Study Finds Growing Reliance On Ad Networks

Sherril Mane of IABThe top online publishers' growing reliance on ad networks will likely lead to erosion of premium pricing unless branded Web sites take steps to better manage their inventory.

That's a key conclusion from a new benchmark study on digital pricing by the Interactive Advertising Bureau and Bain & Company, which found that ad networks handled 30% of major Web publishers' sales in 2007 compared to just 5% the prior year.

The average CPMs earned through ad networks ranged from 60 cents to $1.10--a fraction of the $10 to $20 paid for display inventory sold directly by the seven unnamed publishers involved in the IAB study. And while networks account for a quarter of display impressions sold, they make up only 2% of revenue.

"This type of understanding may serve as a direct call to publishers to do a better job at optimizing ad sales, which may include partnering with different networks to get more value out of their inventory," said Sherrill Mane, senior vice president of industry services at the IAB.

The study's findings are only likely to fuel the ongoing debate over whether ad networks are hastening the commoditization of online advertising and pushing down pricing across the board. ESPN drew particular attention to the issue earlier this year when it withdrew from ad networks because they were believed to diminish the cable sports network's brand value.

A growing number of big-name publishers, including Martha Stewart Living Omnimedia, Forbes and Conde Nast, have responded by forming their own branded ad networks to offer advertisers targeted audiences at premium prices.

The IAB study suggests that publishers have been victims of their own success in recent years. With growth rates of 20% to 30%, the drive to develop new ad opportunities has left publishers with substantial unsold inventory, forcing them to turn increasingly to ad networks for help.

With only 50% of inventory sold out through direct efforts, the amount of premium, branded impressions exceeds the level of demand at current CPMs, according to the study.

Online video was an exception, with a sell-out rate of 93% and CPMs two to three times higher than average display prices. Because of its high demand, all video inventory was sold directly.

Interviews conducted for the project suggested that publishers planned to shift more display inventory to ad networks this year, although several said they were reconsidering more recently.

To help boost pricing, the IAB study recommends that publishers focus on managing their inventory more efficiently and use software tools and methods to better align pricing and inventory strategies. Its research showed that publishers often lack basic information on effective prices and inventory sold by client and channel, limiting the ability to make informed decisions.

The use of a variety of ad networks to maintain higher prices was also recommended. "We found the ones that used more networks and used more strategic approaches to sales channels did better on pricing," said Mane. This includes working with more specialty ad networks in addition to the large horizontal ones such as Advertising.com and ValueClick.

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