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Ad network revenue: Are you getting the best results?

Tom Pace
Ad network revenue: Are you getting the best results? Tom Pace

Even with recent improvements in online advertising trends in Q4 of 2009, it isn't easy being a digital publisher. Everyone is an expert on how publishers should manage their inventory to increase revenue. Driven by commissions and logic, internal sales teams concentrate on the 20 percent of inventory that generates 80 percent of their revenue (and nearly 100 percent of their commissions). This is their premium inventory. The remaining inventory -- inappropriately named remnant -- is largely up for grabs. Hence, there is a long line of suitors at the publisher's door to suggest the best use of non-premium inventory -- namely, give it to them.

These suitors can include ad exchanges, ad networks, network optimizers, and optimizers of optimizers. To keep things simple, we'll drop them all into the ad network bucket, although they technically don't all fit there. For our purposes, we're referring to third parties that take non-premium inventory and, in effect, sell it on behalf of the publishers to agencies and advertisers looking to maximize their reach or direct their ads to certain audience segments.
For most publishers, particularly premium publishers concerned about reputation and a heightened sense of inventory value, the quandary of what to do with non-premium inventory usually comes down to two questions: How much do we get paid? And who are the advertisers that are going to show up on my sites? The sometimes-convoluted answers from the third-party suitors (or perhaps more direct information from other publishers that took the leap) often leave the premium publishers feeling unnerved. The result? They choose to keep the non-premium inventory themselves.

And what do these publishers do with their non-premium inventory? Some larger publishers with multiple websites create their own internal networks to mimic third-party offerings without the danger of unsuitable advertisers and with somewhat better control over price. Other publishers try to blend that non-premium inventory with their premium inventory by creating audience segment packages that purport to provide advertiser access to the audience segments they are chasing. Still others decide it is more useful to promote their own or other related corporate activities to their website audience (i.e., in-house ads). Despite such efforts, much of that non-premium inventory perishes without generating any monetary or promotional value.

The fallacy in the current approach is that the wrong questions are being asked. It isn't a matter of whether publishers should or should not have a relationship with third-party ad networks, but rather a matter of when and how they should leverage these third-party ad networks. And, in order to be able to answer the when and how questions intelligently, publishers need to incorporate the management of non-premium inventory into their business management tools.

To generate maximum revenue and optimize their operational efficiency, many publishers already use an automated workflow system to forecast and manage premium inventory, including sales, trafficking and creative, billing, and reporting. The same processes should be applied to non-premium inventory with the added benefit of managing both internal and third-party options in the identification and sale of that inventory.

Rather than waiting until the last moment to see whether inventory is sold by their internal sales teams and then handing it over blindly to a third party when it doesn't, publishers should forecast and manage expected sales of inventory by group or sub-group and decide in advance which will likely be sold and which won't on a standalone basis. For example, a publisher can use the inventory forecasting part of the business management system to determine which non-premium inventory regularly does not sell. Then the publisher can reserve that inventory in the system for sale by a third-party ad network at a stated price -- unless a better price for that inventory is obtained by the publisher's sales team by a certain date. If a better price is not obtained, the third-party ad network gets to sell it; and if so, the publisher at least had an acceptable floor price as an alternative to wasting that inventory, while the sales team did its job to maximize the inventory's value.
Similarly, publishers can set up packages in the business management system that combine premium and non-premium inventory, which will enhance the chance of a direct sale of the non-premium inventory at a higher price. For example, the publisher can combine premium and non-premium inventory into sports, financial, or other packages that can offer higher volumes of inventory to meet an advertiser's need for more traffic to audiences interested in those packages. By taking non-premium inventory that is associated with the interests of a given package (whether by location or audience segment), a higher price can be obtained rather than leaving it to be used as undifferentiated, non-premium inventory.

In either case (and there are other potential scenarios), the same system can be used to manage the process including the handling of billing and reporting for both premium and non-premium inventory. There is no need to manage the ad network option independently of the normal business management process. There is also the option of creating packages with higher blended rates in an efficient way. In any case, it's a better world all around -- revenue is maximized while costs are minimized.

Some work is required to make all these capabilities a reality, but they are a lot closer at hand than many know. By working cooperatively, the publisher/ad network/automated workflow provider can change the dialogue from "either/or" to "when and how" -- to everyone's advantage.

Tom Pace is president and CEO of Solbright

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