Finally, a Sign of Online Ad Weakness

Posted by: Rob Hof on May 13, 2008

When Google reported better-than-expected first-quarter earnings on Apr. 17, a lot of people whose livelihoods depend on online advertising breathed a sigh of relief. Even Yahoo, whose bread-and-butter is not search but online display ads, reported somewhat better-than-expected first-quarter results. Before the reports, reports from comScore and others had raised fears that the economy was finally starting to hurt a sector that seemed to have defied gravity so far.

Now comes at least one sign that maybe online advertising isn’t immune to recession after all. Pubmatic, a company that helps Web publishers get the most out of selling their inventory through advertising networks, this morning released its second monthly AdPrice Index, and the results aren’t pretty.

On average, advertisers paid 38 cents per thousand ad impressions (CPM) in April, 23% less than in March. Large sites, which may have less targeted audiences that are therefore less attractive to advertisers willing to pay up to reach just the prospective customers they want, fared the worst, with their average CPM dropping 52%, to 18 cents. “That’s a pretty substantial drop in monetization, especially for large sites,” says Pubmatic cofounder and general manager Rajeev Goel.

The main culprits may be social networking sites, whose CPMs dropped 47%, to 19 cents. This isn’t much of a surprise, since both Google and MySpace have said social networking pages aren’t proving as lucrative an ad venue as some had hoped. (After all, people are there to socialize, not buy stuff, for the most part. In fact, John Furrier makes a good point that the future of online advertising won’t be in mass impressions but in useful content.) But other large sites also saw dips.

Pubmatic’s index has some significant limitations. It measures only online pricing for non-search text and display ad inventory sold to ad networks. And it measures what publishers make, not gross spending by advertisers. So it’s uncertain how much of a proxy it is for the whole market. (Update: Indeed, Frank Addante of the Rubicon Project, which also helps publishers optimize their online ad spend, sees no sign of problems: “There are no signs of recession across our publishers and networks. … While some publishers saw a (normal) slight dip in March, overall publishers saw strong CPM increases in April. May is on track to be the most successful month this year.”)

Still, the Pubmatic index is a warning sign for a lot of companies large and small that were hoping the movement of ad dollars online would help them skirt the recession.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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