The ad network industry is changing rapidly. In the past six months, there has been a simultaneous explosion and consolidation of ad networks. Google's acquisition of DoubleClick in April of this year sparked a flurry of consolidation that shows no signs of slowing down. While Microsoft let DoubleClick slip through its fingers, it quickly acquired aQuantive in May. Around the same time, Yahoo! acquired RightMedia and WPP Group bought 24/7 Real Media. More recently, behavioral networks such as TACODA and Blue Lithium have been snapped up by AOL and Yahoo, respectively.
As major media companies such as Google and Time Warner acquire smaller ad networks, it lends greater legitimacy to an industry once known as the repository of remnant inventory. But how does the flurry of M&A activity affect media planners and buyers? Will it significantly change their day-to-day jobs? Will network consolidation offer new capabilities or lead to greater confusion?
Before the current wave of consolidation, ad networks essentially positioned themselves in one of three ways:
- Remnant repositories: Networks that bought or represented remnant inventory and resold it offered marketers cost-efficient reach and/or cost-efficient actions. They essentially strip-mined a massive supply of low-cost inventory to reach marketers' goal metrics as efficiently as possible. Companies such as ValueClick, Casale Media, Undertone Networks and many others operate in this space.
- Behavioral targeting: Not unlike the above model, these networks typically bought or represented remnant inventory but added value through behavioral targeting. Marketers are able to reach the same anonymous user over many properties and target advertising to them based on their behavior across the network. Both Tacoda and Revenue Science are among the leaders offering behavioral targeting on their networks.
- Content and context: Networks aggregated and sold inventory based on content, offering loose targeting parameters, such as sports and finance. This strategy was essentially the "poor man's" content play, allowing networks to offer similar reach to the major publishers such as Yahoo or Disney, if not always the same inventory. Within this category, a marketer can find networks such as Blue Lithium, offering branded, content-focused inventory as well as Google AdSense, focusing on unbranded, contextually relevant inventory.
Even before the flurry of M&A activity currently taking place, the ad networks began to promote multiple targeting solutions and ad sales packages to media buyers. The networks began to move all of those models under one roof, offering buyers the ability to buy multiple solutions in one place, hoping to exploit the long tail of available inventory.
Before long, networks like Blue Lithium became generalists. The single model -- such as Tacoda's -- became increasingly rare. Essentially, the business models used to differentiate the networks from each other disappeared, resulting in the commoditization of network service offerings.
At the same time, major media companies that were often the sources of network inventory began adding their own network-like capabilities. Sites like AOL and Yahoo, which had previously allocated large swaths of inventory to the networks, began to offer themselves packaged as a network offering, such as AOL's performance network. All of a sudden, there was no way for ad networks to differentiate themselves from each other anymore, except on the basis of cost. And the situation became even more confusing for buyers, who were no longer able to distinguish between the various network offerings.
With AOL and Yahoo stepping into the network fray and keeping more inventory to themselves for their own network offerings, one might think the pool of available remnant inventory might become constrained. However, while the size of the online population may be leveling off, the amount of time spent online continues to rise, resulting in more pages generated and greater inventory supply. Yet despite the increasing supply of available inventory, the supply of quality inventory becomes constrained as the major publishers hold on to more of their own supply and remove inventory from the general marketplace. Thus, while there is seemingly no shortage of inventory overall, premium branded inventory becomes even more constricted.
The standalone networks are thus competing for the same inventory, driving up bids for remnant inventory. Consolidation allows networks to merge, combine sales forces and remove much of the competitive pressure for inventory. It also greatly benefits buyers.
While consolidation in media industries typically means a shift in power to sellers, the ad network's M&A activity can benefit smart buyers. As media companies such as Yahoo, AOL and Google certainly gain a strategic advantage by adding more network service offerings under a single umbrella, buyers can also profit from the agglomeration of network opportunities. Now buyers have the opportunity to buy search, premium display advertising, sponsorship opportunities, behavioral targeting and performance-based inventory at a single vendor. The entire buying process has the potential to be greatly simplified. As Eric Druckenmiller, media director at entertainment ad agency Deep Focus, reiterated recently "Navigating [the ad network space] is frustrating. The lack of differentiation makes you want to walk away from ad network solutions. Now the landscape is starting to gel a bit."
Consolidation not only means that the buying process can become more streamlined, but also that buyers can improve their relationships with the major sellers. The trend towards consolidation allows agencies and buyers to justify bigger buys with companies like AOL, Yahoo, Microsoft and Google. As Rudy Grahn, director of analytics at media buying shop Optimedia explains, "The more business you do with Yahoo, the better the deal and better the relationship." Buyers would much rather achieve scale and improve performance from the remnant inventory of a few premium, branded sites than from thousands of smaller sites.
Agencies have traditionally fought an uphill battle with their clients to include networks on a media plan. Many clients have understandably been reluctant to advertise on them due to the lack of site transparency. Agencies have also been disinclined to expend the energy to re-educate clients on the value of ad networks, which the agencies themselves are often wary of as well. With the current consolidation, however, the environment is ripe for agencies to do just that.
The early days of the ad network space quickly became synonymous with extremely cheap inventory and an utter lack of transparency. Networks such as Advertising.com, as part of the AOL family, gains more credible brand equity and cachet. The acquisition of ad networks by larger media brands lends legitimacy to the model, in addition to improving the convenience of the network model.
Consolidation means greater transparency for advertisers as well as a more refined marketing solution. The networks are finally beginning to deliver on early promises of sequential targeting across a large swath of sites and the ability to pull users down the purchase decision tree, as well as both reach and frequency. The current consolidation spree means networks have the opportunity to re-enter the fray as a legitimate solution and offers buyers a more streamlined, elegant solution.