Real-Time Trend Brings Another Premature Obituary for Ad Nets

By Published on .

Mike Cassidy
Mike Cassidy

Have you heard? Ad networks are dying. Again.

This time, it's the rise of private online ad exchanges that's going to kill the ad network.

The network category has been under attack from nearly the day it was introduced more than 10 years ago. Remember 2003, when Google launched AdSense for publishers? It was meant to help publishers better monetize their sites through contextual targeting, thus reducing or even avoiding the use of third-party companies such as ad networks.

Then, in 2005, RightMedia launched digital advertising's first exchange platform. The theory with exchanges was that all ads would be traded like a commodity, and the direct connection between buyer and seller would create a more efficient dynamic.

Around 2008, the death knell sounded again. Yahoo, Microsoft and AOL all acquired ad networks, and industry watchers predicted that mass consolidation would drive smaller companies out of business as the giants won the market. If you weren't bought, you were toast.

All the while, the number of ad networks continued to grow, doubling from 200 to 400 and more.

Today, the buzz is all about private exchanges and real-time bidding, or RTB. RTB can be defined as true dynamic bidding, where the ad buyer can weigh each ad opportunity in real time to value the ad impression and buy at that price, ostensibly giving them more efficiency, better performance management and higher value on the campaign investment. Proponents say that private exchanges will directly connect buyers (agency trading desks) and sellers (publishers), thus eliminating the network (viewed as the non-value adding middleman).

In fact, the exact opposite is happening.

On the plus side, private exchanges give publishers a new lever to pull. They can sell inventory, potentially using real-time bidding on a one-to-one basis with their buyers, which are typically holding company trading desks.

But, while publishers are taking advantage of new technologies -- inventory management systems, competitive auctioning and bundled ad packages -- they still cannot sell 100% of their ad inventories.

How can publishers selling inventory to the same buyer justify getting $20 for some ads but far less for others? The fundamental issue with private exchanges is that the buyers are agencies -- the same agencies who the publishers are trying to sell inventory to on a premium basis.

Publishers have a difficult decision to make. Increasing revenue from the secondary channel is great but only if it does not cannibalize your primary.

A good secondary channel strategy includes both exchanges and select networks that will be additive and not harm the primary channel. Private exchanges give more control to the publisher (a good thing), while also providing a clear way to address profitably the channel conflict between primary, premium inventory and secondary inventory on premium sites. By continuing to rely on trusted ad networks to sell their secondary inventory, publishers can effectively make money for their entire inventory without interfering with their premier pricing.

Much is made of the role of the middleman in our industry. What is forgotten is that middlemen (and women) play a pivotal role in every industry. Much of the technology and pricing and trading innovation in this market has come from the facilitators who connect buyers and sellers.

Compare it to the financial industry: When you want to invest your 401(k), you trust firms like Fidelity, Charles Schwab or Merrill Lynch, not your neighbor, the day trader.

The networks who are mere buyers and sellers of digital media are the ones under pressure. The ad technology firms that provide proprietary products, services, infrastructure, industry knowledge and strategic partnerships to manage the entire digital advertising continuum will continue to exist -- and thrive -- in online advertising.

Mike Cassidyis the president-CEO of advertising network Undertone.
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