Posted by: Matt Shanahan
AdExhanger ran an op-ed piece today why to price advertising in cost per second of engagement (CPS). But how can a publisher make practical use of this metric right now given the entire market is CPM based. We have several B2B media companies taking advantage of engagement data to drive up CPMs by using the concept of CPS very simply. For the sake of this post, I’ll refer to a fictitious publisher called Acme Online.
In a similar circumstance to our real customers, Acme Online is an established publisher in their market segment. Any strategies that focus on growing advertising revenue by increasing unique audience members would have payback but step function growth is unlikely. Their issue is not one of market share but rather revenue efficiency (i.e., ARPU). Their challenge is how to create a differentiated product at higher rates for advertisers based on the current audience.
The first path to differentiation is always geographic, technographic, demographic and firmographic data about the audience. Increasing the amount of segmentation information allows for better targeting and increased CPM’s. But that is only the first step.
The second step is to price discriminate among segments. While two different audience segments might generate the same number of impressions, Acme Online wants to charge higher CPMs for segments with their most loyal members. Engagement is the natural differentiator. Each segment receives a score based on the average level of engagement of the audience members (i.e., a Demand Rating™ for the segment).
To translate these two steps to increased revenue, Acme Online implements price discrimination by first charging a premium for targeting and then charging an uplift defined by the demand rating for the targeted segment. This is essentially a practical version of implementing CPS without changing infrastructure. The benefit is revenue optimization.
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