History of the Ad Exchange Landscape Part I: Rise of the Ad Networks

In this new series of articles, I will try to explain the current landscape of digital advertising as it relates to remnant monetization from the publisher perspective.  Specifically, this series covers how publishers have sought to cope with a ever-fragmenting marketplace of remnant buyers and the upstart technology companies built to help them.  I think for anyone trying to understand the current marketplace of technology vendors, data companies, and yield optimizers, it helps to know the history.

Part I: Rise of the Ad Networks

Since most major publishers can rarely sell more than a fraction of the available ad inventory on their site with a direct sales team, they historically sold off whatever was left over to a handful of ad networks, or tried to monetize the unsold space with performance-based advertising, like Google AdSense.  This pile of unsold inventory was typically sold off at fire-sale prices, as little as 5 or 10% of what the publisher might charge for the exact same ad space on a direct buy from an ad agency.  Who bought it?  Well an advertiser eventually bought it, but through a type of company called an ad network.  Ad Networks were initially setup to aggregate a number of publishers together in order to provide advertisers with low cost ads that could reach a lot of people and had very aggressive ROI goals.  Basically, they were built for direct response advertisers who were trying to sell something.  While it seemed like a good idea at the time for publishers to hand off this inventory to a network – some revenue was better than no revenue, right? – this practice started to catch up with publishers.  Agencies decided that prices were so much cheaper on networks, and the quality was pretty much the same, they could get more bang for their buck by moving more of their budgets to the ad networks, including for brand advertisers, the bread and butter of publisher sales teams.  From the publisher perspective ad networks were supposed to help monetize their inventory, but ended up cannibalizing the efforts of their sales team instead.

It was great for the networks, publishers desperately needed them to monetize their unsold inventory, and the network could change a huge margin and still be much cheaper than buying from the publisher directly.  And even though technically networks were supposed to aggregate a few publishers together to dilute the value of the ad placement, there was so much inventory available that they didn’t really need to, especially if they could charge an advertiser a bit more money to run them exclusively to one site versus a handful.  The best part was you didn’t really need any infrastructure to start an ad network, just someone to call a bunch of publishers to aggregate some cheap inventory, and someone to call a bunch of advertisers, trying to sell that inventory.  It was easy!  So easy in fact that a few hundred sprang up over the course of just a few years.  Competition drives specialization, and that’s exactly what the networks did – they started to specialize in various levels of ad quality or audiences to differentiate themselves in the marketplace, and of course, maintain their high margins.

Read More -  History of the Ad Exchange Landscape Part II: Network Fragmentation and the Ad Ops Problem