An Industry With Too Much Inventory

Yesterday, I spent the afternoon and evening speaking with a number of developers, advertising platform executives and social network executives. Our discussion frequently revolved around strategies for providing better advertising solutions on the social web. The conversation has been pretty much the same for the past year.

There is a continued increase in inventory and there is an increasing number of advertising companies looking to tackle the problem of monetizing that inventory. Just today I wrote about a D.C. based comapny, Gratis Internet, entering the space as well. One thing is certain: Silicon Valley does a great job of creating new technologies that generate more inventory. Unfortunately that’s not what we need.

There are a few companies that are succeeding at attracting large brands to fill that inventory. Even those companies aren’t satisfied though because their venture capitalists that backed them are looking for a scalable business to exit at a high multiple. Building an agency isn’t a scalable business even though it’s successful at generating cash flow.

So where do we go from here? My guess is that most of these companies are going to build ad networks that provide advertisers with the ability to purchase directly in an automated fashion similar to Google AdWords. That’s as simple as it gets. While there are companies that are struggling to redefine scalable advertising models, many of them find themselves becoming pigeon-holed into the agency model.

Unfortunately there are no easy solutions but somebody is going to need to figure it out sometime soon before the venture funding runs out! Do you foresee any other scalable business models that will help these companies justify their valuations in a limitless sea of inventory?