Re: Next Generation Pricing Models

From: Dilip DaSilva <>
Date: Wed 28 Nov 2001 12:57:34 -0500

In exploring new pricing models, it is important to
understand not only how each model affects the
behavior of both the buyer and the seller, but also
how the interactions of multiple models affect
buying patterns.

Consider the following example of adding additional
models to a CPM offering. Say a publisher offers
their space at $1 CPM and later offers $0.25 CPC to
supposedly increase revenue. How does this affect
advertiser behavior? All advertisers with a greater
than 0.40% click-thru rate will pay on a CPM basis
and all advertisers with less than a 0.40% click-thru
rate will pay on a CPC basis. The effective CPM of
all the CPC campaigns will always be less than the
publisher's $1 CPM price. In effect, the advertiser
paying on a CPC basis is getting free advertising.
In addition, the CPC advertiser has shifted
responsibility for campaign performance to the
publisher and has no incentive to create effective
banners that result in higher click-thru rates. In
fact, lower click-thru rate banners result in more
impressions and a lower effective CPM. So it is in
the advertiser's best interest to use banners that
do not perform. Ever wonder why you don't see any
effective banners on CPC networks. At the same time
because publishers are rewarded for clicks, fraud
is a major concern of every ad network that offers
CPC. If the publisher also offers CPA, then the
advertiser has an additional pricing model from
which to choose. Guess which one they will choose?
The one with the lowest effective CPM. The
difference in the publisher's CPM rate and the
effective CPM of the CPC or CPA campaign exactly
quantifies the amount of free advertising the
publisher is giving the advertiser.

The online ad industry's push to give the
advertiser what they want via Cost-Per-Whatever
pricing models has resulted in the numerous
pricing models we see today. Yet the solution may
not be additional pricing models, but adopting
a single model.

For the above reasons, we only offer CPM on the
Tribal Fusion network. When an advertiser pays on
a CPM basis, it clearly is in their best interest
to make sure they are targeting the right audience
and using the most effective creative. At the same
time, because it is in our best interest to get the
advertiser to renew, we do everything we can to
make sure their campaign is successful. For
advertisers interested in conversions, we often
track and optimize by conversions, yet they pay
using CPM. It is extremely important that the
economic incentives for performance rest with the
party that has control over the variables that
affect performance.

Dilip DaSilva
Tribal Fusion, Inc.

Received on Wed Nov 28 2001 - 11:57:34 CST


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