Digital media is commonly priced on CPM (cost-per-thousand), CPC (cost-per-click), CPE (cost-per-engagement) and CPA (cost-per-acquisition). However, as native advertising continues to grow in popularity and become an integral component of most digital media plans, more people expect uniformity on how native ads should be bought and sold.
To understand the underlying fundamentals behind the pricing of digital media, let's take a look at the graph below:
All brand-to-consumer interaction can be viewed as a stage in a purchase funnel: from awareness, to brand affinity, to purchase intent, to actual purchase. It is in advertisers' interests to push the pricing model as far down the purchase funnel as possible to eliminate the risk of spending dollars and not seeing ROI. In advertisers' ideal world, they would pay only when a product is sold. This eliminates all investment risk from their advertising expenditures. Publishers, being the distribution channel, monetize the brand-to-consumer dialogue. It is in their interest to take as little risk as possible too; hence they prefer to be paid every time an ad is shown. They are the main force behind pricing done on the upper-funnel metrics (CPM) so that all of their risks are eliminated.
With the democratization of content production and the rise of social networks, global ad inventory is growing quickly and passed well over 5 trillion impressions worldwide in 2013 (TechCrunch). These trends, together with programmatic buying capabilities that enabled buying only impressions of interest, pushed the ad inventory even closer to becoming a commodity in the eyes of an advertiser. As a result, this puts downward pressure on the pricing of ad inventory with advertisers demanding a CPC or CPE pricing model. We’ve started seeing smaller and tier 2 publishers adhere demands but bigger publishers and vendors have not followed this pattern. They understand that there are factors that are outside of their control when it comes to driving ROI for advertisers. Even if publishers could help with developing the creative, they have no control over the brand's site, conversion flow, and reputation. Premium publishers can't afford to jeopardize the user experience by showing ads when the revenue is not 100% in their control.
Is it different for native advertising? That depends on how you define native advertising.
- In the case of in-feed native advertising, when the user is taken off the publisher’s site to branded content, then creative and post-click engagement is outside the publisher’s control. Therefore, it should be priced on the CPM model. The CPC model can be acceptable if the quality of the creative aligns with the quality of a premium publisher.
- In the case of sponsored or custom content, when the editorial team is involved in content integration on the publisher’s site, the CPE model should be considered. This is because the publisher’s team, taking the audience into consideration, has direct input into how the brand should position itself.
Either way, since native advertising is seen as a channel for distribution of content (which by nature is an upper- to mid-funnel tactic), it will likely never be priced on a CPA basis.