December 29th, 2007
I believe that there is a disconnect between the projected ad spend online and projected traffic needed to fulfill the ad buys. We know that billions of ad dollars will shift from TV to online next year but we do not yet have a way to spend it all given our current assumptions about CPM (cost per thousand) pricing and the limits of online traffic. Using CPM to quantify ad spending as revenue divided by traffic does not capture the potential of “engagement” as a way to sell advertising. Shifting from impressions to engagement is the key to properly valuing online advertising and capturing this shift in ad spending.
Engagement can be broken into measurable units and sold to marketers as CPE (Cost Per Engagement) if we come up with an agreed upon definition of valid “engagement units”. I propose the following CPE units:
1. Amount of time spent on a site. One unit could be a ten minute block of time. A site could be a specific domain or an embedded web application (widget) on any number of domains, blogs, or portals.
2. Amount of time spent watching a specific video. One unit could be a five minute block of time. This could be a single video or a collection of videos, slides, or other linear media. This video could be embedded on a site or syndicated out and hosted by third-parties.
3. Specific actions taken by the person including:
a. Rating a segment of media
b. Posting a comment
c. Tagging media
d. Embedding a widget or media on another site
e. Linking to the media
f. Sharing the media via Google Reader
g. Marking the media as a favorite
h. Bookmarking the media with StumbleUpon
i. Digging the media
j. Blogging about the media
k. Tweeting about the media
l. Mentioning the media in a Facebook Mini-feed
… or any other measurable action a person can take that signifies expressed interest.
I propose a working definition of CPE (Cost Per Engagement) as “The value of one unit of one person’s engagement with specific media that is strongly associated with a specific sponsor of the media.”
This allows content distributors to capture the value of engagement in a way that can be monetized as part of advertising campaigns. More importantly it provides a new model for valuing online experiences that will shift the discussion away from “traffic” and CPM to metrics that capture the more sophisticated value of IP-based media.
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