“As the supply of “targetable” customers increases to meet a constant demand, prices of online inventory must fall.”

Like much of your article, this statement is true as far as it goes, but it addresses a larger situation that just isn't as simple as it seems. What's being provided on the supply side of the equation here is not “targetable customers,” but rather the functionality to target those customers. The ad networks will tell you that this capacity is a mass-produced commodity, and the premium publishers will tell you that it is a rare skill that you must pay dearly to benefit from. They are both right, because the truth is that between those two poles, there is a mess of differences in the type of targeting, customer, and product that is right for every situation.

As for the fluctuation of prices, I've seen it happening from the publisher side many times. It doesn't mean that the value of the inventory is changing, it means that the short-term gain is being sacrificed to accommodate an important customer, and pave the way for a relationship that is going to pay off later. When I was buying media for Amazon, I was able to get some ridiculously low CPMs on some very high-end sites. But it wasn't because the sites were overpriced, it was because the publishers wanted to add Amazon to their client list.

As far as margins, well, the difference between a $60 CPM on a truly good site, and a $0.50 CPM on a network, is not necessarily all profit for the publisher. They might just be using most of that money to actually pay the writers, coders, quality assurance people, information architects, and designers that make the site great to begin with.

You raise valid points; there are times when big-brand (high CPM) sites make sense. There is obvious value in contextual ad placement, or site packages, for certain advertisers. The overarching trend, though, is for marketers to gain more direct access to consumers online. The web publishers who in the past once controlled access to the audiences are losing control. Technology is irrevocably making insights into online customers available.

As the supply of “targetable” customers increases to meet a constant demand, prices of online inventory must fall.

The pressure on marquee sites is clear; the most obvious indication is how most big sites hide their web pricing in their media kits, while listing published rates for the print side of the house. Hmm. Why do media planners need to “call a sales rep for a quote” for banner rates? Because all online prices are in flux. We recently did a buy for a major news site (I won't name names to protect the innocent) that started with more than a $64 CPM. When the site found out we were using $3 and $4 ad nets, and probably would push more funds there, it suddenly came back with a second price proposal of $16 CPM — for the same audience buy.

Big sites are losing the keys to their reader kingdoms.

In the tactical space, you are right — by all means, sites still control many sweet groups of readers, and there are lots of packages that may make sense for certain brands. In the long term, I think continued pressure will force down online ad rates. The targeting capabilities are there, and it will remove inefficiencies — called “margins” — from the online marketplace.

Thanks again for a challenging and thoughtful response.