A Second Serving

by Ari Rosenberg, Mar 16, 2006, 3:30 PM

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Please allow me to revisit the issues of working with ad networks, a topic I discussed several weeks ago that sparked a debate on MediaPost (and other trade outlets)--only, this time I will offer a solution to the problem ad networks pose for their publishing "partners."

Ad networks are not all the same. That's what ad network principals told me in person, on the phone and in their written responses to my original column. Networks are different the way an apple differs from an orange--though both are fruit. Ad networks of various shapes and sizes all hang in the same business of selling inventory created by others.

Understanding how the ad network business works will help you understand your choices in making this option work or not work for you. Ad Network "A" buys your inventory at greatly reduced prices. For example, it agrees to pay you 75 cents CPM and you figure, why not, change in my pocket is better than nothing for inventory that would have gone unsold. Ad Network "A" then marks up this inventory to $1.50 and resells it to "lead aggregators" like Lower My Bills, which converts these low-cost ad impressions into qualified leads. They in turn sell these leads to banks that pay a premium for leads that convert into sold mortgages.

The online publisher acts like the restaurant in this food chain, only it earns less money for the meals it produces than the waiter who serves them. The question is this: are the restaurants (aka publishers) better off selling their unsold food at discounted prices than letting it go to waste? The ad networks (aka the waiters) will tell you yes; I say no. No one can tell you how to run your business, so here is more food for thought.

Instead of countless impressions, you have 52 apples to sell in a calendar year. If you only sell 40 apples at $10 per apple, you earn $400. Your average price per apple is $10, but your yield per apple produced is $7.69 ($400 divided by 52). Now, if you sell 40 apples at $10 per apple, and you outsource an apple sales force who sells off the remaining 12 apples but at a discounted price of 75 cents per apple, you earn $409, a modest increase in revenue of 2.3 percent. Your yield per apple available also increases from $7.69 to $7.87 (an increase of 2.3 percent as well) but your average price per apple sold goes down from $10 to $7.87, which represents a 21 percent decrease. So now, the question becomes even clearer; is the increase in your yield and total revenue worth the diminished average price per "apple sold"?

Making more money is good, but showing the market (and your own sales team) that you will sell what you produce for less is not. A senior sales director at a very well-known content brand that does not employ an ad network to sell off its unsold inventory said to me, "Why would I ever want any buyer to know he or she can purchase my inventory for less money through another channel? That makes no sense for me in the long run."

So what's the solution? For publishers who have no sales staff, of course, ad networks provide a solution--but why did you get into the business of publishing if you did not plan to sell what you manufacture? For publishers who have adopted a hybrid method of selling directly to clients and selling off unsold inventory to ad networks, how do you increase your revenue, and hence your yield, without decreasing your average cost per impression sold.

Bid out your unsold inventory exclusively to one ad network or directly to one advertiser at a price equal to that of your average CPM for the impressions you do sell. Clearly, the value at the end of the ad network food chain is there, but the ad networks have convinced you it is not. By bidding it out, you create some leverage. If no one takes the offer, hold your ground and give away your unsold inventory to charity the way a restaurant gives away its unsold food to homeless shelters (I would imagine there are tax benefits for this option).

Ad networks have convinced publishers they are "partners" when in fact they are competitors. By continuing to feed them your inventory at prices well below what you sell it for, you are giving your competition an opportunity to eat your lunch.

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