How Ad Space Effects Ad Pricing

ad space pricing

What is Exactly Ad Space?

Ad space is something that can be infinite in the terms of an internet website. Yet, in most of the cases nobody holds these days websites that are comprised solely of ads, because his/her website will be tagged as a spamming website.

Therefore most of the websites are constructed of lots great content and a small percentage of their space is allocated for ads. This has some interesting implications on the economics of an ad space, because the law of supply and demand can be applied to ad space as a product.

Now if we’ll take a minute and think of it, the more demand there is for an ad space – its price will go up and vice versa if the demand will be low. Having said that, a website owner should take under consideration the following factors when he appraises the price of ad in his/her website:

(a)How many impressions this ad has according to history and prediction

(b) What is the common effective Cost Per Click (eCPC) and effective Cost Per Mille (eCPM) he/she charged in the past 12 months

(c) How much does the competition charge for a similar ad

(d) How much ads can he push at the same time for each placement he/she has

(e) How much income do his/her ads supply for a page & how much are they supposed to supply in the due to the business needs & market prediction of demand for these kind of ads in his/her vertical.

(f) How much ads should the website supply in order

I would like to hold on a minute and shed some more light on section (f) since there isn’t much talk about it on the internet, but as you will see it may have an enormous impact on the revenue that evolves from a website.

The Toughest Decision – To Show a Bunch of Ads or To Minimize Their Number?

That’s a big question but it mainly relies on the demand of your website. Here’s example from real life made by Google.

Google, the biggest search engine in the world, had shown since its beginning around 11 ads per SERP: up to 3 at the top and up to 8 on the side of the search results. This has been working nicely, but at a certain point it became evident that the eCPCs of google for ads which were on the side of the SERP were far lower than the ones for ads which were on the left, just due to the fact that there were very few clicks for the latter ads.

Moreover, the CPC (cost per click) for each of the ads on the side was extremely low in comparison to the CPC of the topmost ads.

At a certain point Google decided to make a drastic change in desktop searches and stopped showing ads on the side of the results, while allowing up to 7 ads on the whole page: up to 4 ads at the top and 3 ads at the bottom.

When I managed PPC for a company in the financial world on the days it happened the immediate impact was a rise of more than 400%(!!!) per click for the topmost ad positions. It was crazy. In one day, all of the low budget competitors disappeared, and only the big companies with the tons of money kept on competing.

I believe that Google didn’t do such a move out of stupidity. They are measuring everything before they make a move in any of their websites, and this case was of no exception. In my opinion the rise in the CPCs for ads that appeared for major keywords was strong enough to compensate the loss of in income that occurred when they vanished the ads on the side of the SERP. In addition to that one shouldn’t forget that Google IS the biggest search engine in the world and benefits from a growing number of impressions on a daily basis. I bet this move has summed up for their benefit in the bottom line.

Conclusion

Ad Space pricing is related to old economic laws of supply and demand and is a real power companies can use for their benefit either by just letting advertisers to have a spot or manipulate it in order to increase their income dramatically, if they have tons of traffic, like Google has.

 

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