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7 reasons ad networks go out of business

7 reasons ad networks go out of business Jay Friedman

The first decade of the 21st century can be remembered by many things. But, will Auto-Tune, Webkinz, and ad networks be remembered only as one-decade phenomena?

Ad networks were a major force over the past 10 years due to the simplicity they offered media buyers in achieving significant and/or targeted reach with one insertion order. Understanding the benefits they've brought our space is easy, as I've written about here and here. So why all the talk about the ad network model no longer being viable? Or, a better question, what might be the reasons an ad network of today will not make it as a company and ultimately go out of business?

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There are seven reasons. Some seem obvious, but some might come as a surprise. We'll explore them here, but before I begin, allow me to insert a quick note: At no point is any individual network being referenced within this article. This article is a commentary on the space as a whole.

This could be any business, but the relationships built with your local Best Buy washer-dryer associates aren't going to be as deep as the relationships built with media sales associates. Even when it's a realtor and you're spending hundreds of thousands of dollars of your own personal money, it's one and done. Millions of dollars change hands in media sales. People's jobs are on the line to get things right. Here are two common breakdowns during the selling process:

Ability to differentiate. If this sounds like a no-brainer, don't be so quick to judge. Nearly every network offers great behavioral targeting (and many offer identical BT to one another using third-party data providers). Every network can target based on technology as well as on comScore composite indices. Channel targeting? Not a problem. Some networks sell themselves on the fact that they have created something so proprietary that no one else has it, or ever will. Google just spent $1.8 billion on an office building, but we're supposed to believe that no one but this one special network has spent the money to build something similar?

Most often, networks are differentiated by the service and human intelligence they apply to a campaign behind the scenes. And that can be a good thing. Going back to our realtor example, each realtor has access to the exact same tools, yet some are so much better than others -- it's the same with most networks. If you understand this, then it's easy to understand why some networks are successful while others might not be around for long.

Not understanding the objective of the campaign and the industry-channel challenge. Advertisers spend money to solve problems. A problem might be the need to grow market share, defend against a new competitor, or boost sales during a certain season. Both the agency/advertiser and the media salesperson need to understand the problem the same way in order to help solve it and work well together.

If you're a buyer, you've surely experienced a time when you've launched a major campaign only to have to make required major changes to it just a few days in. Maybe you needed to change the targeting parameters, maybe all of the creative had to be switched out, or maybe you even needed to cancel the campaign outright. The reasons behind this are numerous, but most times they're well justified. If marketers have new information that tell them they no longer need to promote a certain offer or product or that a different product is in much greater need of that support spending, then it makes sense to pause the campaign and change things out. Networks that seek to understand the business reasons behind these decisions and lend support to marketers will do well. Networks who *sigh* and only see the dollars they had sold now at risk will be the first ones to be removed from a plan and possibly will not be around much longer.

During the selling process, watch out for the Lake Wobegon effect where both buyers and sellers begin to convince themselves that the choice they've made is far better than average despite not having evidence to the contrary. Results are what matter in digital, and the best networks deliver great results.

For the many of you who know me, you might have quickly figured out that one thing you can always count on is a straight answer without any B.S. We lightly touched on the proprietary technology "stuff" above, but it merits an entire section of its own. Here is the no-spin truth about proprietary technology:

Many ad networks took venture capital -- some a lot of venture capital -- to build unique selling propositions that no one else could match. Some took money to build out relationships with publishers few others had. Some used the funds to build new targeting technology or a data-driven user targeting system. After spending tens of millions of dollars to build this technology out, they likely marketed the fact that they were the first and the only company to offer this "unique" product. At the time, it might have been true. (And if it were, the chances that company was acquired for that technology are pretty darn close to 100 percent.)

I've been fortunate to have good relationships with many senior network executives and have directionally learned how much of that money was spent. Sometimes, what I learned left me shaking my head a bit, but other times I thought it was the best idea I'd ever heard. Without fail though, every best-idea-I've-ever-heard system had been recreated in the open market just six months later. Having just spent tens of millions of dollars though, no network was going to admit its secret sauce was available elsewhere. If it were me, I'd conjecture that the more money I took, the more likely I'd hang on to the notion my network had something no one else did. So the question is: How do you evaluate proprietary technology and whether or not it can benefit you?

More than anything you need to be able to connect the dots all the way without any gaps. This means you don't necessarily need to know the exact site on which networks pixel a football enthusiast, but you do need to know how they chose placing a pixel there. Then how many sites have they placed pixels on, and how many people are a part of their data publisher development teams? Two hundred quality sites with a team of eight -- that sounds reasonable enough. A team of 50? I'd like their names and emails because that sounds like an inflated number. Five thousand sites with a team of four? Check please, lunch is over.

This network selling to you has an average of eight behaviors on 90 percent of all internet users? Wow! What type of database is that stored in, and what is the query process for matching that up with the (assumed) pre-bought inventory? How is the database pre-configured so ad calls don't generate such significant latency where sites begin to reject their tags? If you're a media buyer or marketer thinking, "Ick, this is too technical. I just want it to work," then there is a good chance you're being sold something that might not exist. Remember to connect the dots -- all of them.

To be fair, not all inventory pre-buying is evil. Some high-quality publishers only list themselves blindly on an ad exchange and sell to a few individual networks on a pre-buy basis. If you're a brand marketer who wants access to this type of inventory, a network with this model might be the way to go. But for goodness' sake, please use a site-level-enabled ad verification suite that will provide you with absolute knowledge you did run on the exact sites you had hoped. The fact that great sites appear on a site list doesn't mean you'll run on them.

For the other 95 percent of marketers with campaigns that have performance objectives, networks that pre-buy most of their inventory can be a major disadvantage. As I've noted before, networks that pre-buy their inventory most often have a limit on how much they can reject or pass back to a publisher. When using a network that pre-buys most of its inventory, if you're near the end of your campaign and a network needs to deliver a few million extra impressions to deliver in full, rest assured you'll be getting inventory the network needs to use up. It might have nothing to do with your campaign objectives.

The solution to this comes from two types of networks. The first type includes those with their ad tags placed on hundreds or thousands of sites that have an ongoing bid/rev-share system with their publishers. The second type includes those with companies classified as digital media trading desks. These companies use exchanges to acquire only the exact inventory needed to find the right user at the right time based on an advertiser's campaign objectives. Both allow for better placement of a campaign with the right data and inventory for your objectives.

Company culture as seen in the sales process
Yes, it's back to the very important selling process. This time the focus is not on communication and understanding but on how a network's company culture comes through in the sales process. There are two unique cultures that might drive networks out of business very quickly.

First, regardless of what you may think of the ad agency model, agencies are a major force (and source of spending) in the ad world. Network must recognize that it is wise to respect this relationship and work first with the agency and not with the advertiser unless it has been invited to do so. Biting the hand that feeds you equals not such a good strategy for long-term relationships.

Second, networks should never sell against the competition rather than be in favor of their own solution. Why would salespeople from Network A slam the capabilities of Network B if they don't even work there? Even if they used to work at the other network, are they qualified to say nothing has changed? If they have friends who work there, are they saying they have betrayed their friendships with those people in favor of a few dollars in commission? There is simply no reasonable explanation to bash a competitive company. It's a short-term fear tactic that will slowly drive a company out of business.

Using price as a competitive advantage
If you would like 5-cent display inventory, I can deliver it to you very easily. You don't want 5-cent inventory? Why not? Probably because it's junk and everyone knows it. A network that leads with price gives advertisers what they pay for but ultimately spells its own demise. Reciting the above, helping an agency solve its marketing challenges, and applying the best human intelligence to a campaign, will always outperform a small price gap between two competitors.

Additionally, there are incredibly few examples of companies that truly succeed because of their pricing. Walmart is the classic example. But on closer inspection, it doesn't succeed because of lower prices. Walmart succeeds because it has built supply chain management processes enabling it to price the same products lower than anyone without sacrificing profit. If you are truly considering selecting a network or trading desk partner because of price, make sure you're taking extensive steps to ensure each is providing you the exact same product. It's highly unlikely this is happening because the industry has not remained stagnant enough for any company to build supply chain management processes that afford it competitive pricing advantages. This is because the chain is broken or disrupted due to constant digital media ecosystem changes. In other words, you get what you pay for.

Not spacing out investment spending
Here we revisit the topic of venture capital but with a different purpose. We discussed earlier that the digital space moves too quickly for any one company's first-to-market invention to be a competitive advantage for long. For this reason, companies must space out their investment spending and distribution of their venture capital. This industry is in a marathon, not a sprint. The networks that were once all the rage but have now fizzled dramatically are the most obvious examples of those that blew through their funding in its entirety at one time.

If you're an agency or advertiser that is working with networks, please have this conversation with them: If they took venture funding, ask what they did with it and what their plans were/are. This will likely require higher-level conversations than what you could have just with your day-to-day reps, but they are ones you'll be glad you had -- either way.

Not generating results -- both financial and personal
In the ad network business, there are two things that will instantly get you fired: poor results and bad customer service. These are the two sacred sins no network can afford to commit as they will likely lead to financial ruin and being put out of business. But it happens -- and often. Why does it happen and how can you avoid having this happen to you?

When evaluating new networks to help you generate great results on your campaign, ask in-depth questions about their site selection processes. If a network's process is, "Let's run it across the network and see what works," that's a problem. You're bound to be disappointed. Save yourself the heartache by demanding better site selection now.

What research tools do the networks use to understand your product and marketing goals prior to beginning the campaign? What insights can they share with you as a result? Networks should surely offer some ideas you didn't come up with as well as solid expertise. What optimization tools do they have? How often do they manually optimize? How many people will be dedicated to your campaign? What percent of the online audience can they access? (Note: This is not comScore reach; it's what they have access to, should you have the budget.) A big difference is noted here.

Finally, what targeting techniques will they actually be using and how will they prove that to you? They might say they'll be buying four different kinds of cookies and ensuring dual-behavior relevancy on each user, but will they provide corroboration from third-party data providers on that information?

When evaluating networks on their likely customer service philosophy, look to many of the points noted earlier regarding how they sell, how they compare themselves to other companies, how much they will learn about your product prior to the campaign beginning, and how they approach ugly situations once the campaign starts. For instance, if there is a 30 percent discrepancy between your ad servers after three days, what will they do? Some might simply pause the campaign and leave you high and dry until you figure it out. Others will keep it going at their expense but demand that both sides work quickly to resolve the issue. And what if this is discovered on a Friday at 4 p.m.? Will they be there late to help, or even on a Saturday? These might seem like far-out possibilities, but it's better to have a great partner in your corner than a network that operates like the DMV. The fact is, most networks can do just about anything. It's whether or not they will that counts.

Closing up
Choosing a great digital media partner of any kind is a big decision. A significant amount of money will likely change hands, and however much money that is better yield commensurate results. To ensure buyers receive what they pay for, it's up to them to ask in-depth questions about their potential partners. Those networks and digital media properties that truly do what they say and follow many of the simple and sound principles outlined in this article are the ones most likely to be in business many years from now.

Jay Friedman is COO at Goodway Group.

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Jay Friedman is COO of Goodway Group, and a partner in the 3rd-generation family company founded by Milton Wolk in 1929. Friedman joined in 2006 to add a digital media component to Goodway’s offerings, beyond the existing print and promotional...

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to leave comments.

Commenter: matthew jamison

2011, January 26

Buy on a CPA model with the largest networks with reach, who can manage a single source of frequency for your remarketing pool and offer the highest quality of inventory. The network space revolves around the economy of scale principal and who can access inventory at a cheaper rate. Exchanges are still the 'last resort' to creating a revenue stream for most publishers. Similiar to any client running on a CPM model, why take the risk, when you can provide the risk of fullmillment to a 3rd party.

Commenter: LLoyd Berry

2011, January 24

So very true - its amazing how nothing is really new any more - just not so far ahead. Common sense goes a long way, if you really think hard about it...