Online ad networks help advertisers but may hurt publishers: report

Online advertising networks are an essential source of revenue for thousands of tiny websites. But while growing in influence, ad networks are emerging as obstacles for maximising publisher profits on the web.

According to a report by the Media Management Center (MMC) at Northwestern University in Illinois in the US, managing relationships carefully with those online ad networks “can mean the difference between earning 50c and earning $50 per 1000 impressions,” the report found.

The report, called “Online Ad Networks: Disruption – and opportunity – for media businesses” says that ad networks are increasingly defining the future of online content business. The share of ad inventory delivered by networks rose from 5% in 2006 to 30% in 2007, according to the Interactive Advertising Bureau in a study of the US market.

Online ad networks are not just selling a growing share of internet advertising – generating significant income for content publishers – but they are also become increasingly sophisticated by serving ads dynamically based on previous customer behaviour and real-time feedback.

But while the ad networks are defining the future of the online content business, what’s good for advertisers is not necessarily good for publishers. The report says that of the four publishers studied for the Interactive Advertising Bureau, the average revenue from ad networks (measured in CPMs, or cost per thousand impressions) was one-sixteenth the revenue generated by ads sold by the publisher’s sales staff.

In fact the difference was significant. The largest networks, the report says, will fill a newspaper’s advertising inventory with banners that generate less than $US1 CPM, when the publisher’s own sales staff could offer better-targeted ads that “might bring prices of $US20, $US30 or even $US50 per 1000 banners served”.

An IAB study also found last year that publishers were in danger of harming their premium brands and risking severe price erosion by creating so much inventory and giving up so much to intermediaries.

Among the report’s recommendations, as taken from the executive summary, are the following:

• “Devote staff time and technology investment to tracking and optimising their advertising revenue and their use of networks.”
• “Pay more attention to their ad inventory, understanding which ad positions are worth the most and which ones they should sell themselves rather than turn them over to a network.”
• “Understand your core advertisers and serve them better than the networks can. You’ll generate higher prices selling ads directly than by relying on networks.”
• “Consider partnerships that leverage complementary strengths, such as the Yahoo-newspaper partnership that promises to generate new revenue for both Yahoo and the hundreds of participating newspapers.”

The report can be downloaded here.

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