Is cheap social media advertising undermining the price point of online advertising? According to AdAge, “Social Networks Sink Online-Ad Pricing.”

Overabundant inventory is a growing issue online. And there are more than a few advertisers and publishers who would like someone to blame for their ever sinking ad prices. But trying to blame Facebook isn’t a good idea. Facebook ads may cost a lot less than other online inventory, but they work. Moreover, publishers don’t need to worry about Facebook’s prices. Unless they’re not delivering the kinds of returns that Facebook gets for those rates.

There are some numbers to support the claims in AdAge. Recent numbers from ComScore found that social networks, mainly Facebook
and MySpace, brought in an average CPM of only 56
cents last year, compared to the $2.43 average for most advertising inventory online. As AdAge points out, removing social media ads from the equation raises the median online ad price, to about $2.99 per CPM: “social sites dragged down the average online CPM by as much as 18% over
the last year.”

That’s true. The average online ad price would be higher without including lower priced ads. So what?

Well, some ad execs are concerned about average CPMs. Keith Lorizio, Microsoft’s newly installed head
of U.S. sales tells AdAge:

“Social networks are going to be a challenge for everybody, as the
sheer dominance of the impressions they’re making flood the marketplace
with inventory. And it’s especially a challenge for every publisher, as
they drive down CPMs.”

Here’s the catch. Social media sites aren’t selling other publishers’ inventory.

It may seem disturbing when you learn that Facebook delivers more online ad impressions than any other publishers (16.8% of all U.S. online ad impressions in May according to ComScore). MySpace isn’t too far behind with 6.3% of total impressions for May. Together they serve 1/5 of the U.S. ad impressions online. That’s a significant number of cheap ads. But Facebook’s ad business is highly profitable.

Facebook’s self-serve ads brought in $300 to $400 million in revenue in 2009. Meanwhile, the company is slowly but surely closing the ad gap between itself and the four main online ad sales companies.

That’s because many of Facebook’s ads are tiny and cheap. They’re sold to small advertisers looking to make precise, targeted buys. Both MySpace and Facebook offer ad solutions for small businesses and individuals that are appealing precisely because they’re not a big investment.

But a large brand advertiser isn’t going to purchase a tiny text ad on Facebook because it’s cheap. Apple’s still going to look to roadblock a site like The New York Times when it wants to get the attention of a specific, affluent audience.

The quintessential dilemma of all online advertising is the fact that there is more supply than demand. There are seemingly infinite pages and places to deliver ads on the internet, unlike traditional magazine and newspaper pages, which were finite and sold at a premium cost. Some publishers are learning to fake scarcity. AOL, for instance has limited its inventory under Tim Armstrong, trying to increase the price it can ask for those ad placements.

But this trumped up charge against Facebook? It’s another case of scared publishers trying to come up with
excuses for lackluster ad sales online. The average CPM of all online advertising shouldn’t be a
concern for publishers. Your CPMs? That’s a different story.