Pricing in Digital Equilibrium™

Posted by: Matt Shanahan

Spurred by a considerable uptick in discussions with B2B publishers, I’ve been thinking a lot about the strategies of revenue optimization. Obviously, the publishing world is grappling with the transition to digital as traditional print advertising declines; suddenly online advertising revenue is moving from incremental to future core. The move has triggered a search for tools that offer tuning, refinement and optimization, and that’s where we’ve been fitting into the discussion.

In talking with customers, I’ll admit I was a bit surprised by the simplicity of the current ad pricing models in place. While the impression (CPM) and conversion (CPA)-based units of online advertising inventory are firmly entrenched, there is little sophistication associated with pricing of the inventory. The classic “price-discrimination” we see in other industries with fixed inventories is limited to a few premium placements on the site—primarily because organizations don’t have good insight into the segmentation of their audience and the value it has to advertisers.

Let’s take the classic “airline seat” example of price discrimination. Somehow, you can pay $350 for your middle coach class seat, while the guy next to you on the aisle got his for $199. How’s this work? It’s all about understanding demand. In the airline case, demand for a seat changes based upon the specific buyer. There are only so many seats on a plane traveling from here to there, and a business traveler that needs to quickly book a seat to get home for his daughters trumpet concert is willing to pay more for the seat than a holiday traveler that has booked three months in advance.

So, what if you could sell online advertising inventory like airline seats? Pricing would be based on the demand of a specific segment of impressions have for a particular buyer. Like airlines, publishers have a fixed inventory model—only so many impressions are available. Unlike airlines, publishing is missing deep knowledge about their impressions that would provide insight into packaging and pricing their inventory.

That inventory knowledge is what we focus on. We help publishers understand which audience members are routine, predicable users and which are ad-hoc. After building a rich profile around each audience member, we help publishers make accurate predictions about their ad inventory—how many people visit from a specific geography, industry, size of company, even a specific company—and allowing publisher to optimize packaging and pricing to those that care a lot about specific audience segments.