Over the past few years, CPM has become the common currency for online advertising. But is the model still relevant?
Should we be buying online media based on engagement rather than just passive consumption?
In the current tough financial period, would advertisers be willing to commit more budgets online if customer engagement was guaranteed?
For those not in the industry, CPM is the common term for the cost of buying 1,000 impressions of a display advert.
CPM, just in case you were wondering, stands for Cost-Per-Mille. In Latin mille means thousand, therefore, CPM means cost per thousand.
An impression is basically a single user viewing an advert on a webpage, whether that is a banner, skyscraper or some other image.
Impressions are bought or sold in thousands as trading individual units would just be too small.
A typical media plan could consist of 5m impressions on a particular website at a cost of £5 CPM. This would equate to a total cost of £25,000 or £0.005 per impression.
But there lies the issue.
If purchasing impressions in individual units is just too small, and we therefore buy mass volumes of media, then we cannot expect response rates on a disproportionately large scale.
Statistics vary from source to source, but a typical click-through-rate (the number of clicks versus the number of impressions) will rarely exceed 0.5%.
So out of 1,000 impressions, only five people will actually click on the advert. Even fewer will actually go on to purchase something.
The challenge is that display advertising is passive.
Unlike search, where the user is actively looking for a brand/product/service, display adverts are positioned around a webpage in an attempt to distract the user from the content.
Over the last few years the response rates have been falling, especially on popular sites with huge volumes of untargeted advertising.
As a result the cost of buying impressions has been in free-fall.
Gone are the days of online media at a rate of £40 CPM, apart perhaps on a handful of highly specialist sites.
Recently I bought online display media on a major portal for £0.50 CPM, and needed over 100m impressions just to get enough responses!
The challenge for the long term is for the industry to create more engaging, more relevant, more targeted forms of online advertising.
Utilising new technology, such as the Nintendo Wii to create brand engagement would not be a bad idea and Advertising Exchanges will certainly evolve the targeting and purchasing processes.
In the meantime, as advertisers look to optimise budget to the most effective marketing channels, can the model for "traditional" online display advertising evolve?
As an advertiser, the key is engagement.
Online engagement is typically measured by interaction. Interaction, of any form, is not passive and there is far greater chance that the person will make a purchase or at least be able to recall the brand or product at a later date.
Whether that is watching a video, reading some information, playing a game, downloading a brochure, register for a newsletter - all interactions are more powerful than just passive consumption.
Buying media based on engagement would be an interesting offering to advetisers.
Rather than paying for thousands of people that 'might' see your ad, what about only paying for people that activity engage in your ad.
Rich Media ads already allow you to measure and report each of the interactions, whether it is dwell time, clicking to expand an ad, watching a video or entering your email address.
I am sure many advertisers would also be willing to pay a much higher Cost-Per-Engagement than a current CPM rate. Maybe even have different rates for different types of engagement.
It would certainly encourage website owners and media networks to work harder to ensure advertisers were shown in the most suitable and effective place, reducing media wastage.
In our current tough financial period where budgets being squeezed, it is also likely to encourage advertisers to commit more of their spend to online.
If spend on display could 'guarantee' user engagement compared with other media where it is still down to an element of chance, where would you spend your cash?
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