Sitting here in 2010, the advertising network landscape looks vastly different than it did eight, five or even three years ago. Like most things in their early stages, the industry in which ad networks exist has evolved rapidly. The ad network space, which of course includes CPA and affiliate networks, has been maturing for some time now.
Three years ago, I wrote an article for a major trade publication that pondered the fact that there were hundreds of ad networks, all seeming to be coexisting happily with profitable, scaling businesses. In fact, it seemed a new network popped up every week.
There were very few barriers to entry, startup costs were minimal and the business model, when executed properly, was very efficient. The popularity of performance- based advertising was booming at the expense of impression-based models, with a larger variety of products, goods and services being offered than ever before on a performance basis.
Compared to traditional ad markets, the online industry could apparently accommodate a huge number of networks because of the massive growth in users, traffic and websites. In addition, accessing the web via wireless networks and mobile devices was beginning to take off, providing even more “reach” potential.
So what happened to the networks environment since then and where should networks hope to be heading in the future?
As we now know, and as a few pundits predicted at the time, there has been a fair amount of consolidation. This has taken three main forms:
- networks disappearing or closing up shop completely;
- networks dramatically scaling back their offerings and becoming smaller and more focused;
- networks acquiring or merging with each other.
It is important to understand why this consolidation has happened in order to understand where things are heading next.
First, the marketplace had become over-saturated. While the industry might have been able to sustain a lot of networks, it couldn’t sustain several hundred of them. There were simply too many.
Second, there were very serious concerns relating to fraud and that negatively impacted a number networks. Often, fraudulent activity remained undiscovered or unattended, and this resulted in networks taking significant losses.
Third, the emergence of ad exchanges and subsequently buy-side platforms or DSPs has challenged the role played by traditional ad networks.
Are networks doomed? No. But, there is probably going to be even more consolidation to come and companies in the ad network space will have to create discernable value in order to differentiate themselves. Potentially powerful differentiators include:
- Technology and Targeting – This needs investment, and is where the battle is being fought by the new and emerging platforms that represent a major challenge to less sophisticated networks.
- Compliance and Forensics – Having an in-house or reputable third party compliance and forensics group is not a luxury, it is an absolute necessity. There are emerging companies in this space who cater to networks and have cutting-edge technology and well-qualified staff that are specialists in rooting out abuse. This has the potential to be a huge competitive advantage for networks that move quickly because many other buy-side platforms are not yet focused on this issue.
- Compelling Creative – Unique and compelling creative executions that can’t be delivered in an automated fashion through platforms run solely by technology will be key. Standard ad units and banners are fine and necessary, but those networks that can unlock unique and more powerful ad units will stand out.
- Extensive Reach – Networks are able to provide immense reach as a value proposition, and for some networks this has increased consistently over time. Networks must continue to look for reputable partners – not just advertisers, but also publishers and other distribution partners – so that reach continues to be a large piece of the value equation. It is still the case that most advertisers are looking for efficient reach and expansion of their audience, and this is especially true for those large spenders just dipping their toes in the water with ad networks.
As the last five years has brought tremendous growth, change and evolution, so will the next five. Networks of all types need to be alert to the marketplace trends around them so as to ensure that the coming years are as successful as they are chaotic
MICHAEL SPROUSE is the Chief Marketing Officer for Epic Media Group, an online marketing & technology company recognized in the Inc. 5000 and by AlwaysOn as one of its Top 250 Global companies.