioned some younger, lower profile, ad networks to make some real noise in the industry over the next year.

One thing is for sure. If your 3rd tier network is using these cutting-edge techniques, and your 1st tier network isn’t, you stand to make a lot more revenue on a daily basis moving your 3rd tier network up in your chain. Many publishers have already discovered this and, as a result, the ad network landscape is changing quickly.

So think about your chains and decide if they really do make sense, especially if your “lower-tier” network is not really a “lower-tier network”…but is really an opportunity to truly monetize 100% of your inventory as efficiently as possible.

You’ll never know if you don’t give it a shot!

This entry was posted on Monday, March 26th, 2007 at 2:54 pm and is filed under About Right Media, Right Media Exchange, Publishers, Network Media Exchange. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.