Last week, I spoke at the AlwaysOn Media event in NYC and used my presentation to clear the air — mostly about how the advertising networks makes life easy for advertisers, but somehow it forgets the publishers entirely. There are so many ad networks currently in this space that it’s almost impossible to distinguish one from the other.

Some of my ad network ‘buddies’ seem to think that:

• “It is all about distribution - advertisers will come”.
• “There is very limited ‘good’ inventory to sell”
• “It’s about reach and frequency, and you can get everything you need from the top 50 sites”

They are so right -in the old model. What it all really boils down to is that there are very few sites with good inventory that have the reach advertisers want.

This sounds very similar to the mantra the music industry had:

• “It is all about the music artists - listeners will come”
• “There are very few good music artists that are sellable”
• “The top 50 artists can reach millions”

Clearly, this approach has collapsed.

There are tons of smaller sites - such as blogs - that have great content users want. It is not just about reach and frequency. It’s about when you reach users and frequency. And clearly, there is unlimited inventory once you move beyond the user and enter their context.

My old ad network ‘buddies’ may think that selling sites, not pages, is the way to go - just like the music industry thought of selling albums, not tracks.

The reality is that if you show ads to users when they are most likely to receive the message (as we can do with contextual advertising), it is like selling a music track of their choice when they want to hear it.

So, what will the next generation of networks look like?

1. Ad networks will include everybody - from small, tiny sites and advertisers to the larger variety of both
2. Ad networks will sell pages not sites, or even worse, sell a random set of pages with nothing relevant to an ad buy at all.

And that’s music to ContextWeb’s ears…

But, to build an efficient system, it is not just about connecting the buyers and sellers at the right time. It is also about the right price. In order to understand price, one needs to answer three main questions:

1. How does bidding work and who does it benefit?
2. Who defines the value of a page?
3. Are advertisers splitting their budgets appropriately between online and offline?

Bidding

Bidding inherently works towards creating a market equilibrium between supply and demand. However, if the distribution channel that brings the supply and demand together is not efficient and open, then it may cause unfair advantages to the side that is gated by distribution bottlenecks.

In most bidding systems, the sellers set a minimum price and the buyers bid it up. Or the buyers set the max price and the sellers bid it down. In a world where the same thing may be valued differently by different buyers (Example: real estate, stock), it gets even more complicated where the bidding has to be a blind system where both the seller and the buyer say their price and a closed system matches the seller to the highest bidder.

This is where an ad network comes in.

The network’s job is to keep the seller’s and buyer’s price private and ensure that they provide the highest value to the seller and the buyer. Most ad networks today ensure that the advertiser is kept happy and usually give the publisher a percentage, or revenue share, of what the network makes. The seller - in this case, the publisher - has no control over his/her pricing. Yet, a real free ad marketplace would allow both advertisers and publishers to bid in an open market.

Bidding systems we have today really help the advertiser (and partly the network) - but not the publisher.

Value of a page

There is no intrinsic value to a page. It depends on if you sold it, to whom you sold it and at what price. In other words, it’s more like real estate. You could sell the same condo to any number of buyers and at varied prices. Or, like airline tickets, your seat may be valued differently than the seat right next to you.

Are advertisers splitting their budgets appropriately between online and offline?

Clearly the answer is: No.

Less than 10% of ad budgets are spent online even though research indicates people spend over 35% of their time online. Advertisers spend their money on low performing offline media and then expect to get efficiency from online campaigns. By mixing the two budgets, the CMO can make the numbers work. The reality is Online media is undervalued and budgets are being spent in the wrong place.

So why are these 3 questions important?

Well, what if ad networks provided:

• A bidding system that made the most economical match for both buyer and seller (example: There is no better price the buyer or seller could have received when comparing ANY other marketplace opportunities at a given point in time)
• A value set at the moment the trade occurred - like an airline ticket.
• Tools for the advertiser to easily manage and deploy their budgets online.

Answer: It would be a significantly different world than what we have today.

Tags: adnetworks, ad networks, contextweb, contextual

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