While there has been talk about a downward spending trend throughout the online ad industry, here's why ad networks are still indispensible to a successful online media execution.

The down economy is on everyone's mind. For the first time during the recent market tsunami, the government reported a quarter of economic retraction, with GDP being down 0.3 percent. The definition of a recession is two quarters of negative growth. Yeah, I know, that's like saying that raising taxes is really an "inverse tax refund."
 
But I digress.

Needless to say, the part of the economy we focus on is the part that has an impact on our lives. For us, that's the ad business. And if there's one segment of the ad business that the media likes to look at, it's the online advertising segment.

While there have been a few stories about a possible downward spending trend throughout the online ad industry as a whole, nothing got people's attention -- or raised their ire --- quite like The Wall Street Journal article titled: "Shakeout Threatens to Thin Out Web-Ad Brokers." 

To summarize, the story essentially makes the point that economic hard times are a threat to online ad networks' viability. As an example, two of 300 ad networks were called out specifically as having had to cut costs.

Sites like TechCrunch, Silicon Alley Insider, HipMojo.com and even our own iMediaConnection.com have seen posts from readers, writers and pundits commenting, mostly negatively, about the piece. 

Mostly, they are right to do so. To say that a segment of an industry will be hurt by economic hard times is like saying water is wet and fire burns. And when there isn't time for depth and nuance, this is the direction copy sometimes has to take.

But to point out that ad networks might be hitting hard times is not to say that the segment is doomed. I would argue that ad networks, certain ones, are poised to do just fine during the hard times we seem to be coming upon.
 
First, it is not yet certain that for 2008, online advertising spending will be down for the year. It just might not have grown by as much as it has in the past -- or as much as the end of last year, or the beginning of this one.

Second, pointing out that an ad network is cutting costs or looking for buyers does not follow that those ad networks are doomed.

A good ad network can provide several things for an online advertising campaign: It can provide efficient reach, it can get messages in front of an audience in places that would never be found by a lone media planner surfing the web or raiding comScore runs, and it can provide for a kind of "spot fill" for a given psychographic that a big site with a recognizable brand name might not.

Last year, it seemed as if every time a truck rumbled by, another ad network was born. With so many ad networks out there now, it does stand to reason that not all of them will survive during a severe economic downturn. I would argue that, even without a serious crisis plaguing the general economy, not all ad networks can or should survive. 

There are essentially four types of ad networks, not all of them exclusively of one type. 

There are the mass reach ad networks that buy inventory from a plethora of sites on the front end and seek to sell it at a profit to clients and their agencies on the back end. This is the traditional model, a la Advertising.com, Platform A or ValueClick. These are the arbitragers that saw the opportunity in inventory growth among a lot of websites exceeding demand.

Then there are those networks that purchase inventory from sites when they have a buyer in hand. An agency submits an RFP, the ad network combs through its list of partner sites seeking availability among those that fit the parameters of said RFP and then, if the agency or client moves forward, goes ahead with buying the inventory from those partner sites. These networks try to maintain a zero-inventory warehouse, so to speak, only buying inventory when there is a need. Networks like Collective Media and BrightRoll fit that bill.

Then there are the cost-per-action ad networks. These can belong to either of the two aforementioned categories. They deal in inventory that can be had at a low enough cost to turn a profit on a cost-per-action goal established by the advertiser. In this scenario, the publisher at the end of this daisy chain typically assumes the most risk.

And finally, there are the vertical ad networks specializing in a particular content category or target audience type: Sportgenic for sports and athletics; Good Health Advertising for health and wellness lifestyle and Burst Media or Adify for a host of content interests.

While less money to go around means harder rows to hoe, it says nothing about what does or doesn't survive. It just says surviving will be more difficult. The economy may be shrinking, but so far people are still online engaging the content they want to engage, going to the sites they like to visit. And there are new bodies of inventory coming online all the time. The myriad of social networking sites out there have brought an entire universe of inventory into existence that is incremental to the inventory that has traditionally been out there.

Networks like Lotame make this body of inventory available to advertisers without the advertiser having to sift through each and every social networking location. SocialVibe, for example, takes advantage of the vast array of social networking to get advertisers into the nooks and crannies of the personal spaces that live there based on individual social networkers choosing to allow advertisers into those spaces.

Yes, there are probably too many ad networks out there. Yes, they can't all possibly survive. But the efficiencies ad networks can yield against the reach necessary for advertisers to achieve scale make them valuable to the cost-conscious client. And the way ad networks, of all varieties, can get an advertiser in front of desirable audiences found in the small creases of the web is indispensible to a successful online media execution.

The once oxygen-rich environment that allowed for all manner of online media life forms to thrive may be past for now, but the rumor of ad networks' death is greatly exaggerated.

Media strategies editor Jim Meskauskas is vice president and director of online media for ICON International, Inc., an Omnicom Company.