Ad networks siphon off publisher profits

Rich Cherecwich
  • Rich Cherecwich
Posted on March 01, 2010

Publishers are turning to ad networks and vendors more and more to help sell inventory and get the most out of their available space, but they're losing out on profits by doing so.

Publishers typically pocket only $1 of a $5 CPM buy after all the middlemen are factored in, according to Ad Age. An ad network will take $2 from that buy, while the agency ($0.75), data provider ($0.75), ad exchange ($0.25), and ad server ($0.25) all get a piece of the pie as well, according to Tolman Geffs, co-president of investment bank Jordan Edmiston.

Publishers are looking to simplify the process and keep a greater share of the profits, and that's one reason why Google launched a simplified publisher-side ad-serving platform that gives publishers a single hub for their direct and indirect sales.

Still, publishers are hesitant to work with Google because the search giant competes with them to sell advertising. The solution might be to simply eliminate third parties completely, as CBS, ESPN, and Time have all done.

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Comments

Scott Alperin
Scott Alperin March 15, 2010 at 1:30 PM

These numbers might make sense for the cases where you end up taking ads that have been re-packaged a couple of times by different ad networks.

During good ad markets, we've generally sold 90% of our US inventory direct. Ad serving costs are typically around 5% of our overall eCPM, but much lower as a percentage of an individual, direct buy.

When you are dealing with big ad networks (I call them "remnant networks"), you know there are cases where you are going to get a small slice. With Google, on the other hand, you know that they are limiting the size of the entire pie, which is very bad for the industry in the long run.

John Shomaker
John Shomaker March 4, 2010 at 11:55 AM

This is the third time I've seen this value chain analysis and it's nothing more than hyperbole. I've spoken with our numerous publishers and have read many research analyses stating that quality publishers still sell 40%+ of their inventory direct, where they're retaining 85% of gross CPM. Yes, the 60% imported from network can have more middlemen and the gross CPM is much lower, but I can tell you as a fact that the ad server piece does not average $0.25. Networks take from 15% to 35% and we ask just $0.04 to $0.10 across our 200+ publishers.