The business of online ad network came up when I was talking to a many at the airport. He was saying how much money is being spent to acquire these networks and almost everyone needs to have one. Ad network is the most competitive space and the stakes are high because there is big money there. I think we have about 20 to 200 ad networks out there depending how you define them.
There has also been a lot of deal-making in the ad-network space and lots of money changing hands. More than $2 billion was spent last year to acquire 10 ad networks and exchanges, and venture-capital investment in ad networks reached nearly $300 million, according to media investment bank DeSilva and Phillips. If you include the $649 million that WPP spent for 24/7 Real Media, the $6 billion Microsoft paid for aQuantive, or Google's $3.1 billion purchase of DoubleClick. You add them up, you are taking about a market valuation of over $7 billion of these networks.
Now Disney announces that it has struck agreements with 45 smaller, separate Web sites that allow it to distribute content on them and, more importantly, sell advertising on their behalf. By doing so, it becomes a player in ad networks. The idea of distributing ads online is a no brainer and it is simply scale driven. It sound like a niche but it is not, it is an industry. The continuous M&A and new players will confuse media buyers as well as advertisers. No doubt there will accelerated consolidation and we should not see more than 3 to 5 networks with 2 dominating 70% of the ad space. The top-20 ad networks that sell display advertising earned more than $2 billion in revenue in 2007, or about 14% of the total graphical-ad market.
Other than the top 2, others will have to find a niche in order to survive. Some ad networks will need to specialize in a certain topic area, like health or phama and other financial services etc., while others cut across multiple subject areas. Some ad networks charge advertisers only when a consumer clicks on an ad or makes a purchase. There are still many opportunities for innovation if we stop thinking it as a pure scale play. If we start looking vertical ad networks focused on specific market segments that aggregate mid-tier publishers, this can keep CPMs and brand integrity on the high side, and allowing publishers to focus on improving content and growing traffic. As these types of networks grow and are able to sell a higher percentage of inventory, the economics will begin to work in publisher’s favor which it currently isn't, relegating the super networks to selling tens of millions of untargeted remnant ads on lower quality sites. They will then come to you and write you a big check for your niches. When it comes to ad networks, tt is good to be niche.
