Online ad networks – evil, or useful?
Online ad networks need to change to survive future digital audiences
Are online advertising networks a good thing or a bad thing? It depends on who you talk to. Many experts say ad networks help large portals and small sites alike unload excess inventory, while others say the rates paid on ad networks are so low they are killing the industry.
Some people are particularly passionate in their views. David Koretz, CEO of collaboration software company Blue Tie, says that “ad networks are for idiots”. He calls them “a tax on lazy publishers. They are a cancer that slowly eats away at you from the inside, doing severe damage even though you feel fine. They are a cancer that has spread to nearly every publisher, and threaten to do irreversible damage to our industry.”
The problem, he says, is that, “We are slaves to the short-term need to make the quarter; addicts who take the revenue boost despite the pain we will endure later.”
Working under the assumption that the average premium publisher only sells 30% of its inventory direct (which is backed up by research), he accuses publishers of using ‘bad math’ to fill the other 70 per cent.
“If a publisher sells the entire 70% of remnant inventory through ad networks, that is equivalent to selling 0.93% more inventory direct. Less than 1%!” He recommends instead that they “Figure out how to sell an incremental 0.93% as premium by innovating, not by betting the farm.”
Koretz is specifically referring to blind networks. Blind ad networks offer low pricing to direct marketers in exchange for those marketers relinquishing control over where their ads will run. Rock bottom prices (CPMs – costs per thousand page views – are measured in cents rather than dollars) are achieved through large bulk buys of typically remnant inventory combined with campaign optimization and ad targeting technology.
In a blind advertising network, advertisers get either limited or no information about what webpage their ad is shown on and where on the page it is shown. While advertisers save substantial sums of money, it’s practically impossible to measure ad effectiveness.
Targeting worth the extra cost
David Holmes, head of Australian marketing technology company APAC Digital, who I recently interviewed for a HotHouse podcast, doesn’t use the same evocative language as David Koretz, but he agrees that blind networks are of questionable value. “In my experience, they don’t really work for publishers – but they like it as cream.”
He said that even though the price is “ridiculously low”, the CPM is not that good. Also, while you can exclude some categories of content for your ads, such as porn sites, you can’t include or select which sites your ads will appear on. As he says, “Don’t you want to know where those ads are going to be placed?”
He said that targeted ad networks, although more expensive than blind networks, are much better value. “Targeted networks take remnant inventory and turn it into ‘excess inventory’.”
This is done by adding value compared to blind networks. “You need to present a compelling difference between blind and full-price ad placement.”
Targeted networks, as the name implies, give advertisers the opportunity to choose who their ad is going to target, either by selecting sites which have specific demographic data on their audience, or by using new targeting technologies. Local examples include companies like Sensis MediaSmart.
By being part of an advertising network, small websites can conglomerate and negotiate advertising deals with big companies, which is also good for the advertisers because they don’t have to negotiate deals with every website they want to advertise on. They can also advertise on a large number of sites that fit their brand image and positioning.
David Holmes says that the use of targeting technology will eventually lead to the demise of blind networks, so David Koretz can rest assured that a cure for online advertising cancer is being developed.
Networks expanding or contracting?
But will the cure be available in time to save the patient?
Global interactive agency Razorfish, in its 2009 Digital Outlook report, predicts that traditional ad networks will contract as competition for declining ad dollars increases. According to the report, “There are simply too many broad networks competing for the same inventory and not telling a new story.”
“Agencies and advertisers will look to established publishers with reliable models to focus their investments as more scrutiny is placed on return on investment. Depending on an advertiser’s goal, this might include proven performers like search, ad networks, online video and targeted media, or it could mean high quality engagement opportunities with select partners who deliver unique brand engagement. The pressure points will be on ‘measurability’ and ‘differentiation.’”
Some pundits, such as technology trend expert Jeremy Liew, disagree with Razorfish’s assessment. Liew predicts there will be more networks, not fewer, as sales execution becomes a key differentiator when blind networks become replaced by targeted networks. “Sales teams typically work best when they can focus on a set of accounts with a lot of commonality, whether demographic, industry, or geography,” he says. “This means that it will be easier (not harder) for smart small teams of sales people to start their own targeted ad networks.”
Let’s get vertical
Vertical ad networks, which segment advertising based on content niches and community-based websites, are growing in use in the US, and David Holmes predicts they will become an important online advertising option in Australia before too long. “This is where advertising gets relevant again,” he says.
“Vertical networks take a brand into a space of massive trust if you pick smartly.” He predicts that vertical networks will change the way ads work, moving from ads as brand messages to ads as a service. This isn’t a new concept – David Holmes points to billboards in ancient Rome, which had community-based messages relevant to local residents.
“That worked back then because it was the only form of advertising. Today, there’s so much advertising that you don’t care about it – you just switch off.
With the use of vertical networks, he says, advertising will become a drag – as in dragging people to you. People expect and welcome advertising on community-based sites, as long as it’s relevant and doesn’t breach users’ trust.
An increasing number of experts are using the phrase ‘earned media’ instead of ‘social media’. I think that’s a great way of expressing where digital media is heading: instead of just throwing messages out there, advertisers and their agencies are going to have to earn the right to speak to their customers.