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Part 2 - A History of RPM

This is the second in the series on "The History of RPM" and refers to the forumula discussed in Part 1.

RPM formula

Please click on the below link to view Part 1 of a History of RPM:
Part 1 - A History of RPM

Escrow.com

A number of years ago, one domain parking company (Domain Sponsor) controlled a HUGE volume of traffic and ruled the industry. Using their market power, they began to dictate terms to Google. Although I wasn’t privy to internal discussions, I could view Google’s response from an external perspective.

Since a contract was in place Mg was VERY HIGH and Google was bound to pay a bonus for what they previously thought would be impossible high traffic levels. This created a virtuous spiral for Domain Sponsor. As payments increased, they sucked in more traffic, climbed the tiers and they then increased payments further etc…..well, you get the idea.

What did Google do? They shattered the market by issuing a whole lot of new contracts (eg. Parking Crew, Internet Traffic, Voodoo etc) and wrote contracts that provided sunrise clauses to new players, so the traffic was sucked out of Domain Sponsor and the tail was no longer wagging the dog. They then rewrote the contracts with shorter terms and different values for Mg.

For those of you that are familiar with Domain Sponsor you will also know that it no longer exists. This could be blamed on a whole variety of reasons from bad management and VC driven outcomes through to Google but the fact remains that the once king of the domain industry was dethroned and ground into the dust.

Several years prior to this event Google introduced “T” for Tag Smart pricing. This is a complicated way of saying, we will determine what we want to pay based upon “quality” levels. The term “quality” was never defined but it is a variable that nevertheless impacts the revenue equation.

At a domain conference I proposed the following quality conundrum to the Google team. Let's imagine that I own pizza.com, what sort of advertisements should be on it? They answered pizza ads. I then said, but upon investigation into the traffic I found that the only people going to the site were looking how to finance pizza shops.

The answer was glib and short, Google determines what's quality. Welcome to the world of a single major advertising source that was prepared to use their market power.

What this potentially impact was the revenue side of the RPM formula. If Google got the answer to quality wrong (and it regularly did) then the advertisements would not match what the traffic was wanting to see and this would impact the revenue.

Moving on now, since everyone needs to make money the variable “M” in the RPM formula is the monetisation company’s margin.

Within the denominator there are a few interesting variables. The first is U which represents the raw traffic going to a domain. The second is Pf which is a filter applied by the monetisation provider to the traffic before they pass it onto Google (in this example). Finally, Google applies its own filters to the traffic.

I hope the formula now makes sense and that it also shows you where there are several leverage points for your own traffic. For a start, the closer you can get to the advertiser the higher the payout. The danger here is that unless you rigorously filter for all the garbage traffic advertisers won’t buy it. You’re also now in a different business….

To understand what has happened to the domain industry in the last decade we need to first reflect on what occurred around 2008. If you remember that time the world was going along really well and then, almost overnight, a financial cataclysm occurred that resulted in what’s now known as the Global Financial Crisis (GFC).

When this event occurred corporations dramatically reduced their marketing budgets as everyone raced to shore up cash. RPMs were being impacted on three fronts. PPC rates fell due to reduced advertising budgets and despite the GFC more users were still getting online. This effectively flipped the Google advertising marketplace upside down with more supply than demand for traffic.

In a world gone crazy the last thing you wanted to do was put out an earnings warning call to the market. With reduced overall advertising spend Google took the most logical course of action….they played with the “G” and “T” value in the RPM formula. This helped shored up their results, and meant reduced payouts for domain investors.

The incredible thing was Google found they could keep on reducing payouts to the Google partner network and the traffic largely remained because there was no one else that could fulfil targeted niches. As payouts to domain investors continued to fall and being economically rational, they did the most logical thing they could do….they dropped unprofitable domains.

The next article will explore how the the impact of domains dropping brought the investment community to the attention of the wider domain ecosystem.

Part 3 - A History of RPM
Saturday Musings - Part 2 - Dealing With Stress

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Comments

Wolftalker on 23 September 2019
Always interesting

mgilmour on 23 September 2019

Thanks for that! I try to be as interesting as possible by providing a different perspective on what is often treated as the mundane.

Thanks for that! I try to be as interesting as possible by providing a different perspective on what is often treated as the mundane.
Guest - boboli on 24 September 2019

Thank you for the tutorial and history.

Is there anything good about Google, dominant a player as they are, having such control over the online ad market? It seems as if they have squeezed the profits out of domain parking. Have they operated fairly?

Thank you for the tutorial and history. Is there anything good about Google, dominant a player as they are, having such control over the online ad market? It seems as if they have squeezed the profits out of domain parking. Have they operated fairly?
mgilmour on 07 October 2019

I wrote an article about the fact that at ParkLogic around 65% of our traffic is now monetised at non-Google sources. Check out: https://whizzbangsblog.com/article-archive/the-domain-monetization-seismic-shift

I wrote an article about the fact that at ParkLogic around 65% of our traffic is now monetised at non-Google sources. Check out: https://whizzbangsblog.com/article-archive/the-domain-monetization-seismic-shift
Guest - boboli on 24 September 2019

Is there anything positive about Google dominating the online ad market? It seems they have squeezed all the profits from domain parking and kept it for themselves. Have they operated fairly?

Is there anything positive about Google dominating the online ad market? It seems they have squeezed all the profits from domain parking and kept it for themselves. Have they operated fairly?
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