Ad Exchanges: Does the Demise of One Signal Doom for All? (Part 1)
Adexchange.com has foundered, a mere five months after its "launch," and now some industry watchers see the wave of consolidation and elimination coming fast. Others say some business models are simply stronger than others and timing is critical.
But why did this one fail?
The company did not respond to inquiries for an interview, but Carl Bryant of Mediapassage.com, says that Adexchange was around for so little time it "was never in business. They reported initial funding, but never got the additional rounds of funding." Adexchange was backed by idealab!, Palomar Ventures and TD Capital, and focused only on online media, but now that they're gone, it's not even clear whether the company ever progressed from beta testing to actual transactions.
There's a bigger issue at stake. Will the demise of this young player pull down the entire team? And despite the talk, does the team even exist?
This shakeout is coming despite a recent report from AdRelevance that the number of new companies advertising online has more than doubled since January -- growing by 157% over the past ten months. Charlie Buchwalter, VP of media research for AdRelevance, said that the more compelling fact is that "new traditional advertisers are growing at a faster rate than new dot-com advertisers."
But it all still only accounts for less than 3% of total media spending. Even the most liberal projections by Myers Reports, Inc., indicate that by 2005 only 25-30% of the business will be conducted by online exchanges.
Most players like to tout their particular software platforms, saying they create a beginning to end tracking system, that gives advertisers "actionable data" on which to base their buys, making them more efficient. Some focus only on one media, some are broadening their scope.
Two years ago there was barely a handful of online media exchange companies. Bharad Ramesh, market analyst with Myers, says that there were 16 companies in August, and as of now there are about 40. "There are so many people getting into market and trying to position themselves differently. Every day I hear about a new site, and others who can't make it six months. These shake outs had to happen, but it happened too fast. Even in the Internet world it was an incredibly short lifespan for Adexchange."
Alan Masarek of AdOutlet.com says timing was a critical factor. "Adexchange had exclusive focus on Internet media at a time when Doubleclick, 24/7, and others were seeing increased pressure."
Yet Ramesh says this fallout wasn't unexpected. "The players knew about the competition in August, and looked at it as an opportunity. They saw a need and also knew that in six months to a year some of them would not exist. One of the first signs was when Mediapassage.com and Broadcastspots.com merged. So while some companies will disappear altogether, others will consolidate."
Who will be left standing?
Myers is working on that research no