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Summary:

In the past year, ad networks accounted for 30 percent of major publishers’ online sales, compared to five percent in 2006, according to a s…

In the past year, ad networks accounted for 30 percent of major publishers’ online sales, compared to five percent in 2006, according to a study by the Interactive Advertising Bureau and Bain and Co. The report, which is available for free download on JackMyers.com, makes the point heard often this year that the use of remnant ad nets could erode premium prices. At least for 2007, the price disparity between CPMs for remnant/unsold inventory generated by ad nets versus the direct sales publishers remained wide. On average, CPMs on remnant ad nets ranged from $0.60 to $1.10 versus $10-$20 in direct sold display inventory, or only 6- to 11 percent of direct pricing. Some of the report’s other findings included:

The lower CPM connection: Publishers still have substantial unsold inventory. And while websites have benefited from making more inventory available to ad nets, the problem is that the prices are so cheap, the revenue gains are fairly small. So while third party ad nets accounted for roughly 25 percent of total inventory sold, they comprise only 2 percent of display revenue. Publishers’ desire to reduce their unsold inventory levels appear connected to greater use of ad networks and, therefore, to lower CPMs.

Better targeting, higher CPMs: The report suggests that better ad network targeting and inventory management will generate higher CPMs. Also, John Frelinghuysen, a partner in Bain & Company’s Global Media practice, tells Jack Myers that “further scale-up and (potential) consolidation of networks should enable higher margins.”

  1. This whole ad network scenario is a short-term boom and a long-term bane.

    Given that you can buy solid inventory at a fraction of the cost, why wouldn’t you use ad networks almost exclusively, especially for test campaigns when you’re trying to optimize creative and call to action?

    But ultimately, this whole model is unsustainable. Sites cannot continue to sell an increasing share of their ads at a couple bucks per thousand, and the increasing competition is going to cause ad network failures and consolidation SOON.

    I just put up a blog post with more detail on how this is going to shake out.
    "Ad Networks Are a House of Cards – But a Great Deal"
    http://is.gd/Ste

    Jason Baer
    Convince & Convert – digital consulting for agencies
    http://www.convinceandconvert.com/convince-convert-digital-marketing-blog

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