CPM rates have been falling. That's no surprise. What's been a surprise is the depth of the decline for remnant inventory.
An August study from the Interactive Advertising Bureau and Bain Capital found on average, CPMs on remnant ads ranged from $0.60 to $1.10. In my own recent informal poll, CPMs seemed to have cratered. Untargeted, non-search CPMs are around $0.10-0.15 and targeted ads are around $0.15-0.25.
If you're a startup focused on ad based revenue streams this is shocking news. A quick back of the envelope says it all:
Suppose you have a userbase of 1 mil users that visit your site 5 times a month and view 10 pages per visit. Even if a publisher were to sell 100% of it's inventory at $0.15 CPM the publisher would earn $90k per year in revenue. Maybe enough to pay 1 FTE.
What Factors Determine Your Adverstising CPM Rates?
Andrew Chen wrote a great blog post about 5 Factors that Determine your Advertising CPM Rates...here is the big takeaway:
Sites that are easier to monetize have high click thru rates because people are in a "transactional mode". Characteristics of these sites include an evergreen userbase, focus on a particular category, US based and significant traffic through SEO.
What about More Targeted Ads with Unique Formats?
Remnant inventory has been hit hard but have advertisers fled to quality? The IAB report suggests that better targeted ads have not been as hard hit as remnant ads. This means high quality vertical ad networks like Martini Media (which is an affluent based ad network) may be where some of the flight to quality action ends up. If you're a publisher you'll want to look at vertical ad networks that align with your userbase...they could provide a significant lift.
Ad Based Startup?
With the supply of remnant inventory so high it's hard to see rates increasing in the foreseeable future. So, unless you have a quality userbase that fit's Andrew Chen's mold you really need to look at alternative business models. In a nutshell, most ad based startups are bad ideas in today's market.
