• by Mark Walsh  @markfwal, May 9, 2008

The ascendance of online ad networks is probably at its peak as advertisers and publishers struggle to monetize the vast new supply of inventory created by social networks and other emerging platforms.

But the role of ad networks and exchanges will diminish over time as Web publishers take increasing control over selling their own media, Forbes.com President and CEO Jim Spanfeller told investors and executives gathered Thursday at Needham & Company's Third Annual Internet and Digital Media Conference.

For now, the proliferation of ad networks and the emphasis on performance-based advertising online is helping to put downward pressure on Cost Per Milles (CPMs.) Ultimately, the trend toward automated, third-party ad placement will lead to a devaluation of Web content that will undermine the growth of online media.

"Why do people go to the Web in the first place?" asked Spanfeller rhetorically. "Well, it's not to see ads."

His remarks in a Q-and-A session with Needham Senior Analyst Mark May touched frequently on the ongoing industry debate over whether the expansion of the online ad marketplaces is diluting the value of online content and brand advertising alike.

Spanfeller seemed to side with Martha Stewart Living Omnimedia Media President Wenda Harris Millard's oft-cited comments at the Interactive Advertising Bureau's annual meeting earlier this year warning against trading online media "like pork bellies."

Like Millard, Spanfeller explained that there's a role for ad networks as a means of unloading low-cost, remnant inventory. But an overemphasis on algorithm-driven media buying to depress prices will have a negative long-term impact on Web advertising.

"By working through networks, you're basically moving advertisers away from the content group, and that's inherently a bad idea," he said. The result will be more publishers reducing their reliance on ad networks in favor of direct selling as ESPN.com reportedly did recently, according to Spanfeller.

None of that, however, has stopped Forbes from launching its own vertical ad network. In March, the company announced plans to start a network bringing together content from more than 400 business and financial blogs.

Spanfeller noted the Forbes effort would differ from most other such networks by having its editors help to ensure quality control. As a trusted brand, meanwhile, Forbes creates "a clean, well-lit place" for marketers that may have been reluctant to tap venture into the blogosphere until now.

Overall, revenue growth at Forbes.com has slowed this year, partly due to the broader economic downturn, but is still increasing at a healthy pace. Spanfeller assured the online unit was still the growth engine for Forbes and that the possibility of Forbes.com going public is "definitely a consideration."

Asked about the most promising online categories, he cited video as huge opportunity. To that end, Forbes.com features 20 to 25 video segments a day produced at its own studios in New York and the San Francisco Bay area, as well as newer video production efforts in Hong Kong and London, to provide round-the-clock programming.

As former chairman of the IAB, Spanfeller also highlighted privacy issues in connection with the fast-growing area of behavioral targeting. In particular, he said the practice of "re-targeting," or serving ads to Web users after they leave an advertiser's Web site, as the biggest "lightning rod" among privacy concerns.

He also pointed to legislation introduced in Connecticut that deals with data collection rules for ad networks as an example of growing efforts to protect consumer privacy online. A similar bill pending in the New York legislature would impose civil penalties for certain Web companies to use personal information for advertising without consumer consent.

Still, Spanfeller did not express much confidence in behavioral targeting to date. "So far, the results of behavioral targeting are spotty, and most of time don't represent a huge increase over contextual or specific site targeting," he said.