The latest edition of our Online Advertising Market Report takes a look back over Q4 and turns an eye to the year ahead and the market shifts that are impacting premium publishers and sales channel partners. On the publisher front, there is proactive movement to extract more pricing control over their current inventory. Based on feedback from premium publishers we work with, there are three primary strategies likely to be deployed as they work to regain pricing control in 2010:

·               Identifying, packaging and selling audience more effectively
·               Segmenting inventory and evolving digital pricing strategies
·               Aggregating inventory, “premium” networks, and collaboration

We go into depth on each of these topics in the Market Report but one in particular could be more of a challenge for premium publishers –  Segmenting inventory and evolving digital pricing strategies

(Excerpted from the Rubicon Project 2009 Online Advertising Market Report: Q4 Emerging Trends & Outlook)

Premium Publishers Focus on Price Integrity

According to US-based Forrester, 59% of US advertisers plan to increase their digital budgets — at the expense of offline executions. As a result, online marketing spend will hit $55 billion in 2014. Supporting this statistic were the many announcements in 2009 from major brand advertisers who are planning a decrease in traditional ad spend and an increase in online. Most notable on this front in Q4 was Pepsi’s announcement to forego airtime during the Super Bowl and apply those dollars online instead– to the tune of around $20 million dollars.

As brands reconsider their in-house marketing strategies and related spend, they are putting more stock in the value of properly segmented and targeted online ad inventory.  As audience buys and the accompanying Q4 rates demonstrate, advertisers don’t mind paying for value.

Easing advertisers and demand partners resistance to paying higher CPMs for unsold inventory means changing attitudes about the perceived worth of unsold inventory. In 2009, we saw many premium publishers and their sales channel partners look at this segment of inventory in a new light, as industry leaders lobbied that the intrinsic value of unsold ad space was worth much more than the going rates.

Jim Spanfeller opined in PaidContent mid-year that “when all is said and done, there really is no “remnant” inventory on the web, just as there is little to no real remnant inventory elsewhere. We should price online inventory similarly to how we price offline units. To think otherwise is to tragically slow the growth of the industry.”

Patrick Mersigner, Senior Director of Interactive at CreativeLoafing.com, noted that one common problem in setting pricing is that “publishers base ad rates on the cost associated with producing it, not the value it brings to advertisers.”

Premium publishers have a significant opportunity to increase revenue through more informed pricing. Most publishers have not had the luxury of devoting the necessary time and resources to identify their customers and assign new value to their site inventory. But what may have been perceived as a nice-to-have is now certainly a must-do.

“We saw pricing integrity emerge as one of the most discussed topics at events this past year when premium publishers finally moved away from treating impressions as a value-add and acknowledged that coming up with CPMs in a vacuum is a failed model. Understanding pricing and how this evolving marketplace is going to work is crucial to their long-term revenue growth,“ said Rob Beeler, VP Content and Media for AdMonsters, a professional association dedicated to online advertising operations and technology.

“The natural thought is to sell more to more people but that’s not optimization. True optimization is extracting the most value for the product that is in demand. Given the increased interest from brands in premium online ad inventory, premium publishers need to develop a new framework of a demand-based pricing model that is grounded in consumer insight and strong analytics to drive business results and a give a competitive edge,” said Tommy Moreno, Principal and Managing Director at The Glenroe Group, a business consulting firm that helps companies with pricing and revenue optimization strategy.

“Even a 1% gain in price realization can yield 5% to 10% net income gains. For example, for a company with average economics a 1% improvement in price—assuming no loss in volume—can increase operating profit by 11%. To find the sweet spots and build an informed pricing framework premium publishers need to start analyzing their own data and performance such as trend or historical demand levels, price elasticity, and how inventory is being packaged,” added Moreno.

Read the full Q409 report, as well as past reports, here.