What Happened to the Ad Network Apocalypse?

Usually when we find something worth sharing on the web, we send out a quick note on our twitter account @isocket. Past cool examples: Marketing Your Ad Space: How to Create Your Own Direct Advertising Sales Package (hey, we offer that!), Can Ad Networks and Premium Inventory Co-Exist?, and Google to Target Users by FICO Score.

I’ve been meaning to share this “Apocalypse” blog post with you for the last month. This past year has caused a lot of turmoil and self-analysis in the advertising and ad technology industries. But this is a good thing – we love the idea of creative destruction, and this year is no different!

Warren Lee wrote a blog post for AdAge called “What Happened to the Ad Network Apocalypse?“. Since the downturn, many predicted the mass consolidation / destruction of the 400 – 500 or so ad networks. A kind of “survival of the fittest”. But for the most part that hasn’t happened.

Many of the less differentiated, standard graphical networks have not shut down, because they are easy to run with very little expense these days. Most of the lesser-known ones (and even some of the bigger players) are essentially glorified brokers that acquire their inventory on the exchanges. They hire a trafficker, a salesperson or two, sign a 5-cent-CPM contract with an ad server and find someone who knows how to bid the exchanges to stay in business. They don’t need to invest significant resources in acquiring high-quality inventory or professionally managing relationships with publishers. These networks can generate a profit, enough to survive and to eke out a decent living.

Warren believes one of the reason they’ve survived is:

Most online publishers still find it difficult and lack the expertise to find, qualify, hire and manage ad-sales executives, which is a reason why many smaller and midsize online publishers turn to ad networks to help handle this activity.

We’re obviously biased, but we agree with him. Many of the ad networks are still around not necessarily because they should be, but because advertisers and publishers don’t see many alternatives.

There was an interesting comment left on Warren’s post by tddaly:

The main reason that Ad Networks are still succeeding is that Agencies haven’t replaced their services with their own in-house network exchanges yet. 2010 and 2011 will be tough upcoming years as Agencies pull their spend back and run it through their own systems. As Agencies shift spend, ad networks will feel the pain.

Very good point. Ad networks and exchanges were popular the last 5 years – but are they the future? Or is a small but fundamental change going to happen?

During the last post-bubble-wastelands (i.e. 2001-2003), the same thing happened. Web 1.0 advertising money dried up. It was during this time that people got creative and there was a crop of new companies and products – things like Google AdWords and Right Media. Many of the ad networks and exchanges that have become dominant today (or were acquired in ‘07-’08) were built during 2001-2003.

You can see in this chart that the upward momentum in the late 90’s fell flat. When this forced the industry to create and innovate, look what happened: (UPDATED with new Q209 numbers)

2009-q2-ad-market-graph

Full report from the IAB available here (PDF).

Here’s the point: don’t assume adding new bells and whistles to existing ad networks will be the “future of advertising”. What if something fundamentally changes – something like the blog comment by tddaly? What if advertisers want bring all their functions in house? What if people want to stop paying commissions?

Whatever happens, we’re very excited to see the innovative growth that takes place over the next 5 years!

October 1, 2009 | Filed Under Advertising

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