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I hear some talk in the market from Publishers and Pub aggregators about “pricing technology” and pricing rules they will use to combat a predicted downward pull in prices that results from automation and RTB.

I am not really sure what these pricing rules will be or how exactly this could possibly work. It seems that marketing and economics might have taken divergent paths on this one. Let’s examine the concept of price floors and why they probably cannot be an effective tool to increase revenue for publishers in this case.

A price floor is an artificial price set above the equilibrium clearing price in a market environment. This means that the quantity of a good demanded will decrease by some amount while the quantity supplied will increase. The amount of the change in quantity supplied and demanded will depend on the elasticity of both curves, respectively. In this particular case, this type of mechanism would likely have an adverse rather than beneficial effect on revenue for publishers:

1) Elastic Supply- Despite the fact that online ads as a whole are not commodities and as such do not represent a pure example of perfect competition, there is such an enormous surplus of supply in each of the various “value tranches” of inventory that the benefits of differentiation kind of becomes void since collusion at this scale isn’t really possible (fragmented across too many pubs). A supply aggregator might argue that unifying the fragmented market is a great reason to choose one platform and create universal and enforceable floors; this brings us to a textbook example of a prisoners dilemma…however in this case, there are too many players in the game to reasonably expect adequate levels of cooperation (and not cheating) to properly execute this scheme. Thus, the publishers become price takers within their niche (if we construct a view of the traffic in 3 dimensions; price, quantity, niche/value tranche and then slice it up by niche/value tranche, we will see a bunch of cross sections where market supply is virtually unlimited at an equilibrium price level).

2) Elastic Demand- Advertisers don’t want specific placements as much as addicts want cocaine. There are a lot of different supply sources with similar desirability and value in terms of performance levels and/or audience attributes. If a particular publishers is artificially charging too much for a placement, no sweat…a buyer can just go somewhere else to find it at its intrinsic price.

Does the fact that price floors and pricing mechanisms are not the solution to increased revenue mean that publishers are doomed? No, it just means they should embrace the free flow of market dynamics and allow for more transparent information so advertisers are able to target more effectively. The whole point of advertising is to drive a person to buy a particular product or service. If an advertiser is able to cut through the noise and find their targets more effectively, that means they will be willing to pay more for that acquisition and the externality of significant spend going to uninterested users will be reduced (Ie. Publishers with valuable audiences and placements will get the money they deserve and publishers who are lacking in either department will also get what they deserve…good for some, bad for others). In general, the acceptance of a free market in the age of automation will enhance the overall value of the industry rather than act as a zero sum game reallocating the rents. Outcomes are not permanent either, so a pub who is an initial loser can certainly make changes to enrich the value of their audience or placements.

ComScore has been rolling out the new system for months and says it can now use it to report on 25 percent of the 50 biggest sites on the Web. Another 50 percent of the top sites have agreed to work with the system, Abraham says.

ComScore lets publishers who are already clients participate in the program for free. But it will charge everyone else $10,000 a year, which the company says helps cover the cost of new servers and other equipment it needs to process the new deluge of data.

Gawker/Valleywag says it more bluntly “Comscore Blackmail: Pay Us $10,000 or We’ll Keep Under-Reporting Your Traffic”. Because the figures are consistently biased downwards in the legacy reporting, it creates a distinction in traffic reporting between those who place the tracking codes on their site and those who don’t, that is very correlated with higher ad revenues today (hence the idea of “blackmail”). Most sites won’t ever pay $10,000 so this means only the largest sites will even consider doing it, lessening the burden for comScore’s (probably not very efficient) infrastructure for doing so. This distinction in the costs to participating vs. not exists in a very different way with Quantcast, although the compensation and benefits a publisher gives up are a bit more subtle in their case since there is no cost for participating with them – namely that Quantcast will use their aggregate data to help marketers find similar audiences. By no means a small or easy task and kudos to Quantcast for taking that on. Reporting is one thing – but actionable data based on reporting is quite another.

Three points worth making, though this is interesting and there are many more to think about:

1) the “size = more ad revenue” should (but will take some time still to) become less meaningful, as more centralized inventory access and price discovery is possible. A good reason to work with three big sites versus thirty small- or medium-sized sites is that trafficking and setting up ad buys with people takes time and is grossly inefficient. And we’re all nothing if not lazy in the media business.

2) there is no doubt that the panel approach undercounts data, especially for the at-work and university-type audiences amongst others. I worked at Nielsen NetRatings and the most common argument we used if we ever gave any credence to these arguments was that most sites were consistently underreported. Hmmm yes. Of course. So it begs the question – if you are being trusted as someone to measure, report on and (often) opine on the health, status and metrics of an industry, don’t you want to be as good as possible which in turn leads to more trust, more business and more money? It is unclear in this case.

3) The capacity and desire for sites to implement a lot of different companies’ javascript code on their site is limited. Sites don’t want to break if any of these third-party pieces is messed up. Use firebug/firecookie or Charles and see what all is loading on the typical large site. Risks increase, and the infrastructure capacity of many of these vendors is far less tested than you might think, especially if the publisher is now being asked to pay for the infrastructure (another typical argument used by NetRatings or comScore or others “the market needs to pay high prices to help fund good quality measurement” which is also total BS).

There are various pros and cons of Iframes (see here for a good overview some of which I summarize here), some pros include: Iframes don’t delay the serving of the page, typically loading in parallel with the other page content, there is no chance of name clashes with Javascript variable names if they are inside an iframe.

Some pretty big cons of iframes would include losing the referrer information of the page, which in turn means you can’t do contextual analysis of the page and more importantly you don’t really know where your ad has been running. Ads can’t communicate between each other if they are on the same page, so the coordination for wrap arounds or other things can be lost. You can’t run expandable ads (though some rich media creative companies like OggiFinoggi have come up with ways to “fake” expansion ads with iframes that is kind of interesting), which some users would say is a great benefit of these, but it complicates further the adserving ecosystem adding more heterogeneity to inventory which is now a mix of iframes and javascript tags and it is then unclear what can serve where.

As a demand-side platform helping advertisers buy optimized media, CPM Advisors (CPMa) runs billions of ad impressions per month across various advertising exchanges and we look at a LOT of impression logs. A lot of lower-cost inventory on some of these sources we have seen is hidden behind iframes, meaning most often the referring URL is that of the ad network serving the ads. As a whole, inventory that is served in iframes has a substantially lower price and underlying value than inventory that appears in javascript tags. The extent of the problem on any particular platform including Right Media is unclear, though I would guess that, excluding Yahoo! on the exchange, iframes might be 70 percent by volume if a fair bit less by number of publishers. There are obvious reasons for this, including that companies who would do nefarious things and generate large volumes of traffic often would hide their referring URLs behind iframes (and often, many nested layers of iframes running in parallel), but I do not believe the fairly young ad market yet correctly takes into account this trade-off.

Now there are exceptions. Some publishers like Amazon.com that work with ad networks grudgingly, purposefully put their ads in two layers of iframes to hide their origin AND to stop unscrupulous partners from “stealing” shopper-related data from their pages presumably – but as my other writings would attest I believe that the “sell the same stuff for different prices” world of online publishing will come to an end in the next several years and then this kind of good-quality-site-hiding-behind-frames behavior should be reduced – with the caveat that data use practices in a non-iframe world will also have to be more closely looked at, which I think will happen regardless. Are impressions a commodity? No, not yet but that wouldn’t be a bad thing if we had a real market to buy and sell impressions or “audience”. Let me put it this way – platinum and lead are both commodities but one sells for $1400 an ounce and the other for $1 a pound.

In tomorrow’s market-driven ad world, transparency will be more the norm and anonymous inventory will have its place, but on average will be discounted in price. Thus we may see what one might call the “iframe tax” – less measurability and accountability means more trust is needed which means more risk which means less money for networks and publishers that use them.

About.com has a lot of inventory and to monetize, and has been an aggressive user of various ad exchanges including the Doubleclick Ad Exchange where it is disclosed as one of the participating publishers. That is not to say that is the reason for their good performance of course, just an interesting data point. Online revenues dropped for the other parts of the company but not as much as the problems on the offline side of the business:

The company posted a loss of $35.6 million for the quarter. On an operating basis, the company reported a profit of $80.6 million ($0.16 cents a share). Total revenues were down 16.9 percent. Revenues at the About Group unit were up 7.2 percent, but on the digital front in total, it was a different story. Website dollars dropped 7.2 percent. The main point of the NYTCo’s digital struggles in Q3 were centered at the News Media Group, which posted an 18.5 percent decline in online ad revenue. On the print side, the digital declines don’t seem nearly as bad.  Advertising revenues fell almost 30 percent for the News Media Group, as print ads declined 31.2 percent.

Publishers need to start thinking about how they can extend the reach of their inventory into various online exchanges, including those that will be enabled for real-time bidding. As our CEO Rob Leathern mentions in this piece on AdExchanger, publishers will only be able to have a voice and shape the online advertising environment and hence their revenue picture by having a seat at the advertising exchange / real-time bidding table. Part of this will relate to participating as providers of data into these ecosystems, about attaching that data to their inventory but there will also be innovations that none of us can yet predict that need strong publisher participation to help make happen.

As someone selling media, CPM seems great but for the buyer it’s not the best experience. The seller need do nothing, really, for any particular deal. They collect money regardless of performance. Obviously in the overall sense, as word gets around that their CPMs are too high relative to performance, people will not buy from them, but in the micro case the onus is on the buyer to know the underlying characteristics of the media and make an assessment about whether to buy it or not. On the other hand, CPA gives the power to the buyer. They determine an activity or metric and the price they can pay for it, it’s performance-based, and absent any issues with fake leads or anything like that (not to be addressed here) they are happy. The incentive for the seller now is to collaborate and cooperate with the buyer and try to get the ads to work better to improve the likelihood of conversion. Some things are in their control – they can choose where to place the ad, when, what sub-segment of audience to target and so on, and if they are smart or have a very targeted audience they can sometimes make a lot more money than they could in the CPM case. But it takes work, and all-too often the incentives for the advertiser to care and make things work better are not there.

Run display ads with one of the big CPA networks. What do you see? Awesome Flash-based ads with great production values? No. More often it is crappy JPG and GIF-based ads with little interactivity or pizzazz to them. Part of this is a legacy issue related to making it simple for CPA pubs to pull these creatives down onto their site but REALLY in the age of pretty-much free adserving, sub-10c/Gig CDNs and the like you’re telling me you can’t get ad tags or flash onto a publisher’s page? It’s not that these ads don’t exist – the same advertisers are running the flash-based good stuff in their own often-CPM-based ad campaigns while their poor affiliates are sitting with the second rate JPG ads. The incentives are not properly aligned.

We need a new hybrid performance-model that gives incentives for the sellers and the buyers of media to come together to make campaigns work. We’ll be sharing some of our ideas on this with the industry soon, but we encourage idea sharing from others. This also means we need to empower publishers and media sellers with tools to better match their inventory with likely performing ad campaigns in a non-black-box way (some of their insights ARE useful, but with so many CPA options out there it’s a bit overwhelming for the average site owner). BUT the first thing I’d say is if you’re an advertiser using CPA or affiliate channels, bring your best creative game AND demand and actually use data and feedback they can give you about what’s working and what’ s not. Every impression is an opportunity to gather data, and make a sale. Put the crappy JPGs to bed and build a better marketing ecosystem for yourself.

First, when I reloaded the page from the link above, I found that the Westin 160×600 no longer was inside the top 728 banner, but it now was floating (see above) partially obscured by their SearchChicago classifieds widget. Eek. But more interesting were some of the other ads. The first is a content-looking box from ARALifestyle.com, discussed here by Jay Weintraub in a post. Very clever, “are you snoring yourself to death” of course is an “article” of sponsored content that reveals its sponsor very subtly at the end.

In addition, in the meantime there has been a popunder launched which has several similar-sounding ads to help with cellulite, flat stomachs, colon cleansers and the like. This is the company Adblade.com of course, although there is no longer any disclosure that we can see on the pop except for a very light “Advertisement” – there is no Adblade branding thereupon and I thought it was interesting that they chose to show the address bar with a Zedo.com adserving URL. No doubt intentional, much the way some networks hide they are doing pops.

It is interesting that premium publishers like Yahoo! have banned all advertisers like these from their network and yet they are still seeing a lot of action on newspaper sites. Further down the page there are a couple of other banners in rotation, at one point it looks like Pulse360’s text ads are there with more negative-option weight-loss ads showing up.

These offers appear to be where a lot of the online ad money is currently, and whether it works out for them or not, all kudos to Yahoo! for saying they don’t want to have these ads on their network (Microsoft has not yet done the same, by the way). It certainly doesn’t seem to perturb the newspaper sites. But moving along to the bottom of the page  we round out our quick analysis with one more shot showing a few more ads….

Another set of text ads at the bottom with a display unit way on the bottom – to bring the total for this page to:

1 x pop with 6 text+image ads

1 x top 728×90 display banner

1 x 300×250 “content-like” banner

1 x dynamic classified ad banner/link unit

1 x Left 120×600 with text ads

1 x Right 160×600

1 x bottom 300×250 with more ARAlifestyle ads

2 x bottom 728 x90’s with text and display ads

So at least 7 in-page units with a big popunder. Is this really that different from offline newspapers? Maybe not. But the main point here is that we encourage advertisers to think about the context in which their ads are being placed when they assess whether it is better being on a legitimate site they may not have heard of with two other ads versus being on a brand-name site like this with 6 or 7 other units stuck way below the fold at the same price. Or perhaps they shouldn’t care – both options are useful – at some price. It just seems unlikely that the so-called “premium” publisher today is getting the benefit of understanding the true value and the true tradeoffs they are making when selling their ad space this way, and we as an industry on the advertiser side need to do more to build tools to help bridge the information gap so we can get more of what we need and the publisher can be more fairly compensated for the audience they are able to deliver.