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Summary:

Earlier today, Kayak, a travel industry search engine, announced that it’s going to launch its own advertising network. I have been skeptical of this company, more so after their merger with SideStep. (How are those revenues growing, fellas? They were $85 million last year on a […]

Earlier today, Kayak, a travel industry search engine, announced that it’s going to launch its own advertising network. I have been skeptical of this company, more so after their merger with SideStep. (How are those revenues growing, fellas? They were $85 million last year on a transaction volume of $3.5 billion…weren’t they? Or did the slowing economy and struggling travel industry force this move of launching an ad network?)

Kayak is not the first company to announce such plans for ad networks that are as wide-ranging as health, glamour and technology. A substantial amount of attention and money has been attracted by startups chasing the ad verticals, and sometimes I feel like everyone has Glam envy.

The big question remains: Are these networks capable of making big money and tasting success? How will they stay relevant when large players such as Google continue to dominate, and at the same time march towards an ad exchange ecosystem that will obviate the need for ad verticals? Share your thoughts with the rest of us.

  1. Hey Om,
    An interesting one.
    On the one hand we all understand network effects in that the bigger the network the greater the utility and hence there is a trend towards winner takes all and in ad networks favoring the horizontal networks. However, we clearly see examples of niche networks that thrive in everything that we do as long as they can solve problems in unique ways compared to the larger networks. We are also seeing a reduction in overall switching costs between networks of all kinds as data becomes more freely available.

    When you also look at the economics of ad networks, the value is at the tail, meaning lots of small advertisers and publishers. Many ad networks can suffer if they are dependent on a few large publishers or advertisers which have strong negotiating leverage and there is competition among the networks.

    Hence, I would think that there are absolutely opportunities for vertical ad networks to thrive, if they do some of the following, some examples:
    – Solving unique problems, perhaps is this in some form of targeting, dynamic ad creative, etc. something that the larger guys can’t specifically solve for a vertical
    – A unique advertiser acquisition tool, can the network penetrate an large and fragmented group of advertisers that would not traditionally work with the larger networks
    – A network that is able to reach a fragmented set of publishers and not too dependent on a few larger partners
    – Offering a unique reporting and data insight for the advertiser targeted to the vertical which the horizontal network cannot deliver, which adds unique value beyond media buying towards business intelligence.

    I’m sure there are lots of others. Vertical networks will absolutely thrive when they solve some unique problems. I have high hopes for Kayak’s network.

    Pete Flint from Trulia.com
    Yes, I’m biased, we have the leading real estate ad network http://www.trulia.com/network/

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  2. “Google…and at the same time march towards an ad exchange ecosystem that will obviate the need for ad verticals”

    What march are you talking about OM? You could have put a link to exemplify your point. Google’s first “ad exchange ecosystem” seems to be adsense(less). It has taken them too long to figure out that it serves untrammeled trash. They are now purchasing some ad networks, but what scalable innovation are they bringing that will help them occupy niches? Your point is not clear.

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  3. Aaron Glenn Friday, June 13, 2008

    ad exchange ecosystem? you mean like the one Yahoo! bought not too long ago (RightMedia)? I don’t quite understand what you mean by “ad exchange ecosystem”, Om.

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  4. casey halloran Friday, August 8, 2008

    My classmate at the University of Richmond founded RightMedia. I’m still not quite sure exactly WHAT that company does, but Yahoo saw fit to stroke the giant check. Fresh out of college is started my web-based travel biz in Costa Rica and early success was mostly due to latching on to CPC (GoTo.com) before anybody knew what it was.

    I hate using this word, but it sure “feels” like it’s time for another paradigm shift in the model. Google’s dominance of all things CPC-related cannot last forever, particularly as prices rise for advertisers like me (we spend almost $20k a month on Google and are a small biz!) and as they grow increasingly stingy with publishers. Alternative aggregators of targeted traffic must arise to compete for my ad dollars and certain can find all the goofy ass websites out there with traffic and no clue how to monetize it.

    Any suggestions for a guy who wants to divert half his ad budget from Adwords?

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