• by Pace Lattin , March 3, 2010

Every year someone claims that THIS YEAR will be the last that advertising networks can survive. It seemed very much possible, since in 2005 almost anyone with a few dollars was able to throw a page together and claim they were an ad network. Names like Admanage, AdThrill, AdCall, AdToll appeared all over ad:tech, each one claiming to have something new and different that made them unique. One company just admitted what they were, and called themselves the "Blind Network" basically admitting that agencies and marketers would have no idea where they appeared. Other networks were doing the same thing, but were a little less honest about it, passing around site-lists that claimed, among other things, they exclusively represented major properties from CNN to the WhiteHouse official blog. RightMedia, with its plug-in-play system allowed someone's middle-school kid to basically start an ad network, and at least seem like they knew what they were doing. Yet now, entering a the second decade of the century, the ad networks are dropping like flies, revenue's shrinking from public companies, and the future of ad networks seeming a bit grim.

A friend of mine a few weeks ago sent me a message on Linkedin congratulating me for starting to write again. I hadn't spoken to him in a few months and asked how he was doing with his new job at Advertising.com. He informed me that he had been laid off and was looking for a new job. "If you've been paying attention," he told me on the phone when I called him up, "the economy stinks." He informed me that there were major changes over at AOL, and many people in the Advertising.com side of things were no longer going to have jobs. Indeed, AOL had made some huge changes, changing from a portal and a huge ad network to seemingly a collection of professional blogs. My friend Saul Hansel with the New York Times has just moved to AOL to run content on this new network just a few months ago. Something was definitely happening when the biggest player in the industry seemed to quickly be packing their bags and making significant changes.

It's easy to say that all these changes are happening because of the economy and thus agencies have smaller budgets. We know that the economy has made a huge difference in the network play, but that wouldn't explain how some companies like Winstar Interactive, bought out of bankruptcy, are doing better than ever. Adam Guild, CEO and Owner of Winstar makes it clear that he is not an ad network, but instead an outside sales force, which has deep connections within the agencies and able to provide the same service an in house sales force would. He implies that perhaps there are smaller budgets, so that agencies are much stricter about the results of their ads as they risk losing more and more clients. Since he represents only a handful of really high quality sites, he's not seen the significant impact that some ad networks have made.

Tony Winders, Vice President of Marketing at ValueClick seemed to agree that there was going to be some major changes in the industry. He told me that most networks "will disappear because there is not a long-term, scalable revenue model in the face of stiff competition from larger players with deep relationships, massive scale, more data and better targeting and optimization technology." When asked why agencies would work with some of the smaller, lesser known networks, he quipped back "better question is, why should agencies bother? Performance may speak for itself and it's a relatively low-risk proposition to test, but agencies' time and reputation with their clients is far more important. They are better off establishing deeper relationships with fewer network partners with a reputation for quality, performance and scale." This seemed to make sense, but what else would one of the biggest players in the industry say, except since they are bigger, they must be better.

Adam Boettiger, Digital Strategist with the New Group, works on campaigns for clients such as Jenny Craig, Intel and QVC, was definitely with Winders and echoed some of the same ideas. According to him, he doesn't work with any of the sub-tier display ad networks, because as a small interactive agency, he just "doesn't have the time to deal with them." Boettiger says, "As a media buyer when I have to manage ad networks, it's just much easier to work with the big ones such as AOL and Valueclick because they have greater reach and better service." After talking with him for a while, it almost seemed that Winders might be right: Bigger was better and perhaps that was just going to be it. Why waste your time with small networks, when big networks were able to easily take your budget and provide just as good, if not better value proposition.

Of course that's just it, and Boettiger pointed out: "It's the same problem, for many years, those clients and brands have no idea where they will appear when booking on these networks." Adam wouldn't say that the networks are lying about where they have placement, but says that too many of the more questionable networks are just brokering ads from other networks and brokers. "When there are questions about where the ads appeared, such as a porn site, they will just blame it on some rogue network they work with." He said it was a huge problem of "inbreeding in which networks were buying from other networks, and then selling to other networks." His description of what went on almost sounded like there was a secret marketplace in the Bronx in which cabals of ad networks would meet at midnight to sell their inventory, unbeknownst to the ad agency that had booked it. One company representative had called it "Daisy Chaining" and basically blamed a huge part of it on particular ad exchange.

Famed Harvard Analyst, Ben Edelman, who has become more known as one of the top fraud and adware experts in the industry than anything else now-a-days, might actually agree with this proposition of there being rouge ad gangs. He points out that "networks vary dramatically in their ability and inclination to root out fraud. Even some well-known 'top' networks continue to charge advertisers for traffic they know to come from spyware, adware, and invisible windows." He says there is a growing problem as networks "publishers are certainly engaged in fraud, and they fail to implement adequate policies and procedures to eject such publishers, reverse payment to those publishers, or protect advertisers from unwarranted cost."

Chris Berman, the COO of Dedicated Media, a mid-size ad network not ranked that high by Comscore, seemed to know a bit of what was going on, and was surprisingly candid about this issue. "There are undoubtedly a lot of shady players out there and in the past there has been good reason for mistrust of some ad networks." He went on to describe that "in the past it was easy to ride the wave of dollars flowing into the online space, line up some cheap inventory in an Exchange and call yourself an ad network." He saw that even though there seemed to be a new ad network daily, selling the same inventory as the network opened the previous day, he saw that "there are also several reputable and innovative ad networks to choose from." Of course, he was one of those networks -- who would ever admit being one of the bad guys? Most of the ad networks would claim they were reputable, that they were providing a service, and that they weren't distributing their ad tags to porn sites. If I were an agency, how would I know that Dedicated Media wasn't one of those networks? Berman, however, had a solution, one of the first I've heard an advertising network of his size propose: "Third party verification services such as DoubleVerify and AdSafe Media will hopefully erase that mistrust," pointed out Berman, "and any network unwilling to offer this type of accountability is one that advertisers should stay away from." Rampant fraud, combined with lack of trust in smaller ad network placement could easily be a reason that the ad network market could be shrinking? Was it possible that agencies just had given up working with ad networks unless they were 100% sure they were safe? I'm sure that was part of it, but it couldn't explain entirely what was happening.

Berman continued, "It definitely is an actively changing marketplace. Increased competition and rapid innovation has forced us to focus, not just on what our clients need now, but what they are going to need 12 months from now." He said that Dedicated Media's "primary focus on the display side is acquiring as much demographic and behavioral data as possible and optimizing the way we target those data segments to get the desired results." Was this it? Ad networks just need to pixel more people in order to survive? Stick a pixel on a consumer, and then target more ads -- that is what certain companies have been doing for at least five years, under the guise of behavior targeting.

Joelle Kaufman, Senior VP at Adify, a company that provides both serving technology and other tools for a growing plethora of vertical networks, knows quite a bit about the issue. Kaufman obviously thought that many ad networks were going to disappear, but didn't want to share with me the specific ones." Ad networks must be able to prove they have value beyond what the advertiser can get itself on an exchange. If you cannot add insight, data or interesting content, why would the advertiser need you?" She mentioned that agencies were getting more and more sophisticated and many of them could easily get direct placement with publishers and their inside sales teams. "Vertical Networks are what bring value. These networks bring insight into the consumers - this isn't knowledge agencies will have on their own, or sites that they can easily find on their own." Joelle was extremely knowledgeable about this issue - in fact most of their business is built on building vertical ad networks, many of them which have become enormously successful. She showed as example, the Gay Ad Network, a very young start-up network that has grown larger than Gay.com and Planet Out in reach to the GLBTG community. This was where all money was going to be spent in 2010 she said. This seemed interesting, and not so much gloom and doom focused as some of the other people I spoke to made it out to seem.

Jake Dobkin, an old friend of mine from NYC, who publishes a group of city related websites, including NYC focused Gothamist.com, points that those networks as a whole are on the way out, refuses to work with any ad networks, large or small because of all the various issues that he's had with them. "Agencies want to go direct to properties like ours anyway. We are able to provide them with tailored campaigns, special elements plus active campaign management - something networks are unable to provide." He's personally worked directly with agencies for everyone from VirginAmerica to Starbucks to create unique campaigns that have lead to many more campaigns with their agencies. He points out almost all of the properties similar to his, such as Gawker and Thrillist also have taken a stance about working with any network. This raises a real question -- if the larger networks are having trouble finding quality sites, what does this mean for the sub-tier networks that can't work with even mid-level web properties? It seems in order to compete for a dwindling amount of quality, content driven, targeted properties they would have to take part in using adware and questionable publisher to increase their revenue. Dobkin obviously didn't like networks, but wasn't his group of city based sites ... well ... a network?

These conversations with just a few people in the industry made it very clear where ad networks needed to be focusing. Any network clearly needed to provide a value proposition and many networks that didn't want to be on the record, made it clear to me that they were moving away from being mass reach networks and adding data targeting and other technological additions. However, many of those more sub-tier networks failed to address that they were still doing nothing more than piggybacking on other major networks, or using exchanges to buy inventory cheap and resell at a higher price. It seems the real key to any new network growth has to be in vertical growth, either with companies creating subdivisions that focus on one niche, or new networks coming into being. We often forget that essentially advertising connects consumers with products that interest them. Technology, as great as it can be about targeting people can't address people's real interests and passions, what they really love, what really drives them to get out of bed in the morning in the cold to sit in line for tickets for their favorite country artist, or wait patiently for a day to catch one trout in a stream.The people who run those sites, those who run the vertical ad networks address something that many of us can't really understand unless we are also part of that segment and have a passion for the same thing. No segmentation-pixel or behavior doo-dad can have that conversation. Technology will never replace the conversation.