Digital Thoughts – A Crash Course in the Vendor Landscape – Part 1

This past Monday, Cliff Kurtzman, from Online-Ads, and I gave a presentation during Ad:Tech Chicago 2005 called, “A Crash Course on the Digital Marketing Vendor Landscape,” a talk that tried to untangle what some of those even in our space might see as a jumbled lump of companies and categories. Many seasoned Internet marketers do not know the difference between Adteractive and AzoogleAds or CoverClicks and LeadClick. In years past, such marketers would not care to learn the difference, but the scale that some of the companies in our space have reached along with the substantial investment activity, has started to break down the walls between our space and theirs.

The traditional model for viewing Internet companies, namely as being in either search or media, or being either an advertiser or publisher, do not allow the subtleties and interdependencies of the companies to show. This necessitated a different methodology and provided the starting point for our discussion and research. Since most people are familiar with sites such as Yahoo, Google, ESPN.com and American Greetings, those were not covered. Those non-agencies that helped place ads on such properties were included. The end goal was for those in the audience to come away with a better understanding of what certain companies do, how they differ from each other, where they fit in the ecosystem, and how the pieces of the ecosystem tie together.

A big thanks goes to the companies that chose to participate in the survey, many of whom chose to disclose employee count and even the range of earnings. What the survey data shows is just how large some of the almost-under the radar companies are. Quite a few have earnings greater than one of the better-known Internet companies Nielsen/NetRatings and several earn more than Internet enabler Akamai. Of the areas covered, one of the most mature and the one we chose to start with first is the display ad network. Banner ads, and the companies that serve them, have been around almost a decade. Besides being arguably the largest segment, it is also among the most advanced, most competitive, and commoditized.

In the display ad network space sit such companies as Advertising.com, Traffic Marketplace, Fastclick, and Tribal Fusion. The differentiating factors among the display ad network space tend to be their a) level of transparency – are they a blind network or site representation firm, b) targeting options for advertisers – do they allow for channel, category, behavioral, contextual targeting, c) how they sell ads – CPM, CPC, or CPA, d) how they buy ads – CPM, CPC, CPA, e) company focus – do they have other units / business interests outside of the display ad network space, f) the quality of their inventory, g) amount of inventory, and h) bells and whistles for publishers and advertisers. For example, a few in the space specialize in buying inventory on a CPM but selling access to that inventory on a CPA basis. Others might offer very user-friendly self-service interfaces.

On one side of the display ad network market sits one of the other segments covered, the ad serving companies. All display ad networks have an ad-serving component at their core. DoubleClick, among the most well known ad serving companies also used to run a display ad network but several years ago decided to only focus on the technology. Advertisers, agencies that manage multiple advertisers, and larger publishers all tend to license an ad serving solution so that they can determine what ads to show and track the results. In an effort to promote increasing ad variety, two companies started to focus on a subset of ad serving – rich media. Eyeblaster and PointRoll are two that, as opposed to current well-known ad serving companies such as Fastclick, DoubleClick, and Zedo, focus only on rich media advertisements and formats that exist outside of the standard ad units. These companies sell their solutions to the same agency and advertiser audience and make sure that their specialty ads can be integrated into the popular ad servers.

Display ad networks, ad servers, and rich media ad serving companies all tend to specialize in graphical ads. Led by Google, a new crop of companies has formed that focus not on graphical ads but on text. The combination of a large, pre-existing advertiser base along with technology that scans content pages, distilling them into a set of keywords, allowed Google to grow its ad revenues by tapping into to a wider set of users – those not on Google.com or direct search partner distributors. And, with the introduction and adoption of Google’s AdSense, the lines between search and media started to blur. Others have joined in filling in areas that Google doesn’t cover such as: solutions that allow sites to create their own mini-contextual network or even behavioral network. These include companies like Quigo and Tacoda. And in a case of reverse growth, again led by Google, these companies will start to venture into the graphical display ad market.

Another market segment that overlaps with display ad networks is adware. Both ad networks and adware tend to show ads as a result of a visitor going to a site, but in adware’s case, the site owner does not get compensated for the ads, the adware maker keeps all that revenue. Ad networks focus on the aggregation of site inventory whereas adware focuses on an install base. Both adware and ad networks though try to solve a similar problem – what ad to show a particular visitor. Having access to more data, adware companies can often target more granularly than the typical ad network. Several adware companies though are moving out of the traditional adware market and into the display ad market. Claria and Direct Revenue for instance continue to purchase display ad inventory, but rather than show with the hopes of gaining more installs, they are using that space to show their advertisers’ ads. Much like Google did with AdSense, Claria’s BehaviorLink Network looks to expand the inventory where its advertisers’ ads can show. And more importantly, they look to do so in a manner less contentious but just as effective.

Unlike the other segments described above, the final segment for this portion of Digital Thoughts does not directly overlap with display ad networks, but it does interact with it. This final group, ad rep firms, acts as an outside sales force for much of the inventory described above. In many cases, ad rep firms can be thought of as brokers, but typically, they differentiate themselves from brokers by forming a closer relationship with the companies whose inventory they resell. They tend to do more customer service and specialize in certain ad / inventory combinations. Adware helped create a mini-industry of ad rep firms, as the software makers often didn’t have the expertise or desire to focus on both software development and ad sales.

Many of the segments covered next have companies that create ads that run on the inventory and technology above. Click here for the entire presentation (5 MB) and see Digital Thoughts Part 2 for the remainder of the write-up.