The Ad Network Shakeout Has Started

The advertising network business is going to go through a gut-wrenching shakeout, and its just about getting started. The Wall Street Journal says trouble is looming for 300-odd niche ad networks and points to the shuttering of JellyCloud and lay-offs at San Francisco-based AdBrite. Even, a division of Time Warner, is suffering from softening of demand.

Pubmatic recently released its third quarter 2008 data, which showed that the average CPMs continued to be in a free fall, especially on the social networks. This doesn’t bode well for the market at large.

But as the climate has soured, network executives say many ad deals in the pipeline have been reduced or pulled. Tight wallets have forced ad agencies to get tough, even canceling ad deals to get a better rate. Faced with tighter budgets, media buyers say they probably will place their ad dollars with top networks that offer the most-sophisticated technology and are capable of reaching the largest audiences.

The problem with many of the ad networks is that there is very little technology that differentiates them from one another. Many of them have coasted on the strength of their relationships with advertising agencies, which according to those in the know are very fickle. The tightening budgets and collapse of spending from auto makers and financial sector companies is resulting in the noose tightening around the ad-network operators.

UBS, an investment bank, had recently warned that “as corporate profit forecasts come down, we expect planned advertising spending will be delayed and/or cut.” With spending down, most advertisers are going to look for performance-based advertising. Now that is good news for at least one company: Google. You already knew that!

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