May 19, 2015

Cost Per Hour Pricing Has Arrived

For us in advertising who are used to doing digital plans, two of the most common and overused metrics we look at are impressions and clicks. Many advertisers, to this day, for better or for worse, use these two metrics as key indicators of performance by looking at the cost per thousand impressions (CPM) and cost per click (CPC) as ways to measure the cost efficiency of a particular campaign.

What Other Advertisers Look For

More sophisticated advertisers had graduated beyond these two metrics a while back and started to look for instead for quality over quantity. How exactly does one measure quality you ask? In the digital space, one thing we can look at is the time spent on site after the initial click through. The reason is fairly simple, the more time an individual spends on a particular site is assumed to be indicative of the individuals interest level and as such labeled as a higher quality impression and click. 

Another way to measure quality is looking at ad interaction and engagement with the ad. This has given birth to online ads that are interactive, intrusive and solicit concrete action like sign-ups or video plays. However, this type of interactive ad unit is not readily available for all media owners. One reason is that it disrupts the user experience and often frustrates and even infuriates readers.

How Media Owners Responded 

As advertisers have started to move the way they measure a campaign's success beyond just clicks and impressions and towards  metrics that look at engagement, time spent and actions or acquisitions, media owners have been slow and somewhat reluctant to change the way they sell their available inventory. There was no reason to mess with a model that works, especially for high traffic media owners who could sell advertisers on their superior website traffic numbers.

That is until today. Officially, the Financial Times will now start selling their advertising space on a cost per hour (CPH) basis and not just on a CPM basis. They had been testing this revenue model since September 2014 and announced a few days ago that they are making the move permanent.

Cost Per Hour Model

The idea is fairly simple. Advertisers now pay based on the number of hours their ad is exposed, instead of by the number of impressions they get. For the Financial Times, an exposure is measured when at least 50% of the ad is shown for at least 5 seconds of "active" time. In comparison, an impression is counted as soon as the ad loads, whether or not the individual has seen the ad.

I can see how this CPH is an improvement over CPM. It guarantees the advertiser that at least 50% of the ad was viewed for at least 5 seconds. It's arguable whether this model is an improvement over CPC and especially over cost per acquisition or CPA. 

For CPC, you at least know that you have led the clicker to your own site where you can begin collecting your own data on the user. But CPC has is own faults, including the growing problem of click farming. And for CPA, well, you have directly linked the ad to an action or acquisition. However, it is rare to find a media owner willing to sell their ad inventory on a CPA basis. They will argue that the action and acquisition is contingent on the offer being given which is beyond their control.

I think selling on CPH at least shows that some media owners are flexible and open to discussing alternative ways to sell their inventory. It's a good sign for advertisers as we always seek to improve our cost efficiency while securing better quality impressions, views and clicks. A better pricing model along with improved data and targeting options promises to be a win-win-win situation where consumers see relevant ads, advertisers get their quality audience and media owners get proper compensation for their content.  

To learn more, link here to an Ad Age article on this topic