A Rebuttal in Favor of Ad Networks

I must admit; this week I wanted to cover what will be a hot topic in the weeks to follow. There is a shakeup coming in the education lead generation landscape, and it’s being led by one of the largest buyers of leads and one of the largest suppliers of leads. In a time when Web 2.0 is cool; this surprising and nerve-racking move reminds us of the reach and scale that some decidedly Web 1.0 companies still have. This week we examine the business of one of the key players referenced above, the ad networks.

Do a search for articles and posts on ad networks and what comes up are discussion boards trying to determine the best one, to countless interviews and stories on new features. Except for the occasional quibble regarding late payment or one bad experience with a small, unknown contender, the majority of the coverage has been positive. It’s been so boringly within range, I almost thought Ari Rosenberg’s recent article was an April Fool’s Day joke mistakenly sent six weeks early. Titled “Just Say No to Ad Networks,” it takes a globally negative stance on ad networks. That it hasn’t been picked up and discussed in the blogosphere, seems curious. (Note to MediaPost, who published the article, Permalinks would be nice as Jeff Hirsch of ValueClick who wrote the rebuttle “ValueClick: Say Yes to Ad Networks” looks bad for his link pointing to a different piece.) Here, I join Jeff by sharing my counter arguments to Ari’s article.

Ari’s main point is the following: “The problem you (the online publisher) choose to solve with ad networks is the issue of unsold inventory. Too much supply is bad for business. So you invite ad networks to vacuum up your monthly overflow and, in exchange, you split the change they find in between the seat cushions. In addition, this monthly absorption empowers a greater sense of scarcity for your dedicated sales force to communicate, in an effort to increase CPMs for the inventory they sell.” Unfortunately, it’s this very context that is incorrect. Publishers do not invite in ad networks, in order to increase scarcity and drive up CPMs for the inventory they sell internally. Publishers seek out (active not passive) ad networks in order to make more money. A publisher’s job is content creation and attracting users. Ad networks provide additional working capital so that publishers can continue to run their business.

The Just Say No to Ad Networks article lists three major issues with using ad networks. Number 1 is “Ad networks connect your site to less desirable creative. When are publishers going to realize ad creative is part of the picture they paint for their readers to admire?” I have to agree with Jeff Hirsch when he says that publishers should always make sure that non-offensive creative is running on their site. But, I would like to take a step back and look at the situation from the 5,000 perhaps 10,000 foot view. Ad networks on the whole tend to be a microcosm of what runs on the net. The overlap between ads running on the major ad networks and sites like Yahoo!, MSN, Weather.com is higher than you might think – LowerMyBills, NexTag, Online Education, Vonage, Verizon, etc. Advertising and ad networks are not about painting a picture for readers to admire. They are about making money. You can’t both dislike the fun incentive ads and the innocuous Google ads. If so, run nothing. Remember, ad networks are merely facilitators, connecting the fragmented advertising world with the fragmented publishing world. They increase online advertising efficiency by connecting buyers and sellers that would not and often could not (e.g. scale) find one another otherwise.

The second point raised by Ari says, “2. Ad networks connect your site to lower prices. CPMs for inventory resold by ad networks often dip below a dollar. Most ad networks sell ‘blindly,’ so advertisers are unaware of which sites they will appear on within a defined category.” I’d actually argue that rather than connecting sites with lower prices, ad networks connect sites to higher prices. In fact, thanks to Google, countless sites can call themselves businesses. Ad networks cannot afford to act fat and happy. They must constantly strive to increase yields because they know they are the definition of replaceable. And, all the talk of economies of scale does work. Getting even as little as 60% of the network rate is still more than what you get as a smaller player trying to get the same deals on your own.

Number three on Ari’s list of problems caused by ad networks states that, “Ad networks connect your site to diminished value. Clients buy sites blindly when purchasing inventory sold by ad networks, so how much value do they place on the quality of a site’s content? Ad networks further perpetuate the sense that unless a reader acts when seeing an ad, nothing of value has occurred.” Regarding the statement on content, I would like to meet one buyer on a network that ISN’T worried about the content of the sites on the various networks. Most likely, the only ones might be some of the less sophisticated advertisers on Google, who don’t understand the exact nature of the content network. Regarding his statement that they perpetuate some myth, then why do companies like Advertising.com make so much of their money today on advanced options like behavioral targeting? As for the big piece of ad network revenue that comes from direct marketing – that mirrors life where companies often have no choice but seek an action on their ads. That ad networks play risk arbiter doesn’t speak negatively to them, the companies, or the methodology as a whole.

I applaud Ari for his well-written but slightly misguided article. He is probably right that showing fewer ads might lead to greater performance on the ads that are shown. Unfortunately, that increase in performance does not cover the increase in cost necessary to cover the lost revenue. The ad network business is anything but fun and sexy. It’s a brutal business with high complexity and equally high stress. They are the path to replacement because in general their customers only want them for so long, but in the end everyone wins with their existence. At least that has been the case when they play the role of pure facilitator and not gatekeeper.