Ad Inventory Swells As Networks Thrive

While advertisers fret about a shortage of high-quality ad space in hot areas like video, they are enjoying what a Yahoo executive called a “glut” of cheap ad space thanks to the rising popularity of social networks.

Yahoo said last week its disappointing third-quarter ad revenue was due, in part, to the explosion of sites like MySpace and YouTube. MySpace alone produced 35.7 billion ad impressions last month, per Nielsen//NetRatings, giving direct response marketers and ad networks fertile new sources for cut-rate ad space, which Yahoo sells in sections like e-mail.

“That is going to change the market dynamics,” Yahoo COO Dan Rosensweig told investors last week.

For now, the beneficiaries of the supply surplus are ad networks, which are the usual outlets for extra inventory. Networks typically buy bulk impressions, then use Web behavior across a network of sites to show ads to users more likely to click. The increase of cheap inventory has helped fuel their growth. According to comScore Media Metrix, ValueClick’s reach is up 11 percent in the past six months and BlueLithium’s 22 percent.

To help goose demand and raise the prices it gets for inventory, Yahoo has made a pair of deals to expand the pool of advertisers buying its leftover space. It acquired AdInterax, a self-service rich media tool that will allow small advertisers to create banner ads. It also struck a deal to set up a remnant ad exchange, part of a 20 percent investment made in Right Media. It hopes the auction channel will draw in new display advertisers and increase demand for remnant ad space. Fox Interactive Media has also signed up with Right Media to create a similar exchange.

Such exchanges not only cut down on operating costs, but increase the price publishers can command, said Michel Walrath, CEO of Right Media. “It’s become a big enough piece to [publishers] that it matters and you need a strategy,” he said. “It’s far more effective to sell to thousands of advertisers.”