SpectatorBytes

Much discussion has taken place about the value of advertising networks over the last couple of days. Here are some of the most interesting posts (See Are Ad Networks Becoming Irrelevant?, What’s This Fascination with Ad Networks? and Are ad networks for loser/weak publishers?).

I believe that Web publishers need to focus on building their audiences rather than internal sales capabilities. Attracting audiences is difficult enough on the Web than any distraction from that objective may lead publishers to inadvertently create an opening for other publishers to steal their audience. Publishers who have reached scale on the Web (>5M unique visitors) may feel different and understandably so. Nevertheless, since reaching this level of scale on the Web is difficult, I believe my thinking applies to most online publishers.

The main issue on the Web is not the lack of publisher’s direct sales forces but rather the fact that most of the online spending still comes from direct response advertisers. Brand advertisers are still on the sidelines. Given their sole focus on performance, direct response advertisers are increasingly more comfortable using ad networks and less likely to pay for premium inventory - specially when the definition of premium seems increasingly unclear. Hence, they are putting downward pressure on CPMs.

While publishers can create sales forces to try capture high-CPM brand dollars, they are likely to face an uphill battle. Pure display ads inside a well-branded website do not seem to do the trick. Brand advertisers are demanding custom solutions from publishers. They expect highly tailored, unique advertising experiences. In addition, they are still on the experimental stage. As a result, most publisher efforts to sell advertising directly to brand advertisers remain sub-scale. Over the past year, I have not come across any mid-size publishers that can show meaningful advertising revenues through direct sales force efforts.

Over the next couple of years, I expect the role of Vertical ad networks is going to be to develop compelling solutions for brand advertisers. They will spend the time needed to work with brand marketers to design ad solutions that achieve their objectives, and for which they are willing to pay higher CPMs. The challenge with brand advertisers is not about how to sell them specific publisher brands but rather developing ad solutions that deliver significant reach and unique engagement.

Publishers will benefit when Vertical ad networks succeed. They will likely finally see higher CPMs, specially those that have spent the time growing their audiences.