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The Future of Ad Networks: A Truth in Advertising

The Future of Ad Networks: A Truth in Advertising iMedia Editors
Ad networks have a solid business model that provides significant value to advertisers and publishers, and are far from exiting our ecosystem. In fact, the demise of ad networks, to paraphrase Mark Twain, has been greatly exaggerated.

First, let me qualify myself. I have been involved with three ad networks that have made it to the top 20 comScore list―ValueClick, Fastclick and AudienceScience―founding two of them. I am proud to call the CEOs or founders of most of the top networks my friends. I have helped the IAB establish standards and guidelines around network quality. In AudienceScience, we created the first true data driven ad network in the space.

Today, some agency executives are claiming that networks are only espousing their virtues in a desperate attempt to protect their business models. I would like to illuminate some facts here.

First, let’s look at the definition of an ad network. The IAB glossary defines it as “an aggregator or broker of advertising inventory for many sites. Ad networks are the sales representatives for the websites within the network.” Without knowing whom, specifically, at the IAB penned this, the fact that the IAB uses this definition speaks to part of the problem. Ad networks do aggregate inventory from many sources. They combine direct publisher relationships, exchanges, other networks, RTB sources, etc. They aggregate this inventory and then add value to the impression by adding a layer of technology which is often proprietary, whether it be targeting via data, optimization toward performance metrics, or pricing arbitrage for reach. They bring brand safety, unique ad formats, engagement techniques, and campaign reporting to the table.

The network model provides a fully integrated campaign execution service to advertisers through its relevant technology, data, service and expertise. The bottom line here should be—and is—end-to-end campaign execution. There’s nothing wrong with that business model.  Ad networks have evolved to integrate all of the technologies and services an advertiser might need to meet their specific objectives. As far as pricing and profit are concerned, the ad network business is one of the most competitive in the space. That means that value has to be delivered, and delivered at a fair price.

The argument that trading desks and DSPs are going to replace networks is counter-productive. These are merely technologies that put the building of a network into the hands of the operator and make it easier to get started. Agencies currently building trading desks are essentially building their own networks that they can then put to work for their clients. Conflict of interest?  Perhaps. Valuable? Absolutely. The network model is a valuable one, supported as such by most major agencies who are building their own. The basic differences between these companies lie in the issue of who is providing the service, making the money, and providing the technology.

Many sources have quoted that there are well over 300 networks in the US alone. We can now add to that number the new networks managed by agencies (that by the way have significant control of ad spend), further validating the model.

What other facts are relevant to the discussion?  I reviewed the comScore network report for June, which reports on the top 20 networks in the US. Mind you, these are only companies who choose to label themselves as a network, as opposed to those who really are networks but are reluctant to carry the label. That means we are not counting retargeting companies, DSPs, SSPs, trading desks, etc. Of those 20 networks, two are public companies that report on the strength of their media business. Depending on how you interpret the 2011 numbers, it looks like ValueClick, listed at #4, will do over $150M in media business and Interclick, listed at #13, will do over $150M. If the top 20 networks averaged $150M each per year in 2011, then the top 20 networks would be recognizing $3 billion in revenue! Now add in the other 280+ networks out there and you could easily have a $4 billion per year number!  For the sake of argument, I’m willing to say that I am off by 50%.... that’s still $2 billion per year going through ad networks!

Ad networks are not dead. They are thriving. Billions of dollars a year are being spent via networks―compared to the hundreds of millions going through RTBs. The environment is tougher than ever and a network must continue to evolve to thrive. Providing value is what matters. In every industry there is room for companies to provide full service expertise. We have a robust example of doing just that. So before turning against the networks, be cautious of those armed with shiny new pennies with astounding metrics, for, as Mr. Twain also said, “facts are stubborn things, but statistics are more pliable.”

iMedia Communications, Inc. is a trade publisher and event producer serving interactive media and marketing industries. The company was founded in September of 2001 and is a subsidiary of Comexposium USA.  ...

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