Today's column is written by Matt Shanahan, SVP of Strategy for Scout Analytics.
Several weeks back, I wrote an opinion piece that explored "attention economics" or the importance of impression quality in online advertising. Just as audience selling was a response to audience buying, impression quality is not likely to improve until advertisers use a metric besides price to buy an audience segment. If advertisers want better quality, they need to consider average revenue per unique (ARPU).
Most audience buys are from niche publishers. A niche publisher has an upper limit as to the size of their audience whether that is 20 thousand or 20 million. The practical matter is that 99% of publishers are niche, and most audience buys are made with them. If an advertiser wants the best quality for $10 CPM insertion order and can choose from one of two publishers, which one should the advertiser pick? The answer is the publisher with higher ARPU.
Average revenue per unique is a simple metric computed by taking the revenues for a publication and dividing it by the average number of monthly uniques. Although typically used by publishers to gauge performance, ARPU compared with CPM gives advertisers new insights into their audience buys.
ARPU/CPM is an audience "demand rating" for a publisher's content. The demand rating is measured as clicks/unique/year (i.e., [$/user/year]/[$/1000 clicks]) and is a measure of audience engagement. For instance, a $10 CPM insertion order at a publisher with $10 ARPU is a buy of audience members with 1,000 clicks/unique/year (demand rating of 1,000). At a publisher with a $1 ARPU, the $10 CPM insertion order is for an audience with 100 clicks/unique/year (demand rating of 100). So what?
Demand rating gives advertisers relative measure of impression quality between publishers. Audience members with high demand ratings are more engaged and consequently spend more time with the publisher's content increasing the length of time for the average impression. Audience members with high demand ratings are more loyal and return more frequently reducing the average time for a campaign to reach its frequency goals. These audience members have a long-term relationship with the publisher enabling the advertiser to build brand relationship to be developed over time.
Demand rating gives advertisers a relative measure of placement quality between publishers. The content is unique providing a differentiated impression relative to competitors. The content is curated providing an impression with relevant intent to improve conversion. The content is trusted providing an impression that creates associative brand value.
Demand rating also turns out to be a value check on the CPM pricing. If the demand rating is lower than the publisher's page view statistics divided by the monthly uniques, the insertion order may be overpriced (i.e., above the average price for ads from that publisher). If the demand rating is higher, the insertion order may be a good value (i.e., below the average price).
Is ARPU/CPM vaguely right or precisely wrong? ARPU/CPM is as a relative metric for comparing publishers when placing an insertion order. Obviously, factors like ads per page, revenue composition, and other items can skew the comparisons but surprisingly not as much as you would think. Because of the IAB and other standards, the metric turns out to be vaguely right. The best approach is to use an ARPU based on pure digital operations or at least use ARPUs with the same components.
If advertisers want to discriminate about the quality of their audience buys, demographics and CPMs are not enough. ARPU/CPM is a simple and fast calculation gives a qualifying lens on the relative value between two potential placements which is why ARPU is not just for publishers anymore. In attention economics, the purchase behavior of advertisers will include ARPU.