Revenue Cannibalization: Striking A Balance

This blog has mostly covered topics regarding display advertising and the ways publishers can monetize their display inventory. But what if you are a publisher with various sources of ad income? What if you have CPA deals next to CPM display ads? Or perhaps even CPC text link ads next to CPM display ads? This post focuses on the latter, in which a publisher needs to understand the revenue split between two competing (but complimentary) sources of ad revenue.

At the last publisher I worked at, we had an interesting mix of text link ads based on directly negotiated CPCs (direct partner/non-auction) and display ads trafficked via CPM. In many cases, publishers choose to stick with one ad revenue source (display ads OR text link ads) because cannibalization can occur. In a nutshell, cannibalization is the process by which one ad can potentially take away clicks from another portion of the website or an ad.

In our specific case, we realized very quickly that there was an equilibrium that needed to be struck between our text link ads and our display ads. In essence, if the CPM we negotiated with a direct deal advertiser was too low (commensurately, if the eCPC was too low based on the CPM and the CTR) we risked actually losing money on net when considering the clicks that were lose to the display ad, rather than having the user click on the (higher paying) text link ad.

Publishers need to understand that for any given deal they sign in this scheme, they need to ensure that total revenue on net is higher, even if they are getting a higher CPC text link ad or a higher CPM display ad. In the case of the display ad, understanding the CTR from the display ad is vital to understanding the eCPC, and thus the total affect on monetizing the user.