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Summary:

[by Chetan Sharma] At least half a dozen press releases popped up during the writing of this book claiming a $50 or $60 and higher CPM ra…

[by Chetan Sharma] At least half a dozen press releases popped up during the writing of this book claiming a $50 or $60 and higher CPM rate for mobile ads. A brief look back at Internet advertising from 1998 to 2002 shows that a $50 CPM, or anything near it, is not defensible for very long. For the CPM model to work at any price point, even in the short term, these networks need a critical mass of advertisers willing to spend branding (versus direct marketing) dollars on a new, untested medium that will appear in a wide range of content. That is going to be difficult, if not impossible, to find. Since the agency ecosystem is rooted in print and TV, it is also anchored in CPMs and GRPs (gross rating points). For the near-term future, CPMs probably will determine the ratio of dollars spent in mobile. But the ecosystem is being yanked into the digital world with more transparent ROIs that gauge new levels of consumer interaction and impact. Outcomes need to be tied to more than just the theory of eyeballs in the living room. Lots more in extended entry….

Assuming for a moment that the mobile ad networks can find enough advertisers, it will increase the attraction for publishers to run ads on their networks, adding more inventory and depressing prices. In addition, web-based interactive agencies were already burned once by ad networks with prices above a $30 CPM. It is likely that the entire mobile CPM model will shrink, as it did on the Web. In both the PPC (pay per click) and CPA (cost per acquisition) models, more responsibility is put on the content providers, insulating advertisers from some risk until the consumer clicks toward a transaction or sale. However, the implementation and success of CPC and CPA models rely on huge impression volumes, an ad sales system more scalable than is required for CPM models, and a mobile infrastructure capable of monetizing consumer clicks or actions. All these are a long way off for mobile advertising. As noted by Larry Shapiro, VP of Disney;

  1. Great points regarding why $50+CPM mobile rates are not defensible. Yes, simple supply and demand will force prices to be more realistic. CPM lingers in media buys because most traditional media is difficult to measure. The holy grail of marketing (tracking one-to-one behavior over the long-term across multiple outlets then targeting the right person, at right time, and at right place, resulting in a conversion AND loyal user, then repeat cycle) will become more of a reality with certain mobile applications/programs over the next few years. As measurement of behavior becomes more precise, CPM should be (and will be) replaced with CPC and CPA in mobile. Brands/advertisers should demand these type of fee structures because media measurement will support these fees and not the old school CPM fee. However, part of the high CPM's being asked by the mobile start-ups are a result of: start-ups selling a bill of goods to VC's, the oligopolist nature of wireless carriers, and the start of a "product cycle" of mobile apps/waps. Thus, in addition to increasing ad inventory/supply, VC's demanding more transparency, wireless networks becoming commodities, and mobile app/wap becoming ubiquitous, CPM's will go way, way down until the point that they will FINALLY cease to exist. Then we all can start complaining about CPC's. Mo'money, mo'problems.

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  2. This piece is spot on.

    I think you may have just sold me on “Mobile Advertising: Supercharge Your Brand in the Exploding Wireless Market!”

    Jamie

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  3. A cogent presentation of the troubled water ahead for mobile advertising networks and content publishers. It all boils down to "just like the web – but with more device fragmentation and a smaller audience." Oh, and with less robust tools to monitor click-through rates. Did you know that most mobile browsers don't support cookies?

    The tease at the end of the article, the dangling of the "Yes, there is!" line will continue by drawing the parallel with the web by discussing the inevitable move to a direct response focus ala Flycast in 1999, and CPC and CPM models. "Just like the web…" but this time with smarter ad agencies that won't spend big money without demonstrable results.

    Matthew

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  4. Interesting…there is no doubt that $50 CPM rates on mobile are not sustainable – but at the same time, they wont crash to same level as internet CPM rates.
    People who are talking of CPC and CPA must remember that these terms did not exist in mainstream before internet advertising took off. For mobile advertising there wil be some other equivalent of CPC or CPA that industry will evenutally discover.

    The engagement that a brand can have with potential consumer on mobile is much more powerful than on internet. Internet by its nature is distracting. Attracting and more importantly holding attention on internet is very difficult. This is different in case of mobile. The mobile has almost complete attention of surfer, and smaller screen size makes CPM of mobile more valuable than CPM of Internet.

    Current CPM rates on mobile are obviously ridiculous, but still in long run mobile CPM will definitely command a premium over internet CPMs. The extent of that premium is yet to be discovered by the market….

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  5. Frederick Ghahramani Sunday, February 17, 2008

    Rafat — Dude… WTF?

    Imagine my surprise, laying in bed on a lazy Sunday, reading moconews on my blackberry RSS reader, and I read an article that really impresses me. Such a strong convincing argument. These writers are so smart… so intelligent, I swear this 'analysis' is so intelligent, I should have written it… OH WAIT! I F*&KING;DID WRITE IT! About 1 year ago. You can read it here in the original format before these guys screwed it up:

    http://www.fiercemobilecontent.com/story/feature-mobile-advertising-reality-check/2007-02-23

    FAO: Sharma, Herzog, Melfi — Why does it take 3 wankers to "write" a book when you're just piecing together other people's ideas?

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    THEM: "Selling these companies on the concept of mobile advertising and getting them to spend more than just their trial budgets is a long, arduous cycle."

    ME: "But selling these companies on the concept of mobile advertising and getting them to spend more than just their "trial budgets" is a long and challenging sales cycle."

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    THEM: "The second group of mobile advertisers consists of companies outside the mobile industry looking to increase the awareness of their products and services in a high value, personal scenario."

    ME: "The second group of mobile advertisers consists of companies from outside the mobile industry looking to increase the awareness of their products and services in a highly intimate and personal setting."

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    THEM: "For lifetime economics in these scenarios to make sense, CPM rates must drop to between $5 and $10."

    ME: "For these lifetime economics to really start making sense, CPM rates need to move below the $5 range."

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    THEM: "For these advertisers, mobile advertising is about accelerating the process of acquiring a new customer. Their ad spending will be measured and driven by the lifetime value of that new customer."

    ME: "For these companies, mobile advertising is all about speeding up the process of customer acquisition, and their ad spending is driven in a measured fashion whereby the cost to acquire the customer must over time be less than the lifetime value of the same customer."

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    THEM: "But is this type of advertiser really going to scale mobile advertising revenues? No. It will basically be capped by the marketing budgets of these smaller companies."

    Me: "But are these the type of advertisers that the industry really wants and needs?…how big can this type of advertising really get? Will it not be functionally capped by the marketing budgets of the companies that excel in the mobile space?"

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    THEM: "Two major groups are using mobile for advertising today. First are the companies that want to advertise on mobile to get consumers to click to their point of sale to buy a game, mobile music, ring tones, or video."

    ME: "There are two distinct groups of companies that want to advertise on mobile phones. First, we have companies that want to advertise on our properties with the goal of bringing customers one click away from their point of sale. This includes mobile game publishers, mobile music vendors and other mobile application creators."

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    THEM: "Beyond the CPM and economic issues, aren’t all mobile application providers essentially competing with each other for the same time and service spends from the same consumers? How do mobile portal managers feel about semicompetitive mobile media advertising on their prime real estate with the goal of stealing a customer’s attention? Will every ad have to be preapproved? Will this really be the market force that drops CPM rates?"

    Me: "And beyond the economic issues, how do mobile operators feel about dodgy off-deck content providers buying premium placement on their portals to ensnare customers into a recurring $10/month subscription through a free (oops, I mean "zero cost") ringtone offering? Will each ad need to be vetted and approved prior to publication to avoid an increase in customer care calls? How do portal managers feel about competing portals advertising on their prime real estate with the goal of permanently diverting customers away? And in this vein, aren't all mobile application providers essentially competing with each other for the same time-slice and value-added service spend from the end-user?"

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    THEM: "These companies are just beginning to understand the unique value of mobile advertising for relevant, targeted, effective presentations to their audience."

    ME: "These companies have begun to understand that a mobile phone placed eight inches from your face is a better platform to inculcate a message and brand into your thought patterns than a 42-inch plasma TV."

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  6. Frederick Ghahramani Sunday, February 17, 2008

    Sharma, Herzog, Melfi –

    Regarding this comment:

    "“For lifetime economics in these scenarios to make sense, CPM rates must drop to between $5 and $10.”"

    My opinion on this has changed in the past year since I ran my original trials. You CAN actually make direct response work properly at the 30$ CPM rate. If you'd like to know how just give me a buzz and I'll share my spreadsheet with you. It's really great. Our readers will love it!

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  7. I would argue that the $5 mobile CPM will kill the industry. We need a faux inflated CPM of at least $30 to continue to command the interest of the media companies who buy our mobile inventory.

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  8. Ads served along with cool, and useful apps will attract higher click thrus and they vvill also command a premium.

    my thoughts at:
    http://indradhanush-laal.blogspot.com/2008/02/advertisers-to-vie-for-that-two-square.html

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  9. The only ad network I have ever had success with was ViralyticsMedia.com. They are more of a site repping company, but if you can get in with them they are pretty solid. Customer support sucks, but they pay well.

    Mike
    StupidVideos.com

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  10. The engagement that a brand can have with potential consumer on mobile is much more powerful than on internet. Internet by its nature is distracting. Attracting and more importantly holding attention on internet is very difficult. This is different in case of mobile.

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