The slow death of CPM on the web.

The CPM model is changing dramatically (duh). Long tail ad inventory will trend to $0 while premium inventory may actually increase.

Here’s why:

The impression pricing model (CPMs) depends on scarcity (of channels, pages, broadcast spectrum). The internet destroys the CPM model assumptions as new content comes online each day, thus destroying scarcity in the CPM model. Inventory on the web is infinite, so non-premium inventory will price lower. While more content (ad inventory) comes online, attention remains FINITE. Any single blogger now competes with the likes of the NYT or WSJ. Performance pricing and direct response will in the end rule the web media buy.

Also, while this is occurring, publishers are self cannibalizing pricing by using ad networks that reduce their inventory to fungible goods.

The outlook seems bleak for the firms that depend on impression based pricing. Digg is a great example of how massive amounts of new inventory can hit the market quickly. Digg instantly competes with their dugg destination posts. Look for more moves like yesterday’s Yahoo’s APT accommodation of performance pricing and look for the other quality performance networks to realize more revenue.

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