FUNDAMENTALS OF AD NETWORKS: POST 3

INTER-NETWORK “HORSE TRADING”

Just as sites use networks to dispose of excess inventory, networks often sell impressions to one another to better balance supply and demand.

For example, suppose you run Acme Ad Network, and have 100 Million impressions in inventory but only 90 Million in orders. In this scenario, you might try to sell these excess impressions to another network that may have more orders than inventory. While the price you get for these excess impressions will be relatively low, little revenue is better than no revenue.

This sort of cross network selling is very common. In a world dealing in trillions of impressions per month, it stands to reason that such transactions are a fact of life.

In fact, some networks buy and sell impressions to other networks expressly for the purpose of arbitrage.

And example: suppose you are Acme again. You may buy impressions from a site having no possible means of selling them yourself but rather on the probability that you will be able to sell them to another network for a profit. This sort of transaction can happen on multiple occasions for the same impression, like this.

1. Acme buys impressions from a publisher for 75 cents CPM.
2. Acme sells those impressions to AAA Network for $1.00 CPM.
3. AAA Network sells them to Ace Network for $1.25.
4. Ace Network sells them to an advertiser for $1.50.

In this case, each network has made 25 cents on the arbitrage. Naturally, these figures are purely for illustrative purposes, but the principle is there. Problem is, those profits come at the expense of both the client and the publisher.

More and more clients and publishers know about this, which is one of the forces giving rise to the establishment and growth of ad auctions or exchanges.

AD NETWORKS AND DIRECT RESPONSE

The Direct Response (DR) side of marketing tends to spend a great deal of money on networks. This is because:

• Network inventory tends to sell for less than inventory purchased from individual publishers. Since lower CPM tends to drive better DR results, such marketers favor approaches that offer lower media costs, regardless of inventory “quality.”
• DR campaigns usually rely on massive reach and behavioral targeting, both areas in which networks excel.
• As discussed earlier, some major networks sell on a CPC or CPA basis, which gives DR marketers greater cost certainty and a significantly lower risk profile to their buys.

For most DR brands, cheap, minimally targeted inventory offers the best ROI. DR advertisers bought the lion’s share of network inventory until relatively recently.

Networks love DR advertisers because the revenue and demand are reliable. But as brand advertisers have become more active in the space, networks are working hard to attract their dollars as well.

AD NETWORKS AND BRAND ADVERTISERS

Brand advertisers are indeed taking up a growing share of network inventory. Recent growth seems to be related to the following factors:

• Greater awareness of ad networks in general.
• Increasing demand for inventory on major sites like portals has led many to look for other high reach advertising solutions.
• Networks have increased their transparency, giving greater comfort to advertisers who are reticent to advertise on sites sight unseen.
• Networks are better policing their sites for objectionable content.
• The growing list of sophisticated targeting options, including behavioral, makes it easier to deliver segmented messages to large numbers of prospects and customers.
• Better ad opportunities – beyond the basic IAB standard banners – are fueling greater creativity.

Tomorrow: Does the world need another ad network?