Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Why Ad Networks And Exchanges Will Never Help Publishers

Posted by Tom Foremski - March 8, 2010

I often meet with ad networks and ad exchanges for various stories I'm writing. And because I'm a publisher, they give me the pitch about how publishers make more money with their solution.

The pitch they give advertisers is how much money they can save them.

Clearly, both can't be right. The money has to come out of one pocket or the other. Guess which one it comes out of?

Over on Poynter Online, Dorian Benkoil wrote an article headlined: Can Ad Networks & Exchanges Help Increase Ad Prices (Instead of Driving Them Down)?

It seems he's been hearing the same pitches I hear from ad networks and exchanges.

Tim Cadogan, CEO of ad exchange OpenX, told me that the solution is to "limit the number of airplanes flying" when I shared the airline analogy with him at the OnMedia conference in New York earlier this year.
Cadogan predicted that within the next year to 18 months, we'll start to see technologies that let publishers flexibly manage ad inventory in real time, automatically pulling ad spots from a page when there's not an ad of high enough value to go in. That should, by implication, increase the perceived value of the spots that remain.

That won't happen because:

- there is no scarcity. Publishers would need to combine forces, and strategies, to create scarcity. Then the temptation is to undercut each other and so you are back to square one.

- there's not enough auction liquidity to create a competitive bidding environment.

At the paidContent 2010 conference a few weeks later in New York, JT Batson, executive vice president of revenue and global development for ad solutions company the Rubicon Project, said they were developing such a solution, one he predicted would be available in some fashion by the end of the year. "Flexible inventories will increase rates," he said.

Batson said publishers haven't done particularly well at managing their inventory but will eventually have systems with predictive modeling as sophisticated as the ones airlines have.

Look at how prosperous the airlines have become.

The pitch, when it is targeted at advertisers, goes something like this:

"Surveys have shown that advertisers are over-paying for online advertising by $7 billion a year. Using our technology you can buy ads that are highly targeted to your demographic. Our performance software will let you find the best time for showing your ads. And our auction system means you can buy ads at the lowest price possible. You can buy ads at significantly less than the published ad rates for the publication you want. You will save a ton of money."

It's a zero sum game. It's not win-win when money is involved. Someone wins and someone loses.The ad networks and ad exchanges work for the advertisers -- not the publishers.

Ad networks and ad exchanges have the advantage in that they can pull in lots of inventory from many sites -- scale is on their side and they sell that advantage to the advertiser -- not the publisher.

A publisher, even if it is a national newspaper or magazine, is still a small fish in a very large sea -- it has no leverage. If the publishers were to get together to create scale that benefits them -- that would be illegal, it would be anti-trust.

It's more than advertising...

And all this discussion about advertising and online publications is a red herring, anyway. The dirty little secret is that advertising doesn't work well online. It takes millions of impressions to make a decent number of conversion. Same for clicks, etc.

Yet online publishers are obsessed with trying to make online advertising work. It won't.

Publishers need a multi-revenue business model that includes a whole range of revenue streams: lead generation, events, custom marketing, webinars, virtual currencies, subscriptions, paywalls, etc. But that's hard work. It's much easier to complain about online advertising rates.

- - -

Please see:

The "Heinz 57" Media Business Model

Why Ad Blocking is devastating to the sites you love

Don't Blame Your Community: Ad Blocking Is Not Killing Any Sites | Techdirt


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