June 26th, 2007

Ad Platforms vs. Ad Networks: Who Controls The Advertiser Relationship?

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Time Inc. has selected Quigo to provide an Adwords-like platform for bidding on pay-per-click text ads across all Time Inc. sites. Quigo will replace Google AdSense network and Yahoo Publisher Network, which currently serve pay-per-click ads from advertisers that buy ads in Google’s and Yahoo’s centralized search advertising marketplace.

What distinguishes the Quigo platform is that advertisers can buy ads directly on Time Inc sites — and in fact they must do so. In contrast, most advertisers that appear through AdSense and Yahoo Publisher Network appear across the entire network, and are served based on keywords that appear on individual web pages.

This got me thinking about the difference between and ad platform and an ad network — there are definitely too distinct phenomenon going on here, so I’m going to co-opt these terms to draw this distinction:

Ad Network

Ads are purchased from one centralized seller (e.g. Google AdWords, Yahoo Search Marketing) and are served across the entire network of affiliated sites, typically without the sites or advertisers being able to choose which ads run on which sites, i.e. the ads are served based on automated systems, such as keyword context or behavioral targeting

Ad Platform
Ads are purchased directly from individual sites based on the platform’s dynamic marketplace and serving capabilities, e.g. text-based pay-per-click ads

The key distinction here is WHO does the selling and, most importantly, who controls the advertiser relationships. For Google AdWords and Yahoo Search Marketing, Google and Yahoo do the selling — and so they control the advertiser relationship. Quigo has been making headway against Google and Yahoo because its ad platform allows publishers to do their own selling and own the advertiser relationship — which is traditionally how it’s been done.

This distinction is crucial because what we’re seeing now is a battle for control of advertiser relationships — especially the largest brand advertisers — which has lead to the recent M&A activity around ad network and ad platform companies. Google AdSense, Tacoda’s behavioral targeting network, AOL’s Advertising.com network and other ad networks have been successful because many sites can’t or don’t want to do their own selling. That is the principle behind Federated Media selling ads for top blogs — it’s notable that the recent Microsoft advertorial controversy represents an instance where some sites did not feel that their interests were well represented.

I think there remains a robust market for sites that need traditional ad networks, i.e. someone to sell for them — the cost of sale can be very high. But I think increasingly both large and small publishers will want to control the advertiser relationship. Most high quality niche sites don’t have the scale to sell pay-per-click ads directly, so they may still reasonably use Google or Yahoo (or, yes, Microsoft), but large publishers like Time Inc. certainly do have the scale to sell PPC ads themselves. Niche sites, on the other hand, don’t need huge scale to sell sponsorships and display ads themselves.

The market right now is split between Google and Yahoo, which own the relationship with small and medium-size businesses that use mostly search advertising, and large mainstream publishers and online portals, which own the relationship with the large brand advertisers that use mostly display advertising. Yahoo is of course the crossover — they recently combined search and display ad sales to try to own the advertiser relationship across the two main buckets of online advertising — likely a wise move.

I would expect to see more niche sites adopting ad platforms like Openads, which put them in the drivers seat for sponsorships and display ads, and large sites adopt ad platforms like Quigo, which put them in the drivers seat for pay-per-click ads. (Large sites, of course, are already in the drivers seat for display ad sales.)

As more advertising dollars pour online — increasingly brand advertising dollars, which have traditionally been very relationship driven — whoever controls the advertiser relationship holds all the cards.

  • Scott -

    I don't disagree with you about how, in a theoretical sense, far into the future the market COULD work, I am just being realistic about how large brand advertising decisions are made and budgets are allocated.

    Media planners are very busy and only getting busier. Think about this - ad agency commissions are declining while advertiser brand budgets are growing, that means media planners have less time to spend more money. That is a big enough problem. On top of that fact, fragmentation is happening faster on the internet than it happened in any other form of media. 5 years ago, 40% of the minutes spent online were spent on the top 5 sites. Today, less than 20% of the total minutes happen on the top 5 sites.

    These two facts mean that large brand advertisers have to spend more money with fewer resources over more sites. They need the research, the data, the trust, the expertise, the billing efficiency, etc... And that just cannot happen at any large scale without some trusted intermediary.

    Those intermediaries add real value.

    I will agree with your point about AdSense, in fact Sramana made the point far more eloquently than I ever could at http://sramanamitra.com/blog/1.... That just means that Google isn't the best solution for high quality bloggers, it doesn't mean that ad networks don't add value.

    Glam, FM Publishing, Jumpstart, WPNI BlogRoll, GoodHealthAdvertising, SportsSyndicator, GreenAdPlanet, SustainLane, Lime, BlogHer and other vertical networks like them add a ton of value to their bloggers.

    Of course, if publishers want to have their own storefronts to take direct ad spend from those niche advertisers that find them, they should. Adfiy, and many other companies, provide those services.

    There may be a time at some point in the future when brand media buyers will sort through the more than 82MM websites (Google's stat), pick the best 400 for their brand and place their adds without the help of sales people, but that is a long long way away.

    Russ

  • Russ,

    "Vertical networks backed by a powerful media brand can offer the high visibility, easy buying and target audience that advertisers are looking for."

    That's great for big brand advertisers with broadly defined audiences, but for niche advertisers, why can't they deal directly with the handful of publishers who know reach their audience?

    Look at paidContent -- do they need an ad network? Not at all. Niche advertisers are going to wake up to the fact that there's a lot more value to be created by cutting out the middle man and dealing with publishers directly.

    How many AdWords advertisers are getting flung across crappy Made for AdSesnse sites, when there are really only a handful of high quality sites they should be advertising on -- and should be buying from directly.

    Ad networks are great for scale and mass reach, but I fail to see how they create value in niches.

  • The answer to gaining more control is simply to take it. The next generation of vertical ad networks – smaller publishers partnering with branded vertical networks from major media companies – move a lot closer to offering publishers full control over what advertising is associated with their content and also makes those niche communities immensely more attractive to advertisers. Openads and the like are very useful, but still put the responsibility of selling ads on the individual publishers. Vertical networks backed by a powerful media brand can offer the high visibility, easy buying and target audience that advertisers are looking for.

  • Scott,

    I rarely write to you or anyone on a blog but here goes: good post but we should probably connect by telephone when you get a moment so I can explain a few nuanced details to you about our model and Time Warner's interest in our platform. You're very close to nailing things perfectly. One quick call should do it.

    Michael Yavonditte
    CEO, Quigo

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