JP Morgan Predicts Display Advertising CPMs Will Rise, But Will They?

JP Morgan Image

Techcrunch comments on the “Nothing but Net” report released by JP Morgan that discusses the prospects of online powers who derive a majority of their revenue from advertising.

There are a number of interesting items in the report, but the one that hits closest to home for me is their prediction that display advertising CPM prices will rise from their bottom in 2007 of $3.31 to $3.86 by 2011 through increases each year. The question is, will this occur?

First, many publishers may be wondering right now what they need to do in order to even get that $3.31 CPM which is the lowest the average has been. Publishers working solely with ad networks probably aren’t even seeing CPMs at that high a rate. Well, that’s why you need to get your site to the point where it’s quality and traffic allow you to sell ads directly or work with a high quality representation firm that can actually sell your site specifically. That’s when you start to see CPM rates that hit $3+ and up. Also, the largest publishers on the web such as Yahoo!, MSN, AOL, etc. sell a lot of their inventory at very high rates. Since these sites have a ton of inventory, it means the average moves up.

So, will this rise occur? The natural arguments for the rise to occur are:

1. Technology and optimization is improving.
Ad exchanges, behavorial targeting, improved optimization, advertisers monitoring ROI better, and other advancements in technology should allow publishers to earn higher rates.

2. More advertising dollars are moving online.
As brands and agencies begin to pull away more from TV, newspapers, radio, and magazines to online advertising that money should help CPMs rise.

Those seem like two pretty compelling arguments right?

Well, there’s a big counterargument as well.

1. The amount of available inventory is increasing.

The rise of social networks, blogs, forums, and other ways for all of us to create content on the web has led to an explosion of available inventory. You have sites likes Myspace and Facebook, blogs being created every second, and just more of us creating web content on sites everywhere. While all this content is being created, it means ad dollars are being spread even thinner across all the content.

Therefore, the big question is if the technology advancements and increased ad budgets online can counteract the continued explosion of available inventory in which ads can be placed?

My prediction for 2008, is that it will be a stalemate.. By 2009 I think we’ll see the user-generated content explosion cool down, and ad technologies will really start to kick in gear leading to a rise in CPM. Predicting beyond 2009 just seems like guessing to me with how rapidly the advertising and web industries change.

Post Navigation