Online value determination belongs with publishers, not ad networks

A new benchmark study on digital pricing by the Interactive Advertising Bureau and Bain & Company reveals that a growing reliance on ad networks by top online publishers is lowering the value of their websites and helping to commoditize online advertising. The report in Online Media Daily today should be a wake-up call to publishers of every stripe, and it validates something Gordon Borrell and I have been preaching for a very long time — that any serious online revenue strategy begins with valuing what you’re selling and ends with hard work. Media companies, however, seem unable to grasp the seriousness of this and choose, instead, the easy path of turning impressions over to ad networks.

Ad networks aren’t evil, and they provide an ideal solution for remnant impressions, but companies that bet the ranch on the networks ultimately sell themselves short. It’s easy money and plays into the order-taker mentality rampant in the world of media companies.

The average CPMs earned through ad networks ranged from 60 cents to $1.10–a fraction of the $10 to $20 paid for display inventory sold directly by the seven unnamed publishers involved in the IAB study. And while networks account for a quarter of display impressions sold, they make up only 2% of revenue.

“This type of understanding may serve as a direct call to publishers to do a better job at optimizing ad sales, which may include partnering with different networks to get more value out of their inventory,” said Sherrill Mane, senior vice president of industry services at the IAB.

Earlier this year, ESPN took the bold step of refusing ads from ad networks and placed the onus for sales directly on its own sales division. They’re getting into the ad network business, and other major publishers, like Martha Stewart Living Omnimedia, Forbes and Conde Nast, are following suit. I expect this trend will continue, as more and more publishers wake up to the reality that they’re giving away the store.

And nowhere is this issue more acute than with local media companies, who long ago turned their web futures over to third-party ad networks and continue to reap small returns for their investments as a result. Local media companies need to get serious about online revenue and acknowledge that the flexibility for making money will always be at the local — not the network — level. All the evidence you need is found in Gordon Borrell’s common practices for what he calls “Green Zone” publishers — those who perform above average in terms of local revenue market share. Green zone performers have dedicated online sales people, work with non-traditional clients, have an amazing thirst for data, use a consultative sales strategy, can’t get enough training and set much higher rates.

What they don’t do is sit back and rely on ad networks to do the work for them.

Comments

  1. Good analysis, especially about local sites giving away the farm to networks.

    This whole ad network scenario is a short-term boom and a long-term bane.

    Given that you can buy solid inventory at a fraction of the cost, why wouldn’t you use ad networks almost exclusively, especially for test campaigns when you’re trying to optimize creative and call to action?

    But ultimately, this whole model is unsustainable. Sites cannot continue to sell an increasing share of their ads at a couple bucks per thousand, and the increasing competition is going to cause ad network failures and consolidation SOON.

    I just put up a blog post with more detail on how this is going to shake out.
    “Ad Networks Are a House of Cards — But a Great Deal”
    http://is.gd/Ste

    Jason Baer
    Convince & Convert — digital consulting for agencies
    http://www.convinceandconvert.com/convince-convert-digital-marketing-blog

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