You may have seen the recent ominous headlines heralding doom for online ad networks. The Wall Street Journal headline reads, "Shakeout Threatens to Thin Out Web-Ad Brokers." Silicon Alley Insider says "Dozens and Dozens of Ad Nets Will Die."
But, what is really being said? Is online advertising on its way out?
Absolutely not.
Big headlines get attention but they're talking about a small, very over crowded marketplace of lower tier ad networks. These ad networks aren't web publishers themselves but act as aggregators selling other publisher's inventory. In general they do this in three ways: 1. they enable smaller publishers to band together to sell small sites that otherwise wouldn't have enough audience to get a second look, 2. they sell space on sites of all sizes that constitutes remnant (otherwise unsold) inventory, or 3. they have a team of media buyers who buy up inventory on premium sites for cheap and then resell it, betting that they can turn a profit on it.
Ad networks can be a very important piece of a direct marketer's media mix. The problem isn't with the model. It's that the ad network business is that it's grossly over-populated. There are hundreds if not thousands of players trying to enter this market. And largely, they're selling the same inventory. Publishers participate in selling inventory through many ad network providers at the same time and/or they sell their less desirable inventory through auction and it's bought up and re-sold by these ad networks. And, the last couple of years there has been a huge proliferation of ad networks as many have seemingly forgotten (or weren't around yet for) the first internet bubble. VC money had become more available again. New young executives have emerged. And, we "senior" although still quite young professionals feel we have better ways to skin the cat. So, what we have is WAY too many players.
So, what does all that mean?
Yes, many of the ad networks will die off. But it won't hurt the industry, it will help it. We'll probably right size in terms of the number of vendors and ad networks out there. But from what I'm seeing interactive overall is going up and gaining momentum as the economy is turning down because it's a more measurable medium....it'll definitely be an interesting year.
It's a complicated space. You can't always take the headlines at face value.
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