The last couple of years, the past 16 months certainly, has treated those in the ad network space well, especially those with a technology layer, that, whether it lived up to its promise or not, helped increase the multiple millions paid for the company. The ad network craze has produced some surprising acquisitions and some unexpected valuations, such as the reported $800 million-plus that Tribal Fusion seeks in a purchase, almost double what Advertising.com received from AOL, even though the latter did more business. Like the housing market, the trend to snap up those who aggregate inventory might see some cooling off in the future, at least if the announcement by one of the best brands sees adoption by others. Known more, if not best, for its sports news program, Sportscenter, but also the operator of an impressive online sports portal, ESPN announced that it will no longer accept ads from ad networks on its online properties. As a MediaWeek article on the topic so succinctly and rivetingly proclaims, ESPN.com "recently cut ties with Specific Media and several other unnamed ad networks, and is taking the bold stand that ad selling that relies heavily on arbitrage and algorithms is not for them. This is one of two potential trends in the ad network space that run counter to the current bullish mindset on the generalist and ubiquitous ad networks.
Trend 1 - Walled Garden
Perhaps not the perfect use of the phrase, ESPN's decision to close off access to its inventory from the often blind ad networks, looks and feels much like the way the major cell phone carriers restrict access to their users, most notably when viewing handset content. If, for example, you want to purchase ringtones for your phone and don't have a computer, you simply press a few buttons on your phone and can browse the rather limited selection available via the handset thanks to specific and lucrative, for the cell phone provider, deals with content providers. If your company can't afford to pay the fees, doesn't have content that they want, etc., you have no other way to get access to that phone user, unless you go off deck - by appealing to them via web ads with offers that allow them greater diversity for the price. This is exactly what we saw in the growth of the mobile subscription service market, all funny business in that space aside. To put it into the ad network world, if advertisements equal ringtones, now, advertisers who don't work directly with the site have no way of having their ad reach the consumer of that phone. The beauty and balance of off-deck, or in this case third-party ad networks, is that advertisers knew they might get on the site but had no guarantees. This protected both parties, especially the content owners, who still wanted to sell inventory using an internal staff and at higher rates. Under this new paradigm, an entire site - millions of uniques - has been taken off the market completely. If enough sites follow, it could hurt the overall display model, as fragmented buying will mean lower yields, ultimately increasing the need for ad networks or inadvertently expediting the adoption of online ad exchanges.
Trend 2 - Niche Networks
Google has Google.com and its AdSense publisher network for those buying AdWords, i.e. their own traffic and the traffic of others. Thy weren't the first to follow this approach, just the biggest, and now, neither AOL, Yahoo, nor Microsoft, the top five, can afford to not take this approach. As one C-level executive described the two types, you have owned and operated traffic (owned / operated) and third-parties. Google's AdSense program carries the Google name and uses the Google platform, but it is all third-party traffic. Google sets guidelines for its sites to follow if they want to participate, but they don't have any control over the content. Google and AOL probably have an equal amount of owned / operated profit as they do third-party, an impressive feat. Yahoo, through acquisition and strategic alliances such as those with newspapers, continues to bolster its third-party strengths and will in time actually have more third-party money than owned/operated. This is exactly the case with a typical ad network that has no owned/operated and all third-party inventory. What is starting to change, though, are the types of companies getting into the third-party space. Much noise has been made about Glam Media, the popular content site turned "Distributed Media" (read third-party ad network) as well as Federated Media, John Batelle's conversational marketing third-party network that began when he formed a company to rep his friend's blogs. Whether you consider one a vertical ad network as Batelle does, diminishing the value in his mind, or something else but only in name, it comes down to seeing new approaches in third-party site aggregation, or as Forbes.com has done - blend both trends by beginning your own network of sites that all run under the Forbes name, even if the content is aggregated / created from third-parties.
The challenge with the first trend, especially if you read some of the comments surrounding ESPN's decision, could read incorrectly into this and the value of an ad network. They aren't rep firms, so the ads they bring won't compete in value or relevance as well as those sold internally. They must use algorithms and some degree of arbitrage to complete the mission on providing maximum value across a wide range of properties. It is the same reason why Digg dropped Federated Media, because as a rep firm, they can't scale like a network can. The ad networks act for both sides as a simplified tap for advertisers and publishers to plug into, providing the best compromise to keep one another's needs met. The move by Forbes, to begin an ad network that leverages their brand by slapping it on other, not traditionally Forbes.com content, is an exciting one. Offline companies do this all the time, but they call it franchising. We'll see how they fare and if others join. Were it me, though, I'd consider buying an ad network first and empower them with your brand to grow the third-party reach. That will scale much better than licensing technology as Forbes does and then trying to institute the proper culture.
Editor
DM Confidential
www.dmconfidential.com
e: confi@digitalmoses.com
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