June 13th, 2007

Can Online Publishers Take Back Control From Ad Networks?

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If the future of advertising is online, many companies, including Google, Yahoo, Microsoft, and WPP, are betting that the future of online advertising is in ad networks, i.e. centralized platforms for the buying and selling ads, where the company that controls the network controls the sale and the flow of revenue to the publisher. This is entirely counter to traditional ad sales model, where the publisher controlled the sales channel — unfortunately, there weren’t (and still aren’t) many metrics or ROI involved, which has lead to the rise of online ad networks, with Google’s AdSense leading the way.

But is it possible that online publishers, perhaps from the bottom up, might start to wrestle control away from the ad networks?

Two pieces of news make me wonder whether this is possible. First is Openads, the open source ad serving software company, taking $5 million in VC fundingJeff Jarvis is thinking along the same lines as I am:

I may be reading too much into this, but I take hope in a $5 million investment VCs made today in the company behind Openads, a free, open-source ad server. They already serve more than 20,000 publishers, 100,000 sites in 20-plus languages over 30-plus networks. If this becomes a platform for ad serving across the web, then I believe neat new things can happen — perhaps even the first steps toward the open-source ad network I’ve been pushing. I think this could become the basis of open competition with Google — not replacing Google but allowing publishers and advertisers to put together higher value ad hoc networks.

I am using Openads for Publishing 2.0, rather than using an ad network’s serving platform that locks me into that company’s advertising business, e.g. Federated Media, Google AdSense, Feedburner (much as I love Feedburner and believe that Google will increase the value of their network). The experience of installing and learning Openads was much like the experience of installing and learning WordPress — worth every minute because of the power of independence that it confers.

Here’s the dirty little secret of ad networks — ad serving isn’t rocket science. What is hard work is developing relationships with advertisers, particularly for mass scale advertising. But for highly targeted advertising, independent niche publishers have a unique relationship with their readers, and are in the best position to judge what is most relevant to their readers (and Google has shown that relevancy is a huge driver of advertising value). Google has automated and scaled this process, but that has been to a large extent around Made for AdSense sites that have a commodity relationship with users rather than an influential, high-trust subscriber relationship.

Of course, the burden for independent publishers will be to demonstrate the value that they can create through the same or better metrics that ad networks use — indeed, measuring influence is a holy grail for independent niche publishers.

Speaking of Google, the second piece of news is that Google has caved to advertiser pressure to show how well ad performs on each site where they appear in the Google AdSense network:

Google, as expected, has added a new report type to give AdWords advertisers the ability to see the exact sites their ads are displaying on within Google’s content network. These Placement Performance reports will detail the domain, URL, impression, click, conversion and cost data for each site an ad appears on.

Such transparency could lead some niche advertisers to hand pick which sites they want to appear on — and to realize that they might derive more value by working with those publishers directly, rather than sharing a cut with Google as an intermediary.

Google may have empowered many online publishers with AdSense, including those that make a business out of creating low value content to generate low value ad revenue. But just as free software like WordPress gave publishers the power to publish high value content without the burden of expensive content management systems, a platform like Openads gives high-end publishers the opportunity to take back control from ad networks. If done right, this can create more value for advertisers and more value for readers, particularly in highly specialized niches, where even Google’s massive stable of advertisers can’t always deliver relevant ads.

Of course, the one advantage of ad networks is the efficiency of scale — but there’s nothing to stop independent publishers in the same niche from starting their own, highly targeted ad network.

  • Hey - I'm the co-founder of Quigo. Great post, Scott.

    Ad networks normally take a 30-40% cut of the revenue and pass the bigger part to the publisher. The question is whether we deliver more value than we cut, and I believe the answer in most cases is *absolutely yes*.

    Here are a few ways we add value that would be very difficult for any single publisher to do on their own:

    1) Appeal to large advertisers and agencies - I agree 100% with what Zach Coelius said above - it's usually very difficult for any single publisher to attract large advertisers and agencies. The ad network facilitates larger ad buys for those and all participating publishers benefit in a way they could never do on their own.

    2) Yield optimization algorithms - On auction-based networks (like Quigo and Google), the highest bidded ad in most cases is *not* the ad that would yield the most $$'s for the publisher. To find the highest yielding ads you need to crunch a lot of data and test ads on a massive scale. 99% of the publishers in the world do not have the scale necessary to make yield optimization algorithms efficient. Without this network value, the publisher will be rotating low yielding ads and would effectively be leaving a lot of money on the table.

    3) Account management & expertise - Remember that online advertising is very very different from traditional advertising. For one, it needs to perform well for the advertisers... Most publishers do not have the expertise in-house to help advertisers with setting up bidding, optimizing for ROI, managing their budgets, etc, etc. This is a huge component of what we bring to the table as a network.

    4) Vibrant marketplace - One of the big values auction-based ad networks bring to the table is a vibrant bidding marketplace. For that, again, there is huge value in aggregating many advertisers bidding each other upwards. A single publisher would find it extremely difficult to attract even say 100 advertisers to bid each other up.

    5) Etc, etc.

    I'm rooting for OpenAds and I think they are a great solution for mid-tier, well-defined special interest niche sites, operated by highly technical folks. Those are sites that could benefit from hand-picking the few advertisers that would work best for them and their audience. Boing Boing or Slashdot are good examples. The ads on Boing Boing are perfect for their audience and no ad network would be able to pick better ones.

    But for all other publishers I think the ad networks add a ton more value than they take off the table.

    At Quigo we're focused on getting our publishers the best of both worlds: The advantages the ad network brings to the table, combined with the advantages of selling to advertisers directly, under the publishers' brands and owning those relationships with advertisers. This is very different from "black box" type ad networks like Google & Co which are the absolute opposite from a platform like OpenAds.

    Thanks again for writing this interesting post.

  • Michael Stone

    Quigo has a rock solid service. Google's change is a half-step toward what Quigo began years ago. I've heard that Quigo is working on a deal that could lift them into the top tier of online ad companies. Keep your eye on them. Prediction: Quigo signs a massive deal and both Quigo and Adbrite get acquired by years end.

  • And not a made for Adsense site either Hashim.

    Scott is right. Adsense does not work for "regular" bloggers/webmasters with low traffic.

    When I say "does not work", I mean very profitable. Adsense pays when you have lots of eyeballs.

  • Hashim,

    Give me an example of a "hobby" site with high quality content that has made anything more the pocket change from AdSense.

  • "Google has automated and scaled this process, but that has been to a large extent around Made for AdSense sites that have a commodity relationship with users rather than an influential, high-trust subscriber relationship."

    That is simply not true. Hobby sites who have great relationships with readers but no interest in selling ads themselves have benefited from Adsense.

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