• by Cory Treffiletti , Featured Contributor, August 13, 2008

The ad network business is alive and strong, but there are some potentially significant obstacles coming down the path in the coming months -- and some of these challenges may end up affecting the rest of the industry, as well!

The most obvious challenge is the sheer clutter of the marketplace. If you patrol the floor at any major conference and read through the list of attendees, it's easy to see how many companies are vying for your attention and their fair share of the ad dollars, but the ad network space is especially cluttered. It feels as though there's another network every week -- and the differentiation between them seems minor; in some cases, almost nonexistent.

Of course, clutter is only one piece of the problem, as the most important challenge comes in the form of prices themselves. According to the recently issued IAB/Bain & Company Digital Pricing Report, the use of ad networks is increasing, with the result that prices for premium inventory are being pushed downward!

According to the IAB report, the average price of network inventory is between 60 cents and $1.10 CPM. The prices for premium inventory are higher, averaging $10-20 CPM, but the problem is that more of the premium publishers are pushing their inventory out through the networks rather than selling it themselves. Use of ad network inventory from the publisher side of the business increased from 5% in 2006 to 30% in 2007. As more publishers are using ad networks to sell a portion of their inventory, they need to ask the networks to try and maintain some premium pricing -- or buyers will take advantage of this decline and overall prices will continue to slide.

The single shining star is, of course, video. Video inventory is the only format that appears to be selling out. It should be noted, too -- as any media planner worth his or her salt can attest -- that video demand is far outpacing actual inventory. There is a slower growth rate for premium video inventory than there is in the demand for that same inventory, which should effectively drive prices up for online video! The report did not detail the average CPMs for video, but they are definitely in the higher end of the industry averages.

The other data point of concern was that intermediaries, or networks and exchanges, represent about 25% of the total display inventory sold, but less than 2% of the total revenue for those publishers. My question in response to these numbers is simply, "Is it worth it?" Does the continued pressure on prices to go downward outweigh the need for total revenue?

My theory is that we should start to see a slowing growth in the availability of premium inventory while more dollars are considered to be spent online, even in the face of the recession. More advertisers are going to have to consider accountable media formats when eyes are focused on their spend and the bottom-lines of their respective business. In that event, more advertisers should consider shifting dollars to online, and online publishers should do everything they can to maintain prices if they hope to continue to grow and mature their business in the coming months. Of course, as someone from the media side, it's my job to push rates down, but I'm a fan of our industry and I think that downward pressure is bad business for the publishers. The publishers need to keep their prices even, possibly try to push them upward as demand outstrips supply, and focus on measurement and performance. Demonstrate true effectiveness and prove your worth at these prices, and your business will be successful.

If you have not had the chance to read the IAB study, I recommend that you do. It's very valuable information for any online publisher to have!