In economics any time there is an abundance of supply the price for that particular good goes down. The easier to obtain, the less ‘valuable’ that resource is. In today’s online world there is no shortage of traditional Internet measures like ad impressions because of the huge amount of traffic being run through social networks.

The trouble is that another traditional measure for advertising, cost per thousand or CPM then gets taken down with it. Of course, not all sites on the Internet are created equal when it comes to what kind of ads are served and how they are received but when clumped together, social network traffic is the high volume low cost drag on the overall market pricing. AdAge reports (with a hat tip to paidContent)

A recent analysis by ComScore shows social networks, primarily Facebook and MySpace, have over the last year drawn an average CPM of only 56 cents, compared to the $2.43 average for the internet at large. Looking more closely, the ComScore data show that the average pricing for online ads exclusive of social-networking sites, namely Facebook and MySpace, would be much higher, about $2.99 for every 1,000 views; social sites dragged down the average online CPM by as much as 18% over the last year.

The chart below from comScore shows this in an historical context.

The reality of the nets’ new world order because of social networks may very well turn out to be putting these two sources, publishers websites that want to have a more ‘in depth’ experience for their users (which usually translates into some kind of an annoying expanding banner that should be made illegal by anyone with any concern for web experience) vs. social network which are much more ‘wham bam thank you mam’ in their experience especially when it comes to advertising.

“There’s just an overall glut of page views on the internet,” said Richard Jalichandra, CEO of ad network Technorati Media. “And with all that inventory, there’s an overall drop in CPMs.”

Still, Mr. Jalichandra said social networks may be a large part of that inventory production. Among the top five U.S. publishers of display advertising, Facebook delivers the largest share of online ad impressions — serving 16.8% of total online ad impressions in the U.S. for the month of May, according to ComScore. Fox Interactive Media, a property that is primarily made up of MySpace, served 6.3% of total impressions for the same period. To put it another way, in the United States, Facebook and MySpace together are responsible for more than a fifth of all advertising traffic, while at the same time bringing in the lowest rates for those ads.

Using the term display ads to describe Facebook’s ads may be a misnomer and that’s where the industry may need to look into this in more detail. By the way was anyone else surprised that MySpace still gets mentioned in this conversation?

So what’s your take? Are all online ad impressions built alike? Should there be this ‘drag’ on overall numbers when in reality they could be so very different that they shouldn’t be clumped together at all?
I’m sure you have an opinion on this fine Monday morning. Why not share it?