Ad Networks Make Money But No Sense

My two cents is worth less than yours is some areas, and just as much in others. I can prove it. I dumped my brand new air conditioner out the window while installing it. Thankfully, I was smart enough to attempt this installation in the back of my apartment, two floors up and over a courtyard that hasn't courted anyone in years. As the machine fell to the ground, it caught the back of the air conditioner protruding from the window of the apartment below me, busting that one too.

This lapse in any measurable form of intelligence will be costly -- and now I am going to give you my two cents on ad networks -- so take it for what it's worth, and don't throw me out the window because my professional opinion differs from yours.

I first called attention to my concerns about these publishing tapeworms over two years ago in a column titled "Just Say No to Ad Networks." At the time, I wasn't quite sure anyone was reading this column, so the volume of responses caught me off guard. Far more supported my assertions, but the few opposed reacted with professional venom, so I knew I had struck a nerve.



Since that column, and coming off the OMMA Publish conference last week here in New York, I have had the opportunity to get to know a few more of these ad network folks, and they are collectively really nice and super-smart. They appear to have the capacity to design and install a central air conditioning system -- so installing a window unit would not faze them. Their technological and mathematical approach to selling display advertising is a fantastic display of their collective brainpower. And yet the more I learn about the ad network business, the surer I am of the destructive impact using these companies has on your publishing business.

One unresolved issue is channel conflict. This is an emotional issue for publishers, and the ad networks try to diffuse it with an upfront "get to know you meeting" in which you can list the accounts "off limits" prior to engaging them to sell the inventory your own salespeople are commissioned to sell (please save the splitting-hairs argument that ad networks sell "remnant inventory" and a publisher's direct sales staff sells "premium inventory," as if these impressions are not generated from the same site).

The reality is that channel conflict will always occur For starters, your account list is dynamic; you are constantly adding to your pipeline, so stating what is off limits upfront or even on an ongoing basis won't eliminate the issue. Secondly, salespeople are driven to bring in money they get a piece of -- and if they sniff something they can eat, checking with a manager before they take their first bite is not going to happen as often as it's supposed to in this relationship. And once a salesperson sinks his teeth into an account, getting it back is not worth the trouble -- even if it means getting slapped on the wrist or handling a hostile email from your publishing "partner."

But the fundamental problem caused by sales channel conflict, that makes me feel working with ad networks makes no sense (if you have your own sales staff) regardless of the monthly revenue this relationship delivers, is pricing.

Channel conflict is seen as a physical concern. "I don't want my sales guy bumping into your sales guy at the same client" is the corny example given to describe the issue -- but it goes much deeper than that. You have to look at this issue from the ground of the shoes your own salespeople and sales managers walk on.

Downward pricing pressure does not come from buyers. It comes from your own sellers and is applied against their managers. Your sellers are the ones who feverishly explain "this deal" cannot get done unless you lower your CPM "this time." And they know you have already agreed to prices below the floor you established for them, for the inventory sold by a salesperson at the ad networks you engaged. This gives your own salespeople the leverage they need to push their manager to look the other way "this time" -- which happens time and time again. Erosion is a slow and steady process that is easily missed when you choose to look away.

Can this marriage be saved? That was the question posed at the OMMA conference. Here is a solution. Single-site publishers who want to engage an ad network to complement their own sales staff should first know exactly what their average CPM is for the inventory sold by their own sellers (not to be confused with the effective CPM for the inventory generated). Once you know this average, tell the ad networks to have at it, but to sell your impressions not a penny lower than this average. Channel conflict may not go away, but your prices will remain more consistent.

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