06 September 2005

Google's CPM Revolution

Late last month, Google’s first print advertisers turned up in the back pages of PC Magazine (image) and Maximum PC, and with them Google inaugurated a shake-up in the media business as dramatic and fundamental as paid search was a half decade ago. This time they’ve brought their auction-style pricing model to an arena where performance can’t be measured in cost-per-click terms -- and CPM advertising may never be the same.

Clearly this is good news for media buyers, who now determine the value and set advertising rates themselves, eBay-style. And it’s good for print publishers in the short-term, who see Google’s print sales efforts as a glimmer of good news in an era of declining ad revenues. Ziff-Davis president Jason Young told the NY Times: "We're thrilled for PC Magazine in print to be presented to Google's fantastic base of hundreds of thousands of smaller advertisers." It’s outsourcing for back-of-the-book ad sales. Google’s self-service advertising platform, of course, does business with tens of thousands of customers much less expensively than live telemarketers can. As Battelle puts it, “this is free money for the publisher, and they probably love it” (Searchblog).

Jason’s counterpart at Conde Nast, Richard Beckman, is not so sure. “If you start selling an advertisement at a price that is not healthy for your profit margins, you can never really recover,” he told the Times. Yea, what’s the big idea letting customers tell you how much they value of your services?

I couldn’t disagree more with Beckman’s point of view. In my opinion, Google is in fact lighting the only pathway to recovery for publishers. For five years, magazine publishers have stubbornly maintained their traditional business practices and organizational structures (albeit with fewer people on staff) despite radical and obvious transformation among their customers. The Internet and digital media have closed the loop on performance tracking, measuring not only direct response (click through) but also ad viewership itself (actual impressions). Online marketplaces -- from Yahoo’s Overture and Google’s AdSense to recent upstarts BlogAds and AdBrite -- have perfected the dynamic pricing that’s always guided television’s spot market.

At some point, you have to face the music: The customer is always right. You can either set your own prices and keep dropping them until media buyers start returning your phone calls, or you can give those media buyers a more efficient platform to communicate what they think is a fair price. If that price doesn’t deliver the profit margin you’d like, improve your product or cut your costs. There’s nothing worse for the bottom line than telling your customers they’re insane.

(Also check out Gary Stein's "Why Google's Print Ad Experiment is a Really Big Freakin' Deal," Jupiter. Google's switchboards will handle calls to 800 numbers listed in the print ads: Very soon Google will know more than the publishers about how well their own readers respond to ads in their publications.)


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