Not Dead Yet: Ad Nets Have Survived, Thanks to the Recession

The recession—which has depressed demand for display ads—has had the opposite effect on ad networks many had expected; hundreds are still in business, and some are actually thriving. Also helping the segment endure is the fact that midsized sites have been reluctant to follow ESPN, Turner and Forbes in cutting off ad networks altogether.

The lousy economy has “caused a shift to performance advertising and audience targeting, which ad networks do well,” said Rajeev Goel, co-founder and CEO of PubMatic, a company that helps publishers optimize their relationships with multiple ad networks. Goel pointed to a recent report by ThinkEquity, which identified nonpremium display and search as the only growth segments in 2009 (see chart here).

In fact, many digital buyers and publishers have noted a growing bifurcation in the online ad market between low-end and high-end inventory, which is good for ad networks, but not for most publishers. “The recession has caused the online ad industry to become more polarized,” said Jeff Lanctot, chief strategy officer Razorfish. Lanctot said there is still demand for big-ticket, high-impact sponsorships bought directly from top sites, and also for inexpensive direct-response inventory.

But in the current ad economy, the price gaps between those two segments has widened to as much a tenfold difference, creating a “soft and sluggish middle,” he said. Thus, sites that are ranked below the top five or ten in a particularly category simply can’t ditch ad networks.

“Publishers you talk to really know they shouldn’t be doing it,” said David Payne, former head of CNN.com who is now the CEO of ShortTail Media, an aggregator of premium Web inventory. “They kind of have to hold their nose and do it.”

Turner, which stopped working with ad networks about a year ago to launch its own net, boasts a breadth and scale that may give it an advantage over stand-alone sites (its properties range from NBA.com to CNN.com to AdultSwim.com). Walker Jacobs, senior vp of Turner Sports & Entertainment Digital called that effort “a spectacular success”—though a success that has come in an unexpected way. The company had anticipated its network would take the middle ground between ad networks and direct-site buying offering brand-safe avails at scale.

Instead, advertisers have used the net to complement bigger buys by finding similar audiences on other Turner sites. “It’s become that perfect nexus of context and audience,” Jacobs said. “I still believe that other segment is going to emerge. It’s just taken longer than we thought it was going to.”

Jacobs’ observation underscores an ongoing industry debate—should editorial environment rule online media buying, or should audience and data determine it? Some publishers who have railed against ad networks have done so in defense of the edit-is-king model. Others doubt most publishers will be able to live without networks. “Online advertising is too sophisticated for that,” said Joe Apprendi, CEO of ad net Collective Media. “It’s not going back to print. It’s about the who and the where. Both are extremely meaningful.”

Martin Nisenholtz, senior vp, digital operations for The New York Times Co., said he has no plans to stop working with ad networks—despite keeping some site sections off limits to them. And while many publishers fear being undercut on pricing, Nisenholtz said he’s not concerned: “We don’t see a whole lot of advertisers that cross over from network to premium. Network advertisers tend to be direct response brands we don’t sell to anyway.”

But what about brands battling back—the big theme of the Interactive Advertising Bureau’s annual meeting last February—and the recent efforts of the Online Publishers Association to push new brand friendly creative and to deemphasize the click. Is the Times catching heat from its anti-network brethren? “Not at all,” said Nisenholtz. “Each publisher has to decide the strategy that’s right for them.”
For its part, the OPA is not necessarily urging any sites to stop working with ad networks.
Rather, according to president Pam Horan, the organization is focused on “demonstrating the value of this platform for brands.”

Horan did point to the Wall Street Journal and Condé Nast as publishers who have sought to eschew their reliance on ad networks.

“We’ve seen a movement that some have recognized,” she said. “Every publisher continues to evaluate each and every one of their relationships.”

But buyers don’t expect many others to take an ESPN- or Turner-like stance. “Most publishers will ultimately embrace both,” said Lanctot.

However, that doesn’t mean that there won’t eventually be a shakeout in the overcrowded ad network space. Some industry insiders theorize that many smaller ad networks are doing all they can to hang on in 2009, surviving on leftover venture funding while maintaining low overhead in hopes of an economic turnaround and an eventually buyer.

However, others predict that the market could look much different next year, since the ad network segment is uniquely vulnerable to looming industry changes. Andy Atherton, COO of Brand.net—and former head of display ad operations at Yahoo, identified both the ongoing debate over of which party (brands, sites or networks) has most legitimate claim over Web advertising data, as well as the potential for heavier industry regulation (something the U.S. government is said to be weighing). “The data issue could blow everything up for networks,” he said. “And so could regulation.”