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Ad networks have been in vogue. A number of startup ad networks have raised big money over the past year and media companies such as Martha Stewart Living Omnimedia and Forbes have decided to get into the game by launching their own.

The rise of the ad network isn't entirely surprising. With more and more dollars flowing to online advertising, there is money to be made connecting advertisers and publishers.

But has the ad network craze turned into a bubble that is ready for deflation?

ESPN's recent decision to cut ties with the ad networks it was working with adds weight to the possibility that the answer is "yes."

According to ESPN EVP of Multimedia Sales, Eric Johnson:

"We're heading down a path where it no longer suits our business needs to work with ad networks."

PaidContent reads between the lines and notes:

"The use of ad nets diminishes the value of their brand and content by spreading it so widely, ultimately threatening existing relationships with advertisers. All the while, the networks gain from media companies’ brand investments and their user data, providing little else in return."

Unfortunately for ad networks, ESPN may not be alone.

According to MediaWeek, other top publishers are privately supportive of ESPN's decision and some, such as Turner Entertainment, may follow suit.

Martha Stewart Living Omnimedia's Wenda Harris has observed "a genuine concern about commoditization of brand inventory by some of the networks" and has argued that ad inventory should not be sold like "pork bellies."

Interesting statements given that Martha Stewart Living Omnimedia is itself in the ad network business.

MediaWeek correctly notes that the debate over ad networks reflects a philosophical battle that has been brewing for some time:

"Two sides have formed—those who want to protect traditional, direct selling of premium content brands and the math-loving crowd that favors automation and data. The math lovers make the traditional sellers nervous."

Who will win? I believe that there is a legitimate place for ad networks.

Despite the fact that top publishers like ESPN don't necessarily need ad networks, especially when it comes to their most attractive inventory, I question whether it really makes sense for them to expend resources on selling remnant, low-value inventory in-house.

ESPN's move seems to be driven more by ideology than pragmatism.

Companies like ESPN do have valid cause for concern. Ad networks have become powerful and in many ways they do get quite a lot for providing relatively little.

But removing them from the equation altogether probably doesn't make financial sense for most publishers - even ESPN.

When looking at the role of ad networks, it's also important to remember that there are hordes of smaller publishers who don't have the resources and relationships to sell advertising in-house.

Alone, they often lack the audience size that would attract serious advertising interest and many may never achieve growth that gets them onto the radar of major advertisers and ad agencies.

Ad networks will retain an important monetisation role for these publishers.

Both big publishers and small publishers create challenges for ad networks:

  • The big publishers don't need them, especially when it comes to moving their most valuable inventory, meaning that the ad networks will lose leverage in negotiating deals with them.

    VentureBeat wisely questions just how realistic it is for ad networks to retain their most valuable publishers when they charge upwards of 40%.

  • Smaller publishers often have less desirable inventory. And with so many ad networks to choose from, competition is sure to create pricing pressures.

These challenges will eventually make the ad network business less lucrative for the majority of players.

At end of the day, the truth is that just as there is really no need for dozens upon dozens of Web 2.0 video services, there is really no need for dozens upon dozens of ad networks.

If we accept that the ad network is likely best-suited to selling remnant and lower-value inventory and that the top publishers and brands with the most valuable inventory have significant incentives to sell that inventory themselves, it is not hard to accept that there is an ad network bubble - especially when one considers that there are now ad networks for every niche under the sun.

For the role they're best suited for, there is a finite market for ad networks and that market is probably now oversaturated.

The Washington Post's shuttering of its own ad network highlights this fact.

However, unlike other bubbles which will inevitably burst, the likely outcome of the ad network bubble is a less-abrupt deflation as the role of the ad network becomes more well-defined.

There will be consolidation amongst the more viable players and niche networks that really offered no value in the first place will die.

It should be a healthy process that hopefully reminds everybody in the advertising business that there is a place for both traditional ad selling and technology-driven ad selling.

Drama 2.0

Published 27 March, 2008 by Drama 2.0

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