What is the future of Ad Exchanges

Suddenly ad exchanges are HOT. DoubleClick, earlier this month announced that it is setting up an ad-exchange, close on the heels of WunderLOOP, which had announced its own exchange, WunderLOOP Connect in mid-March. Even Google embarked on a little TV-ad experiment with EchoStar that essentially points to a future online ad-exchange.

The growing interest in these ad-exchanges shouldn’t come as a surprise. Online advertising continues to grow – about $16.8 billion in 2006, and heading to the $25 billion by end of decade. These numbers, while astonishingly large, are matched by an exponential growth in the available inventory.

The advertisers need to become more efficient and maintain a tighter control over how, when and where their ad-dollars are spent. Such needs can be met by online ad-exchanges – which also brings back recurring B2B exchange nightmares of the dot-com bubble.

One of the nagging worries about these ad-exchanges is the issue of liquidity – something only Google, and possibly Yahoo & Microsoft can provide. Perhaps that is why Google and Microsoft have expressed mega-billion dollar interest in DoubleClick? Thankfully, they will find little resistance from the web publishers, unlike the television and cable operators who thrive on the inefficiencies of the traditional media markets.

A few months ago, I had argued, that the core competency of large media companies is not the media. Instead it was their sales team, that was their edge over the upstarts. And that is precisely why cable network put the kibosh on an ad-exchange proposed by eBay and backed by the big spenders, aka the people who advertise.

Seven national cable networks tested the exchange over the last month, and executives at those networks decided it went too far in removing humans from the ad sales process, Mr. Cunningham said.

Sean Cunningham, president and chief executive of Cabletelevision Advertising Bureau, a trade group, in separate interviews with The Wall Street Journal and The New York Times stressed the point that it wasn’t going to work. Of course, pretty dumb of me to assume that the whole point of an online exchange … is to remove inefficiencies.

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