Making an impression, but at what price?

Arun Natarajan

ABATTLE is raging in the world of online advertising, with advertisers and Web-publishers in opposing camps.

The issue: The rise of performance-based or Cost Per Action (CPA) model of Web-advertising.

The battlefield: Global, with India seeing a fair share of the skirmishes.

The latest score: Round I to advertisers, Round II has just begun.

The background: Until 1996, almost all Web-advertising was priced based on the traditional media paradigm - that of 'CPM' or ''Cost Per Thousand'' units of audience. (In the Web context, a CPM of Rs 150, means that for Rs 150, an advertiser can display a 'banner' ad a thousand times to the visitors of a Web site.) In April 1996, a new model was created when Yahoo agreed to Procter & Gamble's demand to pay only for the click-through ('click-thru') on P&G's banner ads, and not on the basis of 'mere exposures.' Several Web-publishers immediately decried the deal, stating that it put the onus to deliver on advertising on the publisher, without requiring the advertiser to share the cost. But Yahoo went ahead, heralding the birth of the CPA model. The forms of 'action' under CPA can include a click-thru on a banner, the filling up of a form or even the actual purchase of a product online. For the most common action theme - the click-thru - the pricing formula is also referred to as 'CPC' or 'Cost Per Click.'

Advertisers' delight

Advertisers love pay-for-performance strategies. In their view, it makes Web-publishers share in the risks of advertising - something they could never achieve with other media.

Citibank India, for example, has successfully adopted performance-based advertising. The bank today pays Web-publishers only when visitors to their sites sign up to buy Citi's products. Getting an NRI visitor to sign up for a bank account, for example, would fetch the publisher Rs 250. Several other Indian advertisers are following Citibank's example and asking Web-publishers for CPA deals. However, Web-publishers - especially small and medium players - are increasingly complaining that such CPA-only campaigns are 'unfair' to them. They feel they should get paid, at least in part, for the exposures ('impressions') that advertisers receive during the campaign. After all, regardless of whether a user clicks or not, he/she receives exposure to the ad.

According to an Interactive Ad Bureau and PriceWaterhouse survey, in the first half of 2001, CPA-only deals constituted only 10 per cent of online advertising. Straight CPM deals account for 50 per cent of dollars and hybrid deals the other 40 per cent. However, Forrester Research has predicted that, by 2004, half of all online advertising will be performance-based. According to Forrester, pure CPM deals will decline to less than 20 per cent by 2003. CPA, on the other hand, will increase to more than 50 per cent, with the remainder being some mix of the two.

Publishers goof up

This real tragedy of online advertising is the failure of Web-publishers to create a premium positioning for the click-thru. The click-thru brings something unique to the world of advertising: the measurement of a consumer's active interest in the ad message, and that too at the very instant he/she experiences it. This is something that would have been the stuff of dreams for marketing managers just a decade ago. However, Web-publishers have allowed this unique feature to be perceived as the only way to measure the effectiveness of Web advertising. And that too, regardless of the nature of the product being advertised.

Another area where Web-publishers have faltered is in the unimaginative persistence with the 'standard' 468X60-pixel banner format. Most continue with this format even now; despite the larger sized banners - especially the 300X250-pixels variety that CNET introduced several months ago - proving far more effective in terms of commanding audience attention. Unlike the 'standard' banner, these large banners ensure that the one 'impression' is indeed equal to one Web visitor viewing the ad.

Who'll laugh last?

The current downturn in the global economy seems to be accelerating the trend towards CPA advertising. Advertisers are finding many takers for CPA-only deals among Web-publishers that feel 'any money is good money.'

Speaking at the Jupiter Media Metrix (JMM) conference in August, Lewis Goldman, Executive Director (Business Development) at Citigroup's e-consumer division, said: ''The biggest change over the past year is that virtually every site is now willing to talk to us about performance pricing.''

The large portals, including those in India, seem to be utilising their excess ad inventory, i.e. the ad space for which they are unable to obtain CPM-advertising, towards CPA-deals. A large Indian portal for example, reportedly earns about Rs 5 lakh each month through CPA-advertising targeted at its NRI audience. ''Most portals, worldwide, are currently operating at a sold inventory level of 8-9 per cent. It's actually a good idea for them to make use of their excess inventory by leveraging CPA deals,'' says an online ad agency executive.

However, other observers are not so sure that this trend is healthy. Patrick Keane, an analyst with JMM, says in the Industry Standard: ''This (CPA-only deals) is an interim solution predicated on sites not being able to sell inventory. Long-term, that kind of business model will kill publishers.''

Interestingly, some analysts suggest that advertisers would do well not to push Web-publishers too far.

The current shakeout in the global online media industry is concentrating power in the hands of a few large media companies. In the US for example, the top media companies already receive about 78 per cent of all money spent on online advertising. AOL-Time Warner alone rakes in as much as 46 per cent. According to the Gartner Group Research Director, Denise Garcia, as small sites go bankrupt, prices for ads at larger sites will go up. ''If you're the only game in town, you can charge whatever you want,'' she warns in a recent Fortune article, adding that advertisers are 'digging themselves a hole.'

The scenario could unfold in a similar fashion in India as well. Already, just two independent portals of significant size - Sify and Rediff - remain to provide company to IndiaTimes, the portal of India's largest media house.

The eventual winners could end up laughing all the way to the bank.

At the expense of advertisers.

Why it isn't clicking

Almost all articles on online advertising these days seem to contain a reference to "plummeting" click-thru rates. To generate a click-thru, several elements come into play. The first is relevance, whether the audience viewing the ad have some interest in the product category. For example, if it's being displayed to all the visitors to a portal site, it is natural to expect only a small percentage of viewers to find it relevant and consider clicking on it.

Large portal sites rarely have accurate profiles about their audience. That's the reason why Yahoo persists on showing weight loss ads to someone like me, who's less than normal weight these days. Is it any surprise that I've never clicked on these ads?

The next element to consider is the ad's creative execution. Ever clicked on a dull looking ad, except by mistake that is? The creative content of ads is often left to the advertiser and its agency. Web-publishers need to pay more attention to the design of ads that they run, especially if they are going to get paid based on click-thrus.

Then there's the frequency. The more times an ad message is displayed, assuming it is relevant and attractively created, the more chance it has to generate a click.

The author is a Partner at Arun Enterprises, a Chennai-based strategic consulting firm and can be reached at arun--natarajan@vsnl.com

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