Some industry observers have been predicting the demise of the ad network model as we know it. Here's why they're wrong.
A series of recent advertising industry studies by IAB, eMarketer and others has ignited a flurry of interesting commentary about the place of -- and need for -- networks in the advertising value chain. Declining prices, channel conflict and devalued brands are the mantra of an emerging network-bashing fervor. It wasn't so long ago that some pundits were even predicting the end of the ad network model as we know it. One industry headline called into question whether or not the current stable of 314 or so ad networks could thrive. But the reality is that ad networks are just getting started.
Recent statistics from an eMarketer study show that more than 90 percent of advertisers surveyed plan to use ad networks on their media plans in the coming year, and 75 percent said they planned to increase their spend to networks. It is also interesting to look at what factors currently differentiate the abundance of ad networks. You might be surprised to find that, according to the agency study, price is dead last.
The major differentiators cited in the eMarketer study were quality of inventory (28 percent), targeting (27 percent) and transparency (11 percent), followed by service, optimization, reporting, reach and finally price. It's not yet a commoditized economic battle that will drive the Darwinian stragglers from the plains of the marketplace. It's an expanding universe of niche solution providers and trick technology players evolving a basic model and reaping the benefits. It's increasing, not imploding, and the supernova ending is nowhere in sight.
There are a lot of ad networks out there, and there remain compelling economic reasons for it. Besides the often-quoted $23 billion of online ad dollars waiting to be spent, it's becoming more about both niche audiences and broad reach. And it's not always one or the other; it's frequently both at the same time. At one level, advertisers need massive reach to get their messages out and hit their key performance indicators at scale. Here, it's a pure numbers game.
But advertisers need more than just the big numbers. Based on what they're selling, they frequently also need to hone in on more-specialized audiences. One day they may need laser-like focus on a specific online audience segment, and the next they may need sheer numbers on a near-Biblical scale. Oftentimes, they need both at the same time: the "massive niche." This is driving a new breed of massively scaled aggregators, bringing niche pools of inventory together under one roof then injecting intelligent targeting and more-transparent reporting into meta-networks.
Until there are more of the new hybrid meta-networks out there that are big enough to satisfy advertisers' thirst for quality reach and, at the same time, give them the finely tuned depth they require for performance, we will continue to see a plethora of specialized networks serving the market.
It's not just the advertisers driving the explosion of ad networks either; it's also the publishers. On any given day, the average publisher has a less than 50 percent fill rate. Sure, they have their own sales force out there beating the bushes for ad dollars. But content is exploding all around them at a logarithmic rate, and there is no way they can sell it all. Frequently they don't even know exactly what they have to sell. The high-quality impressions get sold first and for a premium price. But that's just the tip of the iceberg, and there's always the massive remnant pool of impressions hanging around unsold. So they have to farm it out to the networks, and the number of networks grows again.
This is where the channel conflict that so many ad networks critics cite originates. But it's actually self inflicted and intentional on the part of ad networks. Channel conflict only happens when things are selling. Call it surplus selling, if you want. Maximum yield trumps any sales force's headache any day of the week. And maximize they do. Publisher optimizers can even automate the reselling of unused inventory back to the highest-paying networks ad infinitum, which begins to approach the mystical 100 percent fill rate.
What a crazy and wonderful world advertisers and publishers are living in today, all thanks to the proliferation of ad networks. In fact, without the hundreds of ad networks out there delivering strategic reach, segmenting audiences and backfilling impressions, we wouldn't have nearly as robust an advertising industry as we enjoy today -- chaotic though it may seem. The networks might have started out as a necessary evil, but they are maturing beyond that now, with the best becoming strategic reach partners of successful online advertisers or publishers, working hard to stay above the fray. With so many players and choices in the marketplace, the onus is on the networks to be on top of their game at all times -- or risk getting crushed -- while advertisers need to do all they can to stay informed.
Christopher Weiss is director of marketing for LucidMedia.