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 The Big Picture CNET Builder.com

Fredric Paul

Why online ads are like airline seats
(9/30/98)

So there I was, folded into my cramped coach seat, gnawing at an ice-cold sandwich as hard as the seat tray below it, inching my way across the country 30,000 feet above the Rocky Mountains. The over-recycled air was making me dizzy, but at least I paid only $500 for my round-trip ticket, while the guy with the fancy laptop across the aisle probably shelled out $1,400. Of course, the young couple buried under their three sleeping children no doubt got their tickets for less than $300 each.

That's when it hit me. If airlines can charge wildly different prices for identical seats on the same flight, why can't Web builders sell their pages to advertisers the same way?


If the airlines can charge different amounts for identical seats on the same flight, why can't Web builders sell their pages the same way?
  It's an important question, because although online advertising is the mainstay of most commercial Web sites, the industry still has a long way to go before it pays for itself. Despite generating almost $1 billion last year and possibly $2.5 billion to $5 billion by 2000, online advertising has been plagued by a declining click-through rate (now hovering near 1 percent), an increasing surplus of ad space, and a consequent softening of ad rates.

Even as Web traffic soars, online advertising can't keep up. Many pages are delivered to users without ads, or with in-house or bartered, revenue-free ads. While current Web ad rates range up to $100 CPM (cost per 1,000 impressions) or more for high-demand sites in desirable niches, some advertisers are balking at paying what they perceive as inflated prices for readily available advertising space.

That's a problem for Web builders, because no matter how much you charge for advertising on your Web site, you receive revenue only for the pages you actually sell. Once the page is delivered to a user, it's effectively worthless. A $100 CPM page published without an ad earns you exactly nothing. Zero. Zilch. Nada.  
No matter how much you charge for advertising on your Web site, you get revenue only for the pages you actually sell.

Lowering your overall rate might help you sell more pages, but it may not do much for the bottom line. If, for example, you cut your rates from $100 CPM to $10 CPM and your sales double from 50 to 100 percent, you're actually losing money (especially since unsold pages have some residual value for barter and house-advertising purposes).

But why does every page need to sell for the same price? Ideally, you could charge top dollar to those advertisers demanding precise, timely, and agreed-upon ad placement. Big companies who need to predict costs and outcomes and launch new products require this kind of up-front commitment.


The name of the game is yield management, and no one plays it better than the airline industry.
  Many other advertisers are unwilling to pay for these kinds of online advertising campaigns, but they still want to advertise on top sites. Why not accommodate them at discount rates on a space-available basis? In fact, you could even provide varying levels of service and predictability at various rates--satisfying more advertisers and maximizing your revenue.

The name of the game is yield management, and no one plays it better than the airline industry. Airlines know last-minute flexibility has real value to business travelers, so the airlines make customers pay through the nose for the privilege of flying exactly when they want.

Some Web sites already do something like this through the spot market (also called the real-time market) through companies like Flycast. Buyers who want to lock in availability and pricing buy up-front, while those who want to wait until the last minute buy on the spot market. Spot prices can be higher or lower than up-front prices, depending on market conditions.

Unfortunately for Web builders, spot markets in undersold commodities often turn into fire sales. So if you're looking to buy Web advertising, the current glut of Web ad space means the spot market can offer big discounts--as long as you're not too particular about when and where your ads run. But although the growing spot market offers Web builders the chance to squeeze some revenue from otherwise unsold ads, it threatens to seriously erode CPMs for all pages.  
If you don't offer value-added services, even your best advertisers will wait for the last-minute discounts.

The solution for Web builders is to offer value-added services such as premium placement and guaranteed timing to differentiate full-price, up-front sales from discounted remainder sales. If you fail to do that, even your best advertisers will wait for the last-minute discounts.

Read more from Fredric Paul

Fredric Paul is editor for CNET Builder.com. Greg Stern, senior vice president of CNET's Web Builder division, provided the inspiration for this column.

What are Web ads worth?
Join the conversation in Builder Buzz

Related CNET links:
 • Web advertising secrets
 • Net advertising grows up, in CNET News.com
 • The Big Picture: Underrated: Web advertising
 • The Big Picture: Web ads for the little guys
 • The Big Picture: Why Web advertising is different

Links from around the Web:
 • Online advertising report, in AdKnowledge
 • Solbright
 • Web advertising pricing models, in Searchz.com
 • The real-time ad market, in Searchz.com
 • The online advertising discussion list
 • Web advertising, in CyberAtlas
 • Online advertising strategies, in Jupiter Communications
 • Web advertising growth and high CPMs hinge on enhanced targeting, in Jupiter Communications
 • Flycast
 • Report: Global online ad spending to hit $15 billion by 2003, in InternetNews.com
 • Price per action gaining favor among Web advertisers, in InternetNews.com
 • Banner ad pricing models, in Web Marketing Today

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