Why banner advertisers should just buy impressions

Bart Burggraaf is Managing Partner at MediaGroup Worldwide, a niche marketing agency for the financial services industry. He has substantial experience across major institutions in the FX industry with regard to operating commercial marketing enterprises.

The idea seems almost foreign to marketing managers in certain industries; pay for impressions? What do I care about impressions when all I want are sales? They have a point, but not in the way they think.

They shouldn’t care much about impressions, and they should definitely care more about sales. But, the reality is that publishers price and compare their ad spots in cost per thousand impressions (CPM). So regardless how you end up buying it, the underlying ‘currency’ is the CPM of that ad spot.

When a publisher makes a decision on whether to run a campaign they sold directly, or use external partners like Google to increase earnings on unsold inventory, or indeed to run a CPA campaign, they do so on the basis of effective CPM.

So if using a partner like Google to sell unsold impressions would yield them 0.8$ per thousand impressions, and the CPA campaign 1.2$ they would as rational beings choose to run the CPA campaign. If the CPA campaign nets below the other partners, they run the other partners.

Pretty basic idea, but the interesting bit here is that if you do run the CPA campaign, you are paying a 0.4$ premium in this example. This is what you pay the publisher extra for taking the risk of running your campaign.

But being a rational being yourself, why would you pay extra for that same impression?

Sure, sometimes publisher are not rational and end up getting paid less and yes a savvy affiliate can take advantage of that. But in the long run, if your strategy is paying below market value, that means constantly having to onboard new affiliates and losing out on potentially lucrative placements.

What’s more, many publishers do not transact on a CPA basis, so you end up using middle men who arbitrage and take an exorbitant fee for doing so. The much smarter idea is not to pay the risk premium in the first place, and taking the risk yourself; buying display advertising on the underlying currency of the web, CPM.

Why do the world’s most successful companies not transact on a CPA basis? Is it because they cannot afford good people that will run a magic affiliate program? Likely it is the inverse.

Yes there is the brand risk of running affiliates, but that is not the only reason. Transacting on CPM requires companies to be a lot more selective on what media they buy. It requires a focus on results, measurement systems and an organisation to match. It requires testing and an upfront layout that sometimes can be daunting. But the result is a higher ROI.

Not that affiliates cannot be useful in certain scenarios. If you are a small organisation, sometimes there just isn’t the cash to spend up front. And in certain industries, like gaming, affiliates allow companies to benefit from channels they otherwise wouldn’t get access to.

For ecommerce sites, affiliate programs gives them access to advertising in a non-advertising way (blog recommendations and the like). But strictly talking about display, especially with the availability of programmatic advertising, it just doesn’t make sense to me.