A Sign of Hope for Online Ad Prices

Prices for display ads have been dropping for some time. The suspects are easy to identify: the poor economy, which is not only reducing ad budgets but also driving marketers to more direct-response search ads, and the ever-growing glut of inventory on the infinite Web. Dropping ad prices are one reason Yahoo reported disappointing earnings on July 21 and CEO Carol Bartz saw no firm sign of a turnaround.

But there’s at least one sign that things may be improving. PubMatic, which helps online publishers run more lucrative ads, says in a new report out Thursday morning that it’s seeing a steady increase in the price of display ad space sold through ad networks and exchanges. They’ve risen 47% since the end of January (35% since the end of 2008, January being a weak month for ad spending). Pricing has risen every month since the start of the year.

What’s going on? PubMatic CEO Rajeev Goel told me in an email:

There are two fundamental trends driving this rise in pricing:

1) Supply and Demand. On the supply side, we have seen a drop in the number of web services that rely on advertising revenue as their business models, as this model has fallen out of favor. Even some traditional businesses such as newspapers have been shrinking with respect to online presence. On the demand side, recent reports from Outsell and Forrester highlighted that even though total ad spending (traditional and online) has dropped due to the recession, online advertising is growing in terms of both market share and total spend. This includes display as well as search.

2) Innovation in the 2nd channel. In the last 1-2 years, we have seen a tremendous amount of innovation in the ecosystem around the 2nd channel (unsold ad inventory, or what some call non-guaranteed, generally sold on a cost-per-click or cost-per-acquisition basis, unlike premium ad space generally sold by the impression for branding purposes). Media exchanges, data exchanges, deep targeting ad networks, ad network optimizers, etc. have been growing in number and scale. As a result, inefficiency in the market is being eliminated and there is more and more data used for ad targeting. This is increasing pricing in the space.

It’s best not to read too much into this, since it’s based largely on U.S. sites, and only inventory sold through ad networks, not the premium-priced display ads sold directly by publishers’ sales force. Also, I’ve found that studies from various firms tend to vary widely. But any sign of improvement has to cheer beleaguered online publishers.

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