A recent article in Wired magazine highlights the problems social networks like MySpace, Facebook and Bebo are having with their cost-per-thousand (CPM) rates on display advertising.
They are averaging $0.13 (yes, 13c) per thousand, compared with industry averages around the $20 mark (higher for more targeted sites).
In particular, LinkedIn is said to be achieving $75 CPM because of its more targeted, business-oriented audience.
Now a CPM of 13c is very, very surprising – that means that each ad impression is being valued at $0.00013.
Page inventory (over)supply is probably a factor in the cost differential between the sites mentioned in the article.
There are likely to be fewer total impressions available on a site like LinkedIn than on a site like Facebook, which would cause price increases. Nonetheless, this supply/demand mismatch wouldn’t fully explain the pricing disparity.
My initial take on the economics of the CPMs quoted by Wired was that it shows that marketers are reinforcing their preference for targeted audiences.
However, this does not provide an adequate explanation for such minute CPMs. Even on sites with a broad spectrum of users, ad placement/serving technologies can very quickly provide more-than-adequate targeting. This is especially so in environments rich in audience profile data, as is the case with these social networking sites.
So if poor targeting is not the rationale underlying the low CPMs, what is?
I believe it is due to a growing awareness among more sophisticated marketers that different sites have different degrees of engagement with their audiences.
Users of social networking sites like Bebo and Facebook are absolutely ‘engaged’ with the site – they are using its features, browsing pages, consuming content etc. But the context of that engagement is wholly different to the engagement context on a site like LinkedIn.
I think this is the true explanation for the pricing differential.
The challenge for social networking sites, then, is to re-cast their advertising inventory around a new ‘stratification’ model that more accurately reflects the layers of engagement – including the different engagement contexts – within their sites. Only then will they be able to claim greater CPMs..but, then, only for some of their inventory.