Ad Networks Race to the Bottom

The Interactive Advertising Bureau (IAB) and Bain & Company today announced the release of a benchmark study which suggests that online publishers are increasingly turning to sales intermediaries known as ad networks to sell off excess inventories. The use of “ad networks” surged from 5% of total ad impressions sold in 2006 to 30% in 2007, according to the newly released “Digital Pricing Benchmarking Study” from Bain, the global business consulting firm, conducted in coordination with the Interactive Advertising Bureau.

[From Use of "Ad Networks" Surges Six-Fold as Media Companies Step Up Monetization of Unsold Online Advertising Inventory]

Keep in mind that the above study is being promoted by the IAB… for a more sanguine look at online ad networks you should read this piece in MediaWeek:

“While ad networks and their cousins, ad exchanges, offer an efficient way to unload inventory that would otherwise go unsold, common complaints are that networks amount to paltry ad rates, low-rent ads and, ultimately, the threat of undermining a brand’s value. “

Why is this a race to the bottom? For starters, the only real differentiator that the 300+ ad networks can control is price and even there the unit metric is entirely direct response based, as opposed to brand metrics that advertisers care about equally if not more so than how many people are clicking on the ad unit.

I’m still learning my way around the online advertising space but I do know enough to suggest with some certainty that simply commoditizing a fungible product leaves you with little maneuvering room in a very crowded and noisy marketplace.