A WebRep White Paper Cost-Per-Click by Michael Hess Posted 8/4/97 Thank you for visiting this page for WebRep's discussion on the per-click pricing model of web advertising. If you are joining us here looking for the continuation of the article published in the August 1997 issue of The WebRepOrt, feel free to scroll down to "WebReport continuation", or, you may start here at the beginning for the full discourse! We're having an absolutely beautiful summer here in San Francisco as the sun has been shining brightly since March. Today, however, it got a little cloudy as I had a conversation with a buyer about purchasing online advertising on the "per-click" model. It was as if a dark rain-cloud had moved in over the buyer's head as he explained to me over the phone that, yes indeed, the banners I saw out on various sites were purchased by him on a per-click basis. It was interesting how his voice took on a shameful tone as he rationalized aloud that he couldn't be blamed because, "hey, the site sold it to me"! Although these conversations don't occur frequently, there's enough of a small buzz in the industry making it worth reviewing how the model is unsustainable and irrational. True, some of the responsibility lies with the myopic publisher, but the buyer should also be blamed for being irresponsible. No doubt web publishers feel pressure to generate revenues and make money, but resorting to drastic measures by offering advertising space on a per-click basis jeopardizes editorial integrity and cheapens their reputation. For any media to involve a quality audience and, therefore, qualified leads, it must have a certain minimum level of credibility. But I hear some of you arguing: "Hey, we're only interested in qualified leads/sales we'll happily pay for them, but that's all we're interested in!" The publisher argues, of course, that unsold inventory is a sales opportunity that can never be recaptured so why not sell space to advertisers that won't buy his site on an impression basis? Problem: how do you, the buyer, feel if you buy a site on an impression model and find out your friend at another agency has negotiated a per-click deal on the same site? This is the beginning of the end for the publisher being able to sell on an impression model, and unfortunately, there is no turning back. The advertiser argues, of course, that they're not going to pay on an impression basis because the soliciting site doesn't make sense from a media standpoint, so the only way they'd spend money is to pay only for "click"! It's right about now when it gets fun to watch the dog start chasing its tail just remember that eventually the dog gets dizzy and eventually quits: the publisher guarantees a large number of "clicks" to generate the revenue he wants and inevitably floods his site with banners from the advertiser who negotiated the per-click deal. I don't care how good the creative is, too many banners of one advertiser on a site will depress click rates forcing the publisher to increase the volume with even more banner impressions. This of course, drives clicks down even more and pretty soon, the user is oblivious to the advertiser's message. Did it make media sense for the advertiser to purchase space on that site in the first place? Should we agree with the advertiser when they say their goals were achieved because they only received interested prospects who "clicked" on their banner? Were those users who "clicked" on the ad banner actually interested buyers, or just "clickers" responding to a banner gimmick? WebRepOrt continuation What about the publisher who has extra inventory to play with on a per-click basis in August, but can't fulfill the contract when, all of a sudden, other impression-based buyers come in mid-month? As you can see, the dog is still chasing his tail as part of the fun with this discussion is how quickly the model falls apart just by asking these questions. Of course the advertiser doesn't care if the site "made media sense". Of course the Publisher who is selling on two different models has major problems juggling his commitments. And the biggest "of course" comes with the banner gimmicks marketers will use to get somebody to click. Forget their argument when they counter that it's CLICK they want, not clicks. How are they going to get click if there are no clicks in the first place? Of course per-click advertisers are going to play games with their banners just to get some volume traffic to their site with hopes of fulfilling an order. Which gets back to the original premise that makes the advertising world go 'round: content and creative. Just because it offers immediate response for marketers, the web will operate no differently than any other media in how it is priced for advertisers. It gets down to the time-honored, proven balance between strong content attracting a desirable audience and strong creative allowing the advertiser to influence perception and buying habits. End of story. But for those of you who would like to pursue the fine print, there's a bit more. Let's say you're a media buyer and you are able to find plenty of sites that will sell space on a per-click basis. At first, since not all Publishers sell space in this manner, your media analysis is now based on finding sites which will sell space on this basis. You dial and dial and find 15 Publishers who will sell you space this way, yet your budget only has room for five sites. Now and only now do you launch into media analysis. You pick your five, run the advertising, get the click, and analyze the best performers. Meanwhile, the other 10 sites that didn't make the plan are begging for your dollars. More money is passed to you from the client or the powers above so you now decide to drop two sites that previously ran and pick up two more new sites. Repeat cycle until you've run on every one of the 15 sites Remember that because you are only paying for click, you really don't care why the sites performed as they did you just want more! This goes on for awhile until your advertising has saturated these sites, forcing you to do one of two things: you can negotiate better rates in order to maximize margins or, go find more Publishers willing to sell space to you on a per-click basis. Under the first scenario, you're able to find more sites willing to sell space this way perfect, new waters for which you can fish. But as you know, it's only a matter of time until you saturate everything forcing you to resort to other methods to maximize click. You may think you have no other options at this point, right? Wrong. What about approaching the Publishers and asking what they can do to further stimulate banner clicks after all, more banner clicks are going to lead to more click, right? Since you're knee-deep in the thick of it at this point, why not just approach your favorite Publishers threatening that "you're not getting any of my money until you write something favorably about my product"? This is about when my gut starts to churn as I have but one thing to present: there is no free lunch. Publishers are not and will never be responsible for the creative message just like advertisers are not and will never be responsible for content creation. Michael Hess co-founded WebRep, an online advertising representation firm. Michael Hess joined The Hearst Corporation in 1989 working in Los Angeles representing Esquire magazine. In 1990, Michael was named Manager of Esquire's Los Angeles office. In 1993, The Hearst Corporation moved Michael to San Francisco to open SmartMoney magazine's first advertising office in the Pacific Northwest. In January 1996, Michael and Neil Monnens started WebRep. Michael can be reached at (415) 567-2055 or e-mail mhess@webrep.net. - - - - - - - - - - - - - - - - - - - - - - - - - http://www.webrep.net/Pages/white-8-4-97.html - - - - - - - - - - - - - - - - - - - - - - - - -