San Francisco, CA (Vocus) April 25, 2007
This article could have been titled, "Are Ad Networks Dead?" But it isn't, and they aren't.
But they should be worried.
The issue is advertising exchanges. Or rather, who trades on the exchanges. Any large exchange that allows advertisers and publishers to buy and sell directly is a threat to the ad network business. If an ad network's clients go directly to an exchange, that's a problem.
That's why ad networks are wary of Google's announced purchase of DoubleClick and its plans to launch an exchange for display advertising. GoogleClick, as it has come to be known, will be competing for clients with Advertising.com, ValueClick, BlueLithium, 24/7 Real Media, Casale, AdBrite, Burst!, AdPepper, and about 125 other networks. Google's domination of search has given it the war chest to attack display.
However, the threat from an exchange was already present with Right Media, now owned in part by Yahoo! Right Media -- like GoogleClick -- encourages advertisers and publishers to trade directly on its exchange. When it first appeared, Right Media offered desperately needed liquidity to ad networks, and several joined up. Right Media has done well going direct, deservedly so, but as its Uber Network intentions became clear, ad networks that value their client relationships dropped out.
AdECN is a new exchange built on the very familiar model of the stock exchange. It launched only on March 1, 2007, and it is still ramping up, but it offers something far more attractive to ad networks, and ultimately their clients.
Every impression on the AdECN exchange is individually targeted and auctioned on a CPM basis to the highest bidder in real time. AdECN lets the market set the price: it takes only a flat fee and does not care who wins the auction, or at what price. It is utterly neutral. It is also structured like a stock exchange. In the stock market, only stock brokers trade on a stock exchange: individual buyers and sellers buy and sell through their stock broker. On the AdECN exchange, ad networks trade on behalf of their advertisers and publishers. Advertisers and publishers cannot trade directly. AdECN does not compete with its ad network members.
AdECN exists to give liquidity to ad networks. Liquidity means being able to spend all of an advertiser's budget effectively, and sell all of a publisher's inventory for the best price.
But with a direct market like GoogleClick or Right Media, is the ad network even necessary?
Yes. The display advertising business is tremendously complex -- far more complex than search. In search you have a keyword, a text ad, and a CPC bid: practically child's play. In display, there are the different formats (the IAB standards plus mobile), the different types of content (static, rich, and video), dozens of targeting options, at least three pricing models (CPM, CPC, CPA), and the arbitrage opportunities -- not to mention the fundamentally different mindsets and metrics of branding versus display advertisers. Stock brokers have survived -- and are flourishing even now -- for the same reason ad networks will: different clients have very different needs.
Not even GoogleClick can be all things to all people in display.
This is a watershed moment for ad networks. They can remain isolated and compete on their own against GoogleClick and Right Media. Or they can participate cooperatively with each other in the AdECN exchange. Together, they get the added reach and depth when they need it, but compete with each other and the direct exchanges on their own terms: their unique expertise and service, delivering better variety for their advertisers and bigger checks for their publishers.
In numbers, and in diversity, there is strength.
E Pluribus Unum: One Out of Many
By William Urschel
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