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Feb 7, 2008

ANALYSIS: What is a Reasonable CPM?

Jeremy Liew, venture capitalist at Lightspeed Ventures, challenged entrepreneurs to create $50-million businesses that are ad supported. Mr. Liew states that at average eCPM's of $1.00, over 4 billion views per month would be needed to become fundable. At $10.00 eCPM, 400 million views would be needed; 40 million at $100.00. Hundreds of entrepreneurs have commented on Mr. Liew's blog.

Dan Mitchell, from the New York Times, reinforced that (Popularity Might Not Be Enough) higher eCPM's are needed. (ed: eCPM, or Mr. Liew's RPM, is the effective CPM regardless of whether the views are monetized using CPM, CPC, or CPA.)

What is the reasonable CPM? It depends.

What Is Your Goal?

Legacy publications, like a magazine or local newspaper, don't target $50 million businesses. A publication with $500,000 income can be highly profitable and sustainable. Thousands of publishers have followed this formula to profitable, long lasting ventures.

Using Mr. Lieu's $1.00 eCPM, 40 million views might be enough for an online version of these legacy operators.

Online ventures require less capital. An individual, with a computer, can work part-time to sustain an IChannel. Thus, $50,000 income could be the goal. At $1.00 eCPM, the target would be 4 million views per month.

If 4 paid ads can be delivered per page without angering advertisers and viewers, the goal becomes one million views. (ed: Note that such ads must be CPM ads, like a small spot ad. CPC ads don't work, since viewers have already changed pages after one click.) A local news publisher sells 10 small ads per page, lowers the promised goal to 500,000 views, and earns $50,000 per year to supplement paper profits.

Techcrunch sells dozens of ads per page through multiple AdNets. It does not help the CTR for each advertiser, but their eCPM is much greater than $1.00.

4 billion versus 500 thousand, it depends on your goal.

Of course, higher eCPM's drives down the target and/or improves the profitability of the venture.

How to Increase the CPM

Mr. Liew challenges entrepreneurs to create targeted sites, where the audience has a demographic profile that appeals to advertisers. These sites, he estimates, could gain $20.00 eCPM. The observation is correct, but does not tell the full story.

Economic analysis paints the complete picture.

Demand Exceeds Supply

When demand exceeds supply, prices rise. Conversely, when supply exceeds demand, prices drop.

Let's understand the economics for local advertisers. To reach 10,000 households surrounding a retail establishment, the advertiser typically spends $1.00 each for printing and delivery. Thus, the CPM is $1,000 (i.e. $1 times 1,000 copies distributed.)

A local newspaper or a coupon mailing service promises to deliver the same 10,000 households for $500.00. This is a nickel a piece or a CPM of $50. With few other suppliers, the $50 CPM is sustainable when compared to $1,000 CPM alternatives.

Can an IChannel target 10,000 households within a 2 mile radius? No. This includes Google, Yahoo, and Microsoft. There are no online suppliers. Thus, local ad distributors can still sustain the $50 price point.

Let's understand the economics for regional advertisers. To reach 500,000 households, metropolitan dailies and local TV broadcasts were the traditional suppliers. Coupon mailers don't have the economics of scale to compete.

Today, dozens of online ventures can reach 500,000 households per day. Supply without equal demand growth suppresses prices. It's easy to understand the profit pain for metropolitan newspapers with their high, fixed opex.

Analyzing online ventures, millions of diaries draw surprising audiences. With millions of suppliers, there is not enough advertising demand to raise CPM's. Thus, Mr. Lieu's $1.00 eCPM is already high when compared with IChannels reporting $0.25 eCPM's.

Language specific ventures may limit supply. However, sites like Blogger, Typepad, Youtube, and Myspace are moving quickly to support local languages. Supply blows past demand. Thus, $5.00 eCPM is unlikely based solely on language focus.

Today, new print magazines can still gain $200 CPM's. If you can thread the 'needles in the haystack' and consolidate 10,000 readers that a large group of advertisers desperately want to reach, you can earn $200. For each advertiser to reseach, build, and mail direct to their own lead list, their cost would be far greater than $1,000 CPM. Thus, they are willing to pay $200.

The Branded Value Add

to be continued...

How to Satisfy Venture Funding Requirements

IChannel enabler, AdNet, MarSP.


Which answer is correct for Mr. Lieu? Choice 4. An IChannel, AdNet, or MarSP that sells at $50 to $100 CPM. Forget choices 1, 2, and 3 that are based on a massively scaled IChannel with no target focus.

Do you have an idea to improve CPM's? Do you have an idea for a limited supply, high demand IChannel?

Don't tell us. Get to work.

January 24, 2008 CPMs Headed Up?, Media Post

1 comment:

  1. Tiburon Media, a quality lead generation company, has regularly gained $100 plus eCPM or RPM.


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