Monetizing Ad Inventory
My friend Darren who is Head of Digital Media at The Media Kitchen (a NYC based agency) makes an insightful post worth reading for any investor or entrepreneur who is involved with start-ups who have services that are monetized by advertising. Too often I see very aggressive assumptions around advertising sell-thru rates; the very worst are the projections that don’t even include a sell-thru rate - indicating all available inventory is sold. My advice is that you need to balance sell-thru and CPM rates - if you are projecting a high sell-thru rate, recognized that average CPMs will be low; on the other hand, a lower sell-thru rate means a start-up can project higher average CPMs.
By investing at Time Warner, I have the opportunity to speak and work with many talented ad sales people. As a result of these first-hand interactions, my knowledge around how best to build an ad-supported business has become pretty strong. Too often start-ups that are planning an advertising based revenue model come to us without fully understanding the ad sales marketplace (such as projecting an unrealistically high sell-thru rate which reduces their credibility). Granted, this often happens when they do not yet have a senior ad sales executive (a very tough position to currently hire for at start-ups). That being said, I would encourage any senior executive who is in an advertising-based start-up to really think hard about balancing projections around sell-thru rates and CPMs to get to a realistic revenue number.
