Commentary

Don't Bite The Hand That Pays You

With Turner Entertainment recently outlining why it dropped third-party ad networks, the industry has been whirling with debate about how publishers should use ad networks -- or if they should even be used at all.

 

 

Direct ad sales account for the majority of ad revenue that is earned by most large online publishers, and it seems the trend of the week is to shut out ad networks in an effort to preserve quality and maintain ownership over inventory.

However, the industry can't deny that as much as 70% of advertising inventory from large online publishers is now being sold as non-guaranteed inventory and this share is continuing to grow. With growth in advertising budgets slowing and sales staff and resources being reduced, advertising on the Web is bifurcating into two distinct categories:

  1. High value, low volume premium sponsorships -- these sponsorships typically involve immersive environments where users can really engage with an advertiser's brand -- skinning, branded widgets, multi-channel media campaigns and more.
  2. Lower value, high volume non-guaranteed ad sales -- these ad sales are typically for "best effort" delivery of ads, led by ad networks but also including ad exchanges and direct response advertisers.

Ad networks are the primary source of demand for non-guaranteed ad sales. If the debate is whether or not publishers should work with ad networks, it seems the answer is as simple as the ancient proverb -- don't bite the hand that feeds (and pays) you.

Developing secondary sales channels are a natural evolution for any maturing industry. We only need to look at a few mainstream industries to see this:

  • Retail: designer labels sell conventional product via department stores and premium product via their independent boutiques
  • Travel: travelers who want to ensure the brand consistency of their hotel experience book direct, while others more concerned about value might use Priceline or Hotwire

The key is to differentiate the products that are sold via each sales channel so that the buyer perceives different benefits at different price points.

It may be true that as the economy improves, direct ad sales will pick up again, but there are many reasons to believe that even when big ad budgets come back, the dependency on non-guaranteed sales for a significant portion of overall ad revenue will continue. This is because:

  • Advertisers are increasingly moving towards performance-based marketing because of the need for increasing accountability
  • Loads of quality targeting data leveraged by ad networks is improving targeting, and therefore improving campaign performance and Web user experience
  • There is a growing trend of audience targeting independent of the Web site the user is on, rather than targeting by contextual relevancy
  • Unlike in the 2001-2003 recession, there is a large ecosystem of ad networks, exchanges, and other players who provide performance-based display advertising solutions

Direct sales will continue to be the primary source of revenue for large online publishers, but direct sales will also continue to face challenges such as ever-growing competition and an abundance of ad inventory. Savvy publishers that create a solid strategy around monetizing non-guaranteed inventory will be in a much better position for significant revenue growth.

Develop a distinct strategy for non-guaranteed inventory... today

The first step is understanding how to manage non-guaranteed inventory more efficiently, while protecting the publisher and fellow advertiser brands. There are ways to control the quality of ads without taxing your staff. There are ways to segment inventory to offer unique products through the direct sales force and through secondary channels that don't create channel conflict.

Due to the economic crisis and the lack of resources or necessary expertise, some publishers have not yet developed a distinct strategy for non-guaranteed inventory. It's just not perceived as a significant breadwinner.

It's time to wake up -- non-guaranteed inventory is more important now than it ever was, and creating a distinct strategy for non-guaranteed inventory will allow publishers to drive higher revenue even with less resources.

There are at least three key elements to developing a strategy for non-guaranteed inventory that publishers should consider:

  • Differentiate ad products between your direct sales and non-guaranteed sales in order to reduce channel conflict -- with different ad units, targeting capabilities, placement options, and more
  • Develop clear rules on acceptable creative standards that protect your brand and users' experience
  • Find the right mix of ad networks and exchanges that can support you -- for large publishers with a global audience, it's not uncommon for 15 or more ad network partners to provide the optimal mix of control and revenue

As online advertising increasingly bifurcates into premium sponsorships and non-guaranteed sales, it's important for publishers to develop distinct monetization strategies for each sales channel. More and more ad dollars are flowing through ad networks and exchanges as they increasingly provide solutions and capabilities that advertisers desire. As a result, savvy publishers are figuring out how to work within this ecosystem to maximize their revenues and manage their brands, rather than hoping for a return to the environment and economies of the past.

Next story loading loading..