5/04/2005

Money (and Belated Thanks)

Advertising is the chief source of revenues for most Web publishers, and though I think that will change, I want to discuss an article about the response rate that online retailers are getting from net ads. Their experience provides benchmark numbers for small publishers trying to project realistic cash flows (as well as helping small e-retailers comprehend pay-per-click ad pricing).

I’m relying on a recent piece in Internet Retailer. It reports on a survey of 250 online retailers. The survey found that four out of ten retailers are now getting a better response to their ads now than they were a year ago. Another 23 percent said response rates were about the same. That suggests – though it was not stated explicitly – that more than a third of the respondents saw a decrease in response rate.

The key concept to understand is conversion rate: how many of those who see an advertisement click on that ad. The article said 70 percent of respondents had conversion rates of two percent or better. Two percent is considered the norm. (Again I infer that 30 percent had response rates below the norm.) Nearly half of the retailers surveyed had conversion rates above three percent. A third of the respondents reported click-through rates of four percent or better.

Publishers can use these numbers as follows: if you know how many page views you generate, multiply this number by the two percent response rate to estimate how many billable clicks you should expect. To arrive at revenues is more difficult because the pay-per-click rates are so varied. (I’m sorry but I don’t have a current average at hand.)

E-tailers can use these metrics to start learning the pay-per-click bidding game. Before you try, however, study this primer from ClickZ and follow the links for further research. Errors can be costly. A recent CNet article says “millions of U.S. merchants . . . lack the time or energy to master the game of Internet promotion.”

Let me shift gears.

I want to thank Dana Blankenhorn, author of the Moore’s Law blog, for his flattering note about my work as MiniMediaGuy. This blog started as a New Year’s resolution. I love the research and writing but am utterly baffled by the technical aspects of this craft, such laying trackbacks and creating blog rolls. I will learn these tricks eventually, but my time is limited by job and family responsibilities. Meanwhile, I remain all the more grateful that this seasoned writer and blogger has looked past my inadequacies at the thoughts and ideas I am trying to express here.

Tom Abate MiniMediaGuy Cause if you ain’t Mass Media, you’re Mini Media

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