Ad Network Identity Crisis
As we pointed out briefly in this week’s other piece on ad networks, of the new entrants in the ad network space, very few have followed what we call the "search engine" route. The companies in this group have a special focus on technology; they view inventory and advertisers more like commodities. Advertisers that work with them can, and often do, work with every other ad network. Their publishers too only show loyalty, so long as the yields top the next best alternative. The companies in this category also share several characteristics. They offer limited targeting to advertisers, limited transparency into the sites where the ads run, and limited options for publishers to select advertisers. In exchange, they will often take the performance risk once an advertiser has proven themselves, i.e. allow them to pay on a CPA.
I find it interesting to try and come up with a mental model and a way of looking at companies. By thinking of ad networks as either technology-centric or customer centric, we were able to understand, by thinking of the former as search engines and the later as SEM’s, why some ad networks have reached the size they do (or stopped at the size they did) and why other networks might have a hard time achieving their goals depending upon which model they follow. Instead of classifying ad networks in a new way, which we just did, let’s take a look at how the networks today have tried to diversify their business and enter an arena once reserved just for their customers – lead generation.
If you attend certain vertical conferences, e.g. EduVentures, you see the usual suspects from the Internet advertising sector – those from ClassesUSA, QuinStreet, NexTag (maybe), eLearners, CUNet, etc. You expect them because they focus on lead generation, and several of those only focus on education. You did not see ad networks represented in great numbers. For the most part, the schools did not buy directly on the ad networks, the lead generation companies did. The reason comes down to specialization and the maturing of the marketplace. In a less specialized environment, both the schools and an aggregator, say ClassesUSA, bought on the ad networks. As more companies entered the space, the direct school buyers actually received less traffic from their direct buys. You might think a direct relationship would equate to more traffic. Media buying, banner creative, and arbitrage though are not core competencies of the schools. They have some incredibly talented people, but their parent companies haven’t invested the same level of resources, focus, and processes into media arbitrage as the aggregators have. (Note: while the example here uses education, this applies to other lead generation verticals as well, certainly mortgage banking.)
Specialization and the maturing of when Advertising.com signed the exclusive agreement with University of Phoenix last year, many in the lead generation space wondered what that meant for them. Would Advertising.com continue to work with aggregators? Would it try to cut them out of the picture and buy on the sites and keywords that they did? I remember making the case that Advertising.com would have a hard time cutting out the aggregators for the same reasons that schools needed them. While Advertising.com has an amazing amount of inventory, they are not lead generators. They have media buyers; they have sales people; they have programmers, and they have graphic designers, but those do not make you a lead generation company. Lead generators (and I think of those that have had success buying display inventory) have an almost laser like focus on their one line of business. They buy media and test media differently than an ad network does. They are not buying and trying to optimize multiple creatives across a number of advertisers; they buy and test creatives for one advertiser. Not to mention that they also can buy across a broader diversity of sizes.
Lead aggregators are the guerrilla marketers of display where as the classic ad network is the broadcast marketer. While so similar in many ways, they really act like different entities. That is one of the many reasons why I look cautiously at ad networks who have set up specific lead generation divisions. It’s not as though it can’t work, but I fear some ad networks might underestimate the degree of difficulty involved in replicating the businesses of some of their best clients. They see the spends and extrapolate what those companies do in total; numbers that must look exciting to an ad network whose business has matured and whose area does not have the same level of investor interest. Ad networks have a lot of the expertise, but I would call it naive if they think they can apply the same people and technology for instant success. They will most likely fail if these resources, namely media buyers and ad sales, must try and focus on both the network and the lead gen. In the end, the ad networks have realized the value of lead generation in the display advertising world. And if they can figure it out, it makes for a good compliment to their core business. They could, in theory, capture not just the margin from their current clients but the incremental and sizeable ad spends from the non-overlapping inventory of most lead aggregators.
