The display landscape historically has been a publisher's market where the supply side largely dictated the CPM prices that advertisers had to pay. As advertisers were isolated from each other in this model, price savings in the form of lower CPMs as a result of low demand for given inventory was harder to come by.

Enter the display exchanges which are trying to recreate the successful model of bringing an auction based system for display inventory as exists for Search. This is where advertisers compete (now with option in real time for some inventory) via their bids for inventory which is based on their propensity to pay given their respective ROI or Business Goal metrics. Publishers can put their unsold display inventory on the exchange for advertisers to bid in a similar vein that advertisers in Search bid on keywords.

One of the criticisms from the publisher side of the market is that now the new marketplace has put much greater power on the advertiser side and as such CPMs would go down a lot effecting their online revenues and ability to put out quality content.

The Google (formerly DoubleClick) Ad Exchange (AdX) is a good place to see how CPMs for the Display Inventory have trended in 2010. It is a better place to assess a wider market trending than the Right Media Exchange (RMX) due to a large proportion of their inventory coming from Yahoo! owned properties.

In Figure we show on AdX, the EF US client trends for CPMs in 2010. We have not included real-time bidding inventory in this chart due to the fact it hasn’t been available publisher wide through all of 2010 on AdX.

Figure 1: EF US Client CPM Trends – Google AdX

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As you can see, since the middle of the summer, CPMs have doubled through November as ever more advertisers are entering the display marketplace. Direct response advertisers who primarily spend their marketing dollars online on search, email and affiliate advertising and brand advertisers who have traditionally spent their money on offline channels like TV and print have entered the display market in 2010 in increasing numbers.

With the increased number of participants of the advertiser side of the Display market and the improvement in optimization technology in display and tracking across channels, the demand for quality content to meet ROI and business goals will continue to grow in. Therefore, the concern on the publisher side for lower CPMs could be offset by the increased demand from evermore market participants looking to take advantage of the new opportunities in the display channel.

Chris Jacob

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