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How will continued social media growth affect overall online ad CPMs in 2008?

Great discussion on the overall trend for advertising CPMs: JP Morgan Predicts Display Advertising CPMs Will Rise, But Will They?.

The quick summary in terms of the pros and cons for CPMs increasing:

  • Pro: Technology and optimization is improving
  • Pro: More ad dollars are moving online
  • Con: The amount of available inventory is increasing

My quick take: the problem is not just that the amount of available inventory is increasing – more importantly, this inventory is concentrated in social media, UGC, and all that fun stuff.

Unfortunately, marketers and agencies don’t seem to have figured out a way they can throw a large % of their budgets against this type of inventory. In fact, there are significant cons for this specific set of UGC inventory:

  • Editorial adjacency issues: They want to be next to brand-friendly content where they can control – 50% of the pics on MySpace are probably not brand- or family-friendly
  • Lack of qualified interest: For properties focused on communication like social networks, there’s very little context from pageview-to-pageview. You don’t want to put up expensive personal finance ads hoping for a transaction, when in fact the user just wants to check out hot girls
  • Non-standard ad units: Given the very low clickthrough rates of banner ads on these sites – MySpace and Facebook reportedly have ~0.05-0.2% CTRs, people are looking at video ad units, widget, and other alternatives. However, these ad units are all very new, and marketers that want to put significant budget towards these ads still need to work through a lot of inefficiencies
  • Opacity and weakness in metrics: And of course, the lack of metrics that adequately reflect the strengths of in-social-network advertising makes it so that it’s unclear when you are running a successful campaign versus an unsuccessful one. Traditional metrics like pageviews, CTRs, and such probably don’t prescribe appropriate value to folks that really know how to dominate on social networking sites.

In short, I think the proliferation of this type of inventory will continue – Silicon Valley is great at creating this stuff – yet at the same time, Madison Avenue will still take years to figure out how they want to play out this round.

So I’d definitely vote for a decrease in CPMs, maybe even a big one, over the next year, even while overall online ad spending increases dramatically. I just think the $0.10 CPM social network remnant inventory will dilute out any gains elsewhere, but that’s IMHO :)

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