Ad Network & Exchange Guide 2009

What to Expect From the Next Gen of Digital Display

Publishers That Resemble Ad Networks, Ad Networks Focused on Brand Safety and Brokers Becoming Exchanges

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NEW YORK (AdAge.com) -- The various elements and mechanisms that will make up the next-generation of the online-display-advertising ecosystem are beginning to fall into place.

The first generation of digital display is over. Get ready for what comes next. Large publishers are looking more like ad networks. Publisher-side brokers are moving from being yield optimizers to becoming exchanges in their own right. And ad networks -- at least those of the 400 or so likely to survive -- are focused on targeting and brand safety. Ad exchanges are moving from basic bid-matching to real-time allocation. Agencies are making perhaps the boldest move, aggregating impressions and data for clients -- and themselves. Data exchanges are separating data-about-impressions from the impressions themselves and bringing a new, valuable currency into play. And no competitor, not even Google, looks likely to stand solely above the rest.

Mike Cassidy, president of Undertone Networks
Mike Cassidy, president of Undertone Networks
"The lines are completely blurring between client, publisher, supplier and network," said Mike Cassidy, president of ad network Undertone Networks. "It's a really interesting time."

Indeed, having long taken a back seat to the powerhouse that is search advertising -- or, let's be honest, taking a back seat to Google -- the pieces of the new display ecosystem are beginning to mature in a variety of intriguing ways.

In flux
For starters, when they aren't busy fighting, publishers are beginning to look more like networks and networks more like publishers. On the publisher side, efforts from large properties such as Forbes.com and Martha Stewart Living Omnimedia -- and even tech publishers such as IDG -- are maturing, and advertisers are getting comfortable with the idea of buying impressions culled not only from those publishers' core properties, but from ad network and long-tail content partners as well. Meanwhile, the trend toward more vertical ad networks, many of which create their own content as part of the mix, continues as well, with players like MTV's Tribes, Travel Ad Network, Complex Media and others try to bring new value to category-driven bundles of impressions.

"Content remains one of the more critical factors advertisers evaluate in looking to place their ads; they want to be in contextually relevant areas," said Jack Rotolo, senior VP-North America sales at Glam Media, which now reaches more than 110 million unique visitors a month across 900-plus sites, blogs and magazines. Some content-focused networks such as Glam are working on other marketing ideas as well; Glam has done this with Twitter-based advertising and its launch of GlamTV. "Clearly, some advertisers are looking for performance-based advertising. But there's a whole other arena of advertisers that are really trying to align themselves and create a market position around a brand. They are very selective about the types of environments they are going to get into," Mr. Rotolo said.

As has been the case for several years, even as larger ad networks continue to make significant revenue on remnant inventory, smaller-scale networks are trying to find some way to add more value to the equation, whether it be a vertical focus, more data-based targeting or playing a partner role in the variety of buy- and sell-based exchanges that are emerging. Many are focusing on delivering a more guaranteed brand-friendly environment. One such network is Undertone, which will refund a campaign as much as $50,000 if impression quality slips. "That's a key differentiator for us, being a network for brands, rather than focusing on Lower My Bills or Netflix [impressions]," Undertone's Cassidy said.

But in the emerging world, where data and efficiency drive the day, it's not clear various ad-network maneuvers will be enough.

"What's really in the cross-sights here is the inefficiency that has always existed in the display market," said Michael Walrath, Yahoo senior VP and founder of Yahoo acquisition Right Media Exchange. "We have all these conversations about networks vs. exchanges vs. premium publishers, and all the tension between them. And there is some tension. But to the extent you can combine open, liquid exchange marketplaces and proprietary innovation, you can start to strip away a lot of the efficiencies that have accrued. Any time a marketplace is automated, you are going to have concerns about commoditization. But this industry is going to work within a set of rules people understand."

Sales-channel mix
The traditional rules of ad networks -- aggregate massive amounts of impressions to make a market -- are being challenged. For starters, there are billions of impressions more than anyone can actually use and mechanisms such as exchanges can often more efficiently and transparently match up buyers and sellers for those impressions than traditional "black box" marketplaces, where it's less clear how the matches are made and optimized. And new technology-driven plays on both sides of the buy-sell equation, in the forms of tools that help publishers optimize their yield (or revenue per impression) and agency-driven buy-side trading platforms, are putting the squeeze on the middleman.

And while that may seem like a complex equation, what it really comes down to is relatively simple: The online ad and media industries must come to better grips on their sales-channel mix -- a common challenge in all maturing industries.

"The challenge our industry struggles with generally is how to manage direct sales and channel sales," said PubMatic CEO Rajeev Goel. "[Online] advertising is still a relatively young industry. If you look at a more mature industry, like retail, you have Nordstrom and Nordstrom Rack. If you look at electronics, you have Cisco selling direct and via indirect resellers. The online world is still sorting through all of that."

Jack Rotolo, senior VP-North America sales at Glam Media
Jack Rotolo, senior VP-North America sales at Glam Media
Which leads us to the latest trend: the buy side (agencies) and sell side (publishers) of the display equation flexing their muscles. Supply-side ad brokers such as Pubmatic, Rubicon Project and others have emerged to help publishers improve their ad yields. New "demand-side" networks run by the large ad holding companies/agencies -- VivaKi's Audience on Demand or Havas's Adnetik, among others -- are emerging to assert the power of the buy-side in much the same way. Such agency networks "are not about driving down prices, except where prices should be driven down," said Omnicom Digital CEO Matt Spiegel. "Once you sell out the home page and premium sections of the site, everything else is remnant. But if we can find ways of doing targeting with our clients, your junk may be my treasure, and vice versa."

Separating the junk from the treasure may well be the new art -- and science -- of the media-buying world. Data mining, algorithms and the like are the currency of this new world, and, like it or not, more "quant-minded" analysts are the hot new agency hire.

"You'll always have media planners and buyers; that's where the big ideas come from," said Darren Herman, president of Varick Media Management, an agency-side buying platform. "But we're also hiring yield traders and analysts to sit beside them. That's where it's shifting."

"The down economy has slowed down the exchange evolution a bit, but it doesn't change the underlying economics," said Jeff Green, director of product marketing at Microsoft's AdECN ad exchange. "Greater efficiency is inevitable."

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