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More ad networks or less? April 6, 2009

Posted by jeremyliew in ad networks, advertising.

In their most recent Razorfish digital outlook report, Razorfish (a leading interactive ad agency) found:

A closer look at the distribution of ad spend by Razorfish clients reveals several trends, including:
– An increasing reliance on ROI and proven channels like search
– A continued shift of budget away from portals
– Renewed fragmentation in the ad network space

More specifically:

Despite the drive towards increased efficiency because of the recession, ad networks as a category saw only a slight increase in share year-over-year. One trend reversal we saw was in the concentration of spend amongst the top five ad networks dropping to 62% from 76% in 2007. A few things contributed to this change in direction. The first is a rise in spend outside the U.S. and the development of branded networks such as Forbes, Turner Entertainment and Fox Audience Network, and the move of many premium advertisers away from general networks. Additionally, the rise of specialty vertical networks like the community sites BuzzLogic, Six Apart, Lotame and BlogHer has further fragmented this category and put a refocus on testing the emergent opportunities.

But at the same time as Razorfish is seeing more ad network diversification, they are predicting:

4. Online ad networks will contract;open ad exchanges will expand

In 2009, the online ad network world will see both contraction and expansion:

• The traditional ad network world will contract as competition for declining ad dollars increases. There are simply too many broad networks competing for the same inventory and not telling a new story.
• At the same time, branded networks will expand. Large publishers (e.g. the Fox Audience Network and Turner Entertainment) will continue to take back control of their inventory and monetize it themselves, or they will work with fewer ad networks to ensure quality and maximize value.
• Expansion will also come in the form of Ad Exchanges like Right Media, DoubleClick and AdECN, which are newer open markets for online ad inventory that increase buying efficiency by delivering unprecedented transparency in the process. Development of this ecosystem will put further pressure on small and mid-tier ad
networks to survive. If Ad Exchanges are widely adopted, it could revolutionize how online media is bought and sold.

So which will it be, more ad networks or less? Most pundits are predicting less. However, I believe that there will be more. The fourth generation of ad networks are living in an environment where access to inventory is getting commoditized (through ad exchanges), data for targeting is getting commoditized (albeit slower, through companies like Lookery and Blue Kai), and targeting algorithms are turning out to be not as effective as previously thought (more data usually beats better algorithms). In this instance, sales execution becomes the key differentiator. And sales teams typically work best when they can focus on a set of accounts with a lot of commonality, whether demographic, industry, or geography. This means that it will be easier (not harder) for smart small teams of sales people to start their own targeted ad networks. We’re already seeing some of this as Razorfish notes above.

I think we’ll see more ad networks, not less.

What do readers think?


1. Matthew T - April 6, 2009

Agree with your sentiments Jeremy.

I believe we’ll see an increase in ad networks in parallel–as Razorfish notes–to a continued drop in concentration among the “top” (as measured by volume) ad networks.

A few bulleted reasons that support this:
– the continued decline in cost associated with operating an ad network
– an increased in skilled labor (pub managers, ad sales) needed to manage an ad network
– more attention focused on smaller inventory pockets by networks that need to establish themselves.

Ad networks all work the same way, they do one or more of the following:
– Exploit a sales team that can sell branded CPM at a higher rate vs. the inventory they have (the rise of Glam)
– Exploit and master an emerging distribution point before the competition (CPX Interactive with Right Media, Social Media with Facebook, etc), or
– Exploit a “conversion” advantage (Tacoda or Blue Lithium with retargeting)

As you note, it will be exploit 1, those with a sales focus, that will probably gain an advantage because of the commoditization of data and the cost associated with making a substantative improvement in an algorithm. I believe these will be 90% of the cases as well with the other nearly 10% most likely coming from a new flavor/form of impressions (newly adopted ad unit, wireless proliferation, etc).

Incremental gains that lift eCPM on a smaller percentage of inventory can then raise the overall eCPM of the network allowing for buying power.

As history over the past 10 years has now shown us, there will be continued exploitation of these things (as pockets of new value are found). The cost of putting and ad network in place will continually decline while the reward realization that doing it at a new firm (instead of within the constraints and equity struture of a mature firm) will continually go up. Hence more networks.

2. Joe Fredericks - April 7, 2009

More ad networks not less makes sense here, Jeremy. Except that I would put it in the context of ad exchanges and suggest that specialization for the sales teams you describe will enable the role of media trader especially as exchanges become more premium inventory-oriented.

With the onset of exchange-based media trading, media buying agencies who are not aware of the shifting sands under their feet will be disintermediated and the saavy solutions-oriented media trader will work directly for the client. Or the client will bring the expertise in-house – trade in-house, if you will – and cut the agency out totally.

Viva la technology.

3. Scott Rafer - April 9, 2009

Specifically, it’s more and broadly sourced (inherently external) data.

4. cpxinteractive - April 11, 2009

President of progressive online ad network, CPX Interactive, takes a look at “6 Things Smart Ad Networks Should Do To Ensure Success in 2009” http://tinyurl.com/ccnjey

5. rob, BtG - April 15, 2009

good info, review thanks. check out VideoEgg’s new ad unit, sounds compelling…


6. More Ad Networks Coming, Not Less - Says Jeremy Liew of Lightspeed Venture Partners - April 21, 2009

[…] In your April 6 LSVP blog post, you say there will be more ad networks not less. […]

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