When CPC and CPM Meet

DoubleClick recently released its benchmark figures for 2009. The overall Click-Through Rate (CTR) clocked in at a whopping 0.1%, which is comparable to the figure for 2008. For those of you not quick with a percentage, that means that for every 1,000 people who view an ad, one person clicks on it.  Click-Through Rates have been on the decline pretty much from their inception, starting at CTRs of 10% and 15% and drifting downward ever since. The fact that they have settled in around 0.1% may indicate that they have finally reached their low-water mark.

This figure is also significant because 1,000 is the rate that some publishers use to sell display advertising (Cost Per 1,000 Impressions or CPM).  It used to be that most CPMs charged by publishers were much higher than the cost per click, or CPC, (because click rates were higher than one in a thousand.)  Now that click rates have sunk to 0.1%, your CPM is your CPC. So if a publisher is using a CPM-based analog pricing model, and trying to charge a $50 CPM (because of their rich content and their valuable audience), you better be prepared to pay $50 a click. Conversely, if you are only willing to pay $10 a click and the publisher wants to charge $50 CPM, you best tell them to get real.

Not so un-coincidentally, Google recently decided to enter the display market. Google made its name in paid search by charging on a CPC basis and letting a free market-based bid model (theoretically) determine the CPC price. This created no real mystery for the advertiser, as they only pay for people clicking on their ads, and the bid model tells them what it will cost.  More of this kind of economic model will be a welcome entry to the display market. We should expect CPM-based publishers to start professing the brand message value of the display ads, and that it’s not all about clicks. Good luck with that one.

— Mike Reineck, Principal

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2 Comments

Filed under advertising, Measurement

2 responses to “When CPC and CPM Meet

  1. Great Post! Definitely something that clients need to understand.

    I did want to clarify that Google has actually sold display advertising for some time now by managing space on various blogs and websites as well as remnant space from national news sites. With its ownership of YouTube and other web properties, that has has continued to grow. As of just Tuesday, it was announced that Google’s Display Network has 10% of the world’s display market share and over the course of the next five years, that is anticipated to grow to 15%. Google has other additions to its display capabilities that it plans to add including a Web App Store for Google Chrome and GoogleTV.

    • mikereineck

      Nick,

      Thanks for your comment. You are correct. I didn’t mean to imply that Google just entered the display space. Ever since the DoubleClick purchase in 2007, they have delved farther and farther into display. The recent “Watch this Space” campaign just illustrates how they currently intend to put resources behind this and the You Tube acquisition. Should be interesting…

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