Advertising has been around so long, they measure the prices in Roman numerals.
CPM is a mark of how much it costs to run an ad that appears in front of 1000 people (M is for thousand). Until recently, a full page ad in a national magazine that reached two million people could easily cost $80,000 ($40 cpm times 2000 thousand). (Much of what I say below applies to TV ads as well).
I started my career buying ads for $50,000 a pop and then made the transition to selling expensive online promotions to big brands. The opportunity was clear: find an audience, make a significant profit selling ads.
When the web was young, marketers like Yahoo said to P&G and Ford, "buy our banner ads, they cost about the same as a magazine ad, but people can click on them as a bonus." And so banner ads at the beginning were incredibly lucrative–easy to make, sell them for a lot.
Today, banner ads might sell for a tenth that, or, if we count ads on Facebook and the like, as little as 1% of the cost of a magazine ad on a per person basis. But of course, it's not a fair comparison, for a bunch of reasons:
- Magazine ad pricing counts the entire circulation of a magazine, even though very few people read every single page of the magazine. Web ads, on the other hand, measure how many people look at that precise page.
- A web ad salesperson can say, "well, even if one in a thousand people click on a web ad, it's still better than how many people click on a magazine ad." The problem with this is that while clicks are proof that something happened, they're rare indeed. Magazines don't offer advertisers clicks, but they do offer them hope, something advertisers love to buy.
- Magazines have always embraced mass. Advertisers pay extra for big circulation magazines, even though that means less focus. Even a magazine that's focused on a given topic (surfing, say, or gardening) can't distinguish whether the ad is being seen by a man or a woman, or by someone who just bought a new car. The web offers all that and much more, but advertisers are radically undervaluing this focus, because they grew up in a world of mass. It's fine to have a very fine focus, but if you're selling to people with blurry vision, it doesn't help much.
- And lastly, magazine ads were largely sold, not bought. Conde Nast and other big companies happily wined and dined ad executives for years to earn the huge buys (more than 700 pages in the new Vogue) that appeared in their magazines. Web sites, on the other hand, are inherently digital, and would like to be bought, not sold, which gives advertisers an enormous amount of choice and leverage.
The short version is that magazine ads were expensive because they were scarce, they worked (maybe) and they were sold, hard. Web ads have long been dramatically undervalued as measured media by people who don't want to measure, as focused media by people who want mass.
Magazine ads were great, a perfect industry, one that's being replaced by something impossible, something that doesn't work for all parties yet.
The result is that tonnage, huge ad inventories, inventory in the billions of impressions, are at the heart of much of what is currently paying the bills in web advertising. Which pushes advertisers to show you more pages, interrupt you when they can and try to keep you inside their site, clicking around. Most people are never going to click on an ad, even an ad that they will ultimately remember.
Google's Adwords is one exception to the tonnage rule, and, if it's not pushed to scale too much, opens the door for advertisers to start measuring the value of what they get when they buy a direct response web ad. Buy an ad for a dollar a click, and if you make $2 in profit, buy more ads! But this only moves the measurement argument forward, as these ads are only attractive to advertisers who measure their results. Most ads don't work because we click on them, though. They work because we remember them, or because they change our perception or tell us a story.
Until advertisers start to value the focused, memorable, impactful opportunity they have in buying the right ads in the right place for the right audience, web users are going to be stuck seeing irrelevant ads on sites that don't respect their time and attention as much as they should. We have salespeople and investors and agencies and buyers that come from a world of mass and scarcity, and the opportunities of focus and connection and abundance are taking a while to sink in.
Since advertising is paying for a big portion of the consumer web, it's being built to please advertisers. Right now, though, what advertisers are used to buying isn't what the web is good at building.
There's huge progress being made in perceptions, but there's a ways to go. Which is why, "we're ad supported" isn't as obvious a strategy as it should be.