bain iab digital pricing research

8/14/2019 Bain IAB Digital Pricing Research

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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.

UPDATED

Bain/IAB Digital Pricing ResearchAugust 2008


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2Bain_IAB Digital Pricing Study FINAL EXTERNAL 08-08-08


LAN

Disclaimer

The Digital Pricing researchconducted by Bain & Company incoordination with the InteractiveAdvertising Bureau (IAB) is abenchmarking study.

Benchmarking studies are not

intended to provide projectableresults. Please view results asdirectional only.


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Agenda

Introduction and executive summary

Key insights and analysis

Lessons learned and potential path forward


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0

20

40

60

80

100%

Internet

ad spend

Other*

Display/

richmedia

Search

Share ofimpressions

Premium /

direct sales

Non-

premium

$ shareof display

market

Premium/directsales

Non-premium

~$1

$12-18

Average

CPM

Intermediaries control bulk of displayinventory and generate ~30% of revenue

*Other includes classifieds, email advertising, email based lead generation, slotting fees, etc.Source: CIBC; ThinkEquity; literature searches; Deutsche Bank; Bear Stearns; CIBC; Advertising Age;

Piper Jaffray; eMarketer; Forrester; Veronis; company filings; Bain Analysis

For publishers, networks yield low CPMs,while presenting strategic issues

For branded publishers,intermediaries are effective atclearing excess inventory

Yet, ad networks growth andenhanced offerings could lead tosignificant CPM arbitrage

And there are concerns for brandedsites when utilizing intermediaries

- Potential brand impacts

- Sales channel conflicts

- Direct sales price erosion

At issue: what are the implications of adnetworks growth on premium publisher CPMs?


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The Bain/IAB research seeks to shed light onthe impact of online intermediaries

How is the dollar value, unit andimpressions mix changing over time?

How quickly are media companies addinginventory and releasing more to

intermediaries?

To what extent are intermediaries helpingmedia cos reach higher inventorysellout levels? (overall, and by type)

How does network utilization correlateto overall ad yield (revenue peravailable ad units)?

How are realized prices changingacross direct sales and sales throughnetworks and intermediaries?

To what extent are pricing

differentials being maintained acrosschannels?

How do these trends differ by formattype and inventory quality?

Keyissues:

Goals:

Assess how ad networks/exchanges are impacting pricing

Assess impact of networks/exchanges on inventory sales/mix

Benchmarking comparison across 7 publishers (on blind basis)

-- Large, well-known media companies and online publishers

-- Publishing premium content and selling advertising on a national basis

-- Incorporating use ofdetailed pricing data and qualitative discussions

Note: Benchmarking studies are not intended to provide projectableresults. Please view results as directional only.

Studyapproach:


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Executive summary (1 of 2)

Overall, 2007 was a strong year for the seven participating publishers-Average revenue growth of 32%, with CPM increases for several participants

-Growth in ad impressions served and in sell-out (after secondary channels)

-High demand for premium video inventory trading at 2-3X display CPMs

At the same time, use of ad networks increased dramatically,from 5% of sold inventory in 2006 to 30% in 2007

-Ad networks were used to monetize significant unsold display inventory-Publishers under considerable pressure to realize all revenue opportunity

Average realized CPMs on ad networks ranged from $0.60-$1.10,versus $10-$20 in direct-sold display inventory, or only 6-11% ofdirect pricing

Importantly, the study revealed significant publisher challenges inmanaging pricing and yield

-Lack of longitudinal sales data to measure trends overall, by account and bychannel

-Limited staff resources and tools in place to optimize CPMs and inventory yield

-Several participants lacked data on ad network volumes and pricing


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Executive summary (2 of 2)

It is still too early in the game to measure the full impact of adnetworks on online pricing and revenue share

-Large marketers still rapidly shifting budgets to online all boats rising

-Publisher use of ad networks still too recent to see cause and effect

However, growth in marketer use of ad networks will likely lead toerosion of premium CPMs if publishers maintain current behavior

For publishers, two key implications:

-Need to better support the value of premium inventory through moreinnovative offerings and/or reducing units available

-Need to actively manage secondary channels, both to maximize yield and tosafeguard strategic position

The ability of ad networks to increase CPMs and share gains withpublishers also appears critical to creating win-win relationships

-Enhanced ad network targeting and inventory management resulting inhigher price realization on premium inventory from publishers

-Further scale-up and (potentially) consolidation of networks should enablehigher margins


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Agenda





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Participating online publishers realized rapid2006-2007 online revenue growth

-10

10

30

50

70

90

100%

Average32

Co. B

36

Co. C

26

Co. D

27

Co. E

83

Co. F

15

Co. G

0

6 4 5 3 7 1 2

Revenue growth, 2006-2007

Co. A

Revenuerank

Key findings

Growth driven mainly by increasedmonetization of existing traffic

- Participants have increased adimpressions served

8Increasing ads per page and byadopting new ad formats

- Publishers experienced big differencesin direct sales CPM growth rates

8 Ranging from -30% to +100%

Participants grew on averageslightly faster than online

advertising as a whole

At the same time, ad networksrevenue grew more rapidly in 2007(well in excess of 50%), as marketersboosted spending


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While publisher CPMs grew on average,there was high variation across participants

*Represents average realized CPM across formats (display, video, and simple text) for direct sales only.Represents growth from 2006-2007

0

10

20

30

$40

Co. A

20

07

2006

2005

17

1211

Co. B

2

007

20

06

2005

20

17

12

Co. C

2007

200

6

1614

Co. D

20078

Co. E2007

2006

42

Co. F

2007

2

006

2005

14

19

14

Co. G

2007

2006

2005

24

34

26

26.5% 27.2% 0.9% n/a 106.5% 1.0% -5.6%

Average realized direct sales CPM's*, 2005-2007

CAGR

(05-07)


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Most display CPMs average $10-$20; highdemand for video drives 2-3X higher pricing

Note: Includes direct sales only

0

20

40

60

$100

Co. A

8

17

98

Co. B

14

43

Co. C

15

26

Co. D

6

35

Co. E

6

16

Co. F

24

54

Co. G

23

32

Average direct sales CPM's across formatsby company, 2007

Video

Display

Simple Text

Videoaverage ~$43

Displayaverage ~$15


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Despite high demand, progress in growingvideo impressions appears limited to date

0

10

20

30

40

50M

Video impressions sold, 2005-2007

Co. A

.32

4

Co. B

1 1 2

Co. C

42

46

Co. D

8

Co. E

40

.5

10

Co. G

27

39

44

265% 13% 5%2005-2007

CAGR

0.2% 0.1% 1.7% 1.3% 0.2% 2.0%% of 2007

impressions

Co. F

n/a n/a n/a 27%

0.1%

2005

2006

2007

Interview findings

Some participantshave more videocontent inherent tosite offering

Some struggle to

deliver soldimpression levels forvideo inventory

- Make-goods oftenexpressed as mix ofdisplay and videoinventory

But when made a key

priority, significantincreases arepossible

- e.g., Company F, G


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Publishers have substantial unsold inventory;only in video is demand out-stripping supply

Note: Three companies excluded from video portion of graph.

0

20

40

60

80

100%

2006

SimpleTextD

isplay

Video

23

55

95

2007

Sim

pleText

DisplayV

ideo

57

72

93

Aggregated sellout levelsby ad format

50% 53%Sellout excluding

intermediaries

52% 70%Total sell-out rate

Key findings

Low sell-out levels of premium inventory

Growth in total sell-out over 2006-2007driven by publishers making more inventoryavailable to intermediaries/ad networks

~30% of total inventory sold throughnetworks / exchanges in 2007

Video sellout rates significantly higher thanany other format

Because sellout rates are so high, noparticipants currently sell video throughintermediaries

What options do publishers have foraddressing excess inventory levels?


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In 2007, publishers significantly expanded useof networks to monetize unsold inventory

Note: Two participants unable to provide data for 2006

0

20

40

60

80

100%

Impressions

sold 2006

Intermediary

Direct Sales

Impressions

sold 2007

Intermediary

Direct Sales

52% 70%

Total display, video, and simple textimpressions sold by survey participants

Average

sellout rate

Interviews suggestpublishers had planned

to release moreinventory in 2008

though severalhave recently beenre-considering


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However, with realized CPMs averaging under$1, monetization value has been limited

0

10

20

$30

Intermediaryaverage

Direct

average

Co. A

16.1

Co. B

14.1

Co. C

0.9

15.3

Co. D

0.8

7.5

Co. E

1.1

6.1

Co. F

0.6

24.5

Co. G

23.5

0% 0% 22% 26% 47% 48% 0%

Average display CPM for networks anddirect sales, 2007

Impressions sold by intermediaries

Intermediary

Direct

*Average weighted by impressions served across all participating companies

0

20

40

60

80

100%

Impressions

sold

Intermediary

DirectSales

Total revenue

Total display impressionsand revenue, 2007

Intermediaries account for ~25% of sold display

impressions but comprise only


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Higher sellout levels appear linked to greateruse of intermediaries -- and to lower CPMs

Note: Sellout level across all formats.

0

20

40

60

80

100%

Co. E

97

Co. F

89

Co. D

81

Co. C

77

Average

71

Co. B

67

Co. A

49

Co. G

40

Sellout levels by company, 2007

21.2%% of inventory released tonetworks / exchanges

~6Average number ofnetworks used

$10.36Direct average CPM

7.6%% of inventory released tonetworks / exchanges

~1Average number ofnetworks used

$20.17Direct average CPM


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Lack of available data restricts publishersability to develop basic ad strategies

*Estimates included as Yes

0

20

40

60

80

100%

2005

over

all s

ales

No

Yes

2006

over

all s

ales

Yes

2005

CPM

No

Yes

2006

CPM

No

Yes

2005

netw

ork

sales

No

n/a

Yes

2006

netw

ork

sales

No

n/a

Yes

Ads

sold

bytarg

et-

ing

type

, 200

7

No

Yes

Cros

s-pl

atfo

rm

sale

s*

No

Yes

Cros

s-pl

atfo

mCPM

No

Yes

Data available for all survey participants(n=7)


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Publishers use cross-platform sales to drivevolume (not price), though tracking is limited

*Proxy based on number of advertisers who buy cross-platform, not actual number of impressions.

0

20

40

60

80

100%

Co. A Co. B Co. C Co. D Co. F*

Internet display, video, andsimple text impressions sold, 2007

Sold only with internet inventory

Part of cross-platform package

Interview findings

Cross-platform salespredominantly used to driveshare of wallet, not price

Most participants do notactively monitor cross-platform CPMs

- Several do not even trackcross-platform sales

But digital sales teams

often operateindependently of offlinesales teams, limiting abilityto measure impact


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Agenda





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Lessons learned for publishers

Publishers are creating too much inventory, resulting in growingpressure to expand use of secondary channels

-Publishers went from almost no use of intermediaries to selling 30% oftotal impressions in only one year

-With ~50% direct sellout, the number ofbrand-focused, premiumimpressions available significantly exceed demand at current CPMs

-With limited ad network monetization, publishers need to re-think overallpricing and inventory strategy -- not just the approach for remnant sales

Publishers who actively manage and use multiple networks report(somewhat) higher average intermediary CPMs

- Power users employ analysis and negotiation to enhance results

-These publishers indicate that vigilance on ad content, reported sell ratesand channel conflicts is critical

Most publishers require improved tools and incremental resourcesto better manage pricing and yield

-Today, pricing and channel management opportunities are being missed

-Additional resources and tools could enhance decision-making


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Potential steps for publishers and networks toenhance mutual benefits of collaboration

Sales channelconflicts

Revenue share

transparency

CPM arbitrage

Data access/analysis

Utilize networks selectivelywith focus on incrementalaccounts and minimum pricing

Work with multiple networks

and shift to more transparent,higher-value players

Invest in building value of thepremium direct channel andmaintaining high CPMs

Use discipline in managingoverall inventory levels andrelease of units to networks

Enhance staff resources andtools to make more consistent,informed pricing decisions

Work with publishers to minimizesales conflicts

Increase revenue/share

transparency to publishers aschannel partners

Enhance targeting algorithms anduser data to improve networkvalue and CPMs to publishers

Pursue vertically-focused ortiered offerings that betterleverage publisher inventory

Provide publishers greater accessto sales data, facilitatingpublisher analysis

Online publishersNetworks/

intermediariesKey issues


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Suggested path forward

Publishers: develop pro-active strategies for managinginventory and better tools for yield management-Enhance service offering to support/differentiate premium business andevaluate reducing inventory levels

-Develop and closely manage relationships with multiple secondarychannels including horizontal ad networks, vertical networks and otherspecialty networks

-Evaluate entry into ad networks and/or partnering approaches with otherpublishers for sales of value inventory

Advertising networks: evaluate creating a more tailored mid-tier offering and value proposition for online publishers

-Pursue differentiated offerings that better leverage publisher audiencesand environment, while offering enhanced performance for marketers

- Increase transparency and help address channel conflicts

For the IAB, additional implications:-Continue to address supply chain costs to help maintain strength andattractiveness of direct, premium publisher offerings

-Build industry standards for network and mid-tier network inventory tohelp elevate realized prices across the board

-Support publishers in developing insights and tools for inventory mgmt.


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For More Information

Contact:

Cheryl KraussBain & CompanyEmail: [email protected]: 646-562-7863

Frank PintoBain & CompanyEmail: [email protected]

Telephone: 917-309-1065

Marla NitkeInteractive Advertsing BureauEmail: [email protected]: 212.380.4714

bain iab digital pricing research

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