With vast amounts of inventory available, increased competition and dropping response rates, many publishers are seeing their display advertising CPM rates falling.

The challenge is to offer advertisers increased flexibility and new formats in order to protect margins.

Long gone is the heyday of being able to charge £20 CPM for broad run of site display advertising.

Such was the shortage of inventory, leading ISPs and portals could charge advertisers a premium to reach consumers.

With internet usage rates increasing rapidly, broadband penetration hitting 60% of the total UK population and the arrival of social networking, there are huge volumes of inventory now available.

While spend in online advertising continues to increase at a rapid rate, with budgets being switched from TV, press and outdoor, the number of users is also increasing, with current supply outstripping demand.

Sites such as MySpace and Facebook have become so popular with users viewing hundreds of pages each time they visit.

For example, in September 2007 Facebook had over 14.7bn page views, each having the potential to contain a display advert.

With this huge volume of inventory, millions of impressions are going unsold every month and CPM rates have inevitably fallen, hitting margins.

In recent months I have been purchasing media from some of the leading sites for as little as £0.50 CPM.

While increasing traffic will have a short term effect of counteracting this loss for publishers, long term this is not sustainable.

Publishers need to diversify their offering with increased flexibility and choice, allowing higher rates to be charged.

Rich Media has played a major part of this. Publishers that allow expandable, overlay, video and interactive ads can typically charge a premium over standard formats.

In-stream video is also starting to gain popularity, where a short video advert is displayed as a pre-roll or overlay of the main video feature.

Some sites are also looking to offer custom solutions for big advertisers.

Page take-overs, podcast sponsorship, advertorial content and mobile are all way to build exclusive packages and charge a premium.

Publishers need to offer diversify in order to protect their margins and ensure the model of display advertising remains sustainable.

Matthew Finch – view blog