Premium online ad networks in the UK are facing a challenge which requires fundamental changes to their business, and it seems likely that those who don’t move quickly will be in all kinds of trouble.
Until recently it was all so different – the role of a network seemed certain; our experience of TV and radio showed that the network was the right model because it was beneficial for both buy and sell side. All the big publishers rushed to acquire partners and become networks;
- for agencies, networks provided access to a broad audience and range of categories of websites through a single source, saving them time and money.
- As the cost of this audience was relatively low, and because networks typically filtered this audience by channel, advertisers saw a reasonable ROI.
- Publishers, especially small publishers, did not have the resource or skills to sell their own advertising inventory, and so found the representation provided by networks to be vital.
And yet, all of a sudden, things have changed. Victims of their own success, the network model is about to collapse in on itself. Here’s why:
Technology
Technology has become more sophisticated, and the market has followed this. This has engendered a move from traditional ‘channelised’ advertising, to a targeted technology-driven approach. This change has meant that one traditional advantage of the network (broad number of sites being represented) becomes less relevant.
Due to the easy measurability of improvements in ROI, new technology has proliferated, with multiple vendors providing alternative targeting solutions and it hasn’t taken long for vendors to recognise that agencies represent a great market for these products. As the technology has become more accessible and as competition has driven down the cost of this technology, it has been rapidly adopted by agency buyers.
Proliferation
In Q3, 2010, there were estimated to be close to 100 ad networks operating in the UK.
The impact of this saturation is obvious; margins are being squeezed from both agencies and publishers. In order to secure the most valuable audiences, networks are under pressure from publishers to offer minimum guarantees – a guaranteed monthly return, in exchange for exclusivity.
As agencies become more sophisticated, they don’t want to buy targeted or channelised inventory, and are only prepared to pay a bare minimum for unfiltered inventory.
The net result is that many networks are trapped in a position where they are required to pay publishers for inventory which they cannot sell, or can only do so at a fraction of what they are buying it for. Clearly, this is insustainable.
Inflexibility
The online advertising market has moved rapidly towards embracing new creative opportunities provided by video advertising, rich media and mobile products, networks have been slow. They have not been able to find effective ways to scale these ‘special execution’ campaigns, as they cannot easily move outside the confines of standard ad placements, due to the diversity of sites they represent.