The Ad Network Shakeout Has Started

9 Comments

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 Advertising.com, 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!

9 Comments

Russell Rockefeller

I predicted this about two years ago after unsuccessfully pitching a couple of ad networks about self reliance through technological acquisitions over publisher reliance. The overall attitude of ad networks is that it’s way easier to propel growth by acquiring more publishers rather than taking charge and producing via lead generation platforms like the one I was selling. In a way it looks good on them but it’s unfortunate that their overall lack of desire for technological progress has now hurt an entire industry. The problem with the ad network model is that it depends 100% on publishers that will take their traffic somewhere else if they are offered more money or if they are unhappy with treatment. Ad networks also seem to treat their top publishers the least well while simultaneously rewarding low earners. Low earners are not subject to as much scrutiny or late payments and red tape.

Om Malik

@Steven Finch,

I couldn’t agree more with you. that is one of the reasons why all these guys are keeling over. it is a lot about hyper-targeting which Google does so well.

Steven Finch

Advertising on the internet is all about knowing your audience and knowing how much they are worth (TARGETING). Ad networks have very limited targeting, either just simple Run-of-network or Channel sections. These sections are defined enough and basic CPM ads dont provide rewards for advertisers.

Andy Gongea

I think that advertising is the first domain with major losses. Because when you want to cut expenses you don’t cut the production but the promotion.

So, I think we can see lower rates in online advertising.

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