Are ad networks dying?

Michael James Managing Director UK --May 22, 2008

Robert has raised some interesting points. As he rightly says, all the good ad networks have diversified into offering a wider range of products and services to add value to the buyers' products or campaigns.

He also says that efficiency is no longer enough incentive for a buyer to use an ad network. Yes, efficiencies aren't enough; however, ad networks today are far more sophisticated in terms of the range of products and services they offer than, say, five years ago. For example, Adconion not only offers a single point-of-purchase for our ‘platform agnostic' approach, but also offers advertisers and buyers a single point-of-purchase on cross-border global campaigns via our global sales team.

When it comes to vertical networks offering an alternative way of targeting, I would contend that just placing your budget on a vertical network because it seems to match the product you're trying to sell isn't the whole story. I believe it's actually services like optimisation and audience targeting that really add value to vertical networks. Moreover, networks like Adconion already offer verticals of either disclosed or undisclosed sites which works in conjunction with these other services, adding value to the advertising spend and ultimately results.

Coming to whether ad networks are ‘bad news' for publishers because they undercut prices in the market. Yes, there are some unscrupulous networks that do so, but such networks come and go; most publishers learn quickly who to trust and build strong relationships with reputable networks that add value. Like Robert says, the key thing here is building strategic partnerships and treating your ad network as a strategic partner for products or services sales. I'm all for that – working together closely as a team to achieve the campaign objective is absolutely the right way to work as there's the benefit of actionable data and a dialogue between provider and client or agency which facilitates a more creative and holistic approach to media buying.

In the end, I think that while ad networks may need to evolve to meet the requirements of fast-moving and constantly shifting market, they are here to stay.

Ad Networks are not only alive; we're thriving and evolving along with the ever changing interactive space. For successful performance based marketers there are certainly additional sensitivities that networks must consider which may have been ignored in the past. The adoption of performance based marketing by larger brands has cast a spotlight on the industry as a whole, and this is good. No longer can networks remain "blind" to advertisers. No longer can we demand payment on pixels firing. We're at a tipping point where those networks that survive will continue to cater to global advertisers that seek much needed hand holding, and networks must acquiesce and service these brands. Those that ignore the needs and wants of larger advertisers will suffer. Agencies will only add networks to a media plan if they're confident that their partner can service an account with the level of integrity and service they promise their client. The "net-net” is that the model works. Especially with our declining economic climate, "pay for performance" is highly appealing.

As a traditional media director who has also placed digital media for a dozen years, I tend to take a more holistic view of digital advertising, and I still see a number of highly relevant needs for ad networks, that most people who post to these columns seem to grossly overlook.

The reason why these needs are overlooked is because of the fundamentally flawed perspective that the only online ad that has value is the one that generates a clickthrough or a conversion. This view makes the assumption that 99.9% of all online advertising doesn't work. Even David Ogilvy suggested that only 50% didn't work.

Ad networks are beneficial if you take a much more basic view of certain types of online adveristing. A banner ad, even a rich media ad, at the lowest common denominator, is essentially a billboard on your computer screen. From that perspective, it is more cost-efficient than all media except possibly outdoor. And when you look at it from that point of view, you can factor those impressions into reach/frequency analyses, overall impression delivery, etc.

For the retailer, whose "conversions" exist outside the digital environment, the traditional media metrics are a very important set of criteria. Even after 15 years, the online world does not seem to get this. There are a number of research studies that show how digital advertising improves awareness of traditional advertising efforts, and vice versa.

The advertising network is right now the best resource to generate volumes of impressions to support a well-rounded media plan. They can geotarget, so we can get national site awareness in a specific market, and they are cheap, so we can get tons of eyeballs for our dollars.

And low cost geotargeting is critical for the retail advertiser. Ad networks are much more cost-efficient than local sites, and the cost minima that major portals and larger sites which prohibit the use of them, are less of an issue than with ad networks who can get the local advertiser on all those national sites anyway.

But going back to the single-medium planner's narrow perspective, it is the CPM that best improves a CPC or CPA. because the CPM can be reduced by hundreds of percentage points while the CPC or CPA can only be increased by 10-20%. If, for instance, you have a $2 CPM, a CTR of 0.05% and a conversion rate of 5%, Your CPA is still a lot lower than if, calculating backward from a CPA buy, your 12% CPA, coming out of a 0.15% CPC, resulted in an effective $30 CPM.

Take a lesson from direct response TV, whose first focus on success is to get as many impressions for as few dollars as possible. Ad networks can take this approach better than any other online source out there.

Sometimes, to take a step forward, you need to first take a step back.

I believe that the recent acquisition of Adify by Cox Enterprises, proves that there is a huge amount of belief in the technology behind vertical networks. Whether companies are large enough to create their own ad network connectivity, such as Forbes and their Blogger Network, or a site that has excellent content and is invited to be a part of the Blogger network, the technology behind the ads will never die. The only shift that may be visible is the advertising relationship. In addition, the technology will become stronger in terms of analytics and consumer behavior. After all, why would Google spend $3.1bn on Double Click if ad networks are becoming a thing of the past?