Flat Rate Pricing of Online Ads Gaining Steam

October 15, 2004

The idea of click fraud has been making its way into the news as of late. Estimates range from 5 percent to 50 percent of advertising fees paid to all search networks are fraud. Google acknowledged the problem in their pre-public offering documents, "fraudulent clicks are a risk worth noting." But they are not the only victims. It was reported in the Times of India that groups of people were hired to click on ads on major search engines.

When ads first appeared online, they were charged on a cost-per-thousand (CPM) basis but soon after the Internet bubble burst, performance based advertising become the flavor including cost-per-click (CPC), cost-per-lead, and cost-per-sale. Google furthered the cause of CPC pricing with the popularity of keyword buying.

A new pricing model is gaining popularity - flat rate. It is creeping in through the smaller ad networks (a few of the larger ones are testing it) and smaller publishers. Flat rate pricing is based on the philosophy of associating your brand with popular websites. As an advertiser, you scroll through a list of publishers and choose which sites you want your ad placed on. The predetermined price is set by the publisher. The advertiser determines the length of time in which they want to have fixed placement. It takes the hassles out of buying ads online.

I like flat-rate pricing for these reasons:

Advertiser
- No worries of click fraud
- No key words to manage
- More control over the sites where your ad appears

Publisher
- No reporting discrepancies to debate with advertiser
- More control over revenue

It is another question whether or not advertisers are ready to embrace this type of pricing structure. The networks that employ flat rate pricing say it works and they are seeing repeat buyers.

But it is not without its downside

Advertiser
- Popular websites can get pricey
- Limited inventory availability
- In some cases, you are unaware of the number of impressions served

Publisher
- Possibility of severely limiting revenue opportunity

Time will tell if the market is ready to embrace this new pricing structure. Currently, it is a buyers market as the fixed prices are low.

Posted by Bill Flitter on October 15, 2004 9:55 PM
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