Andrew Chen Archives

Subscribe · Featured · Recent · The Cold Start Problem 📘
Dear readers, I have moved to Substack and I will be writing here from now on:
In the meantime, I will leave up for posterity. Enjoy!

Internet Advertising Bureau and Bain on pricing in online ad markets

For folks who are working in the online advertising space, see below for a great summary on the dynamics between ad networks and publishers. There's a full document from the IAB and Bain.

Here's the the Executive Summary: Overall, 2007 was a strong year for the seven participating publishers

  • Average revenue growth of 32%, with CPM increases for several participants
  • Growth in ad impressions served and in sell-out (after secondary channels)
  • High demand for premium video inventory trading at 2-3X display CPMs

At the same time, use of ad networks increased dramatically, from 5% of sold inventory in 2006 to 30% in 2007

  • Ad networks were used to monetize significant unsold display inventory
  • Publishers under considerable pressure to realize all revenue opportunity

    Average realized CPMs on ad networks ranged from $0.60-$1.10, versus $10-$20 in direct-sold display inventory, or only 6-11% of direct pricing

Importantly, the study revealed significant publisher challenges in managing pricing and yield

  • Lack of longitudinal sales data to measure trends – overall, by account and by channel
  • Limited staff resources and tools in place to optimize CPMs and inventory yield
  • Several participants lacked data on ad network volumes and pricing

It is still too early in the game to measure the full impact of ad networks on online pricing and revenue share

  • Large marketers still rapidly shifting budgets to online – “all boats rising”
  • Publisher use of ad networks still too recent to see “cause and effect”

    However, growth in marketer use of ad networks will likely lead to erosion of premium CPMs if publishers maintain current behavior

For publishers, two key implications:

  • Need to better support the value of premium inventory – through more innovative offerings and/or reducing units available
  • Need to actively manage secondary channels, both to maximize yield and to safeguard strategic position

The ability of ad networks to increase CPMs and share gains with publishers also appears critical to creating win-win relationships

  • Enhanced ad network targeting and inventory management resulting in higher price realization on premium inventory from publishers
  • Further scale-up and (potentially) consolidation of networks should enable higher margins

Bain IAB Digital Pricing ResearchUpload a Document to Scribd
Read this document on Scribd: Bain IAB Digital Pricing Research
PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see for additional important information.