The coronavirus pandemic has caused ad rates to fall to a historic low. On April 3rd, an index score of 37 was recorded, as compared with an index score of 56 at the same time the previous year. The index looks at ad rates publishers are being paid for their ad inventory across the web, normalizes them, and then models the data on a scale from 1 to 100.
The industry is experiencing the lowest ad rates seen since Thursday, May 12, 2016. That was the last time the index was this low.
What we’ve seen throughout the last few years is ad rates having a linear improvement pretty much across the board. Ad rates go up and then drop down at the first of the month. Additionally, this oscillating pattern of ad rates occurs month-to-month, quarterly, and annually. This is due to the way marketers run their advertising budgets.
That’s why the rises and drops in ad rates are fairly predictable. They drop at the beginning of every quarter. Then they spike heavily on Black Friday, which is usually when the records are set. Q4 is consistently one of the highest-earning time for publishers across most verticals.
Looking at 2019 vs 2020 for ad rates, 2020 is a bit lower to begin with. In the second week of March, when the crisis started expanding into North America, advertisers adjusted their budgets and ad rates have continued to decline.
The impact on programmatic bidding
The industry as a whole is experiencing many advertisers having to hunker down, with whole industries asking for government bailouts. And this is resulting in the lower overall competition.
Yes, advertisers spending less. But this downtrend in ad rates is also impacting the competitiveness of the programmatic auctions on publishers’ sites.
These auctions are based on historical bidding data. This means the decrease in ad rates the industry is experiencing might get worse as more advertisers drop out of the mix and competition gets lower and lower.
This decline is compounded by platforms like Google Ad Manager because they will continue to help advertisers understand where they can bid lower and buy ad inventory more cheaply.
Supply and demand are critical factors
For many publishers, supply is at an all-time high. This is particularly true for news publishers that are writing about the coronavirus. In fact, they’re providing more and more ad impressions than they ever provided before. Additionally, other publishers are experiencing more traffic or trying to create more content than they have in the past due to the demands of consumers with more free time or to try to offset decreases in revenue.
This increase in supply is diluting demand even further. There is more available ad space with fewer advertisers bidding. The more ad space available, the lower advertisers will bid. This effect is compounding the negative effect falling ad rates have on publisher revenues.
Ideally what a publisher wants is a limited number of ad space with many advertisers competing for that space. What we are witnessing in the case of the coronavirus pandemic is the exact opposite.
One thing publishers need to be very cautious about right now is increasing their ad impressions (or the ads on the page) to better monetize their sites. By not testing different sizes and locations right now to provide the best competition, publishers are missing out on a strategy that can really turn the tables for them financially during these uncertain times.
Websites that are leaving the same number of ads, or increasing the number of ads, without testing sizes and locations will likely be the ones most negatively affected as we move through Q2 into Q3.
What will happen next?
As the pandemic gets worse, advertisers will try to stockpile as much cash as possible. Once people go back to work, Q2 is likely to start to improve. Traditionally, the end of Q2 has performed pretty well. So if advertisers are confident that things are going to start to improve, the ad spend will increase, and demand will start to go up.
Until then, publishers really need to be focusing on optimizing the number of ads on the page, their sizes, and locations. Ultimately, this is the only leverage they have to restrict the supply as the demand continues to diminish. This is especially true of sites that are in travel or other niches whose advertisers are most drastically impacted.
We look forward to economic and advertising recovery in the future. However, it is critical that publishers optimize their revenue in the meantime. And to do so, they need to think very carefully about creating the right ad placements and optimal number of impressions.