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.

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.