Ad Networks

Demand-Side Networks: the Modern Ad Networks.

Posted by Michael Sprouse on April 6th, 2011 at 8:51 am

Samuel Langhorne Clemens – aka Mark Twain – is often (mis)quoted as having said, “The reports of my death have been greatly exaggerated.” In a similar vein, we have all heard about the impending demise of Advertising Networks … a slow death driven by the rise of Demand Side Platforms (DSPs), Supply Side Platforms (SSPs) and Display Inventory Exchanges. The doomsayers are often quoted as suggesting that:

  • Ad Networks are inefficient;
  • Ad Networks inflate margins for themselves;
  • Ad Networks are becoming obsolete because of exchanges; and
  • There are too many ad networks; they can’t all add value to the ad stack.

The doomsayers are overwrought, and the Ad Network isn’t dying. Instead, what we are seeing is the fundamental transformation of the Ad Network and the emergence of the “Demand-Side Network”.

A brief history of (Internet advertising) time.

Ad Networks have been around the ecosystem for awhile now, providing efficient, scalable media buying solutions for advertisers. The aggregation of inventory and behavioral data started long before we saw Mr. Kawaja’s now-famous slide detailing the complicated landscape in interactive advertising. An “aggregation model” was developed beginning in the middle of the last decade, wherein networks provided advertisers with a solution that enabled scale, targeting and performance. For a while, this worked well. Starting around 2008 however, a thesis began to develop that the ad landscape was either inefficient or provided too much margin for Ad Networks, or both. One of the drivers of this was a recessionary economy that required advertising-centric parties to focus more on performance goals and profit growth. Partly as a result, an explosion of new models emerged seeking Ad Network market share. While describing the full new entrant landscape is beyond the scope of this article, here are the major new players, simplified for our purposes here:

Ad Exchanges. Ad Exchanges evolved from the Ad Network model. In fact, the founders of one of the largest exchanges, Right Media (RMX), started it in late 2004 in order to provide a more efficient model for the online ad ecosystem. The exchange model existed as a standalone business but never fully caught on until the rise of the DSP in recent years.

Demand Side Platforms (DSPs). The DSP model was also shaped by the Ad Network model. In fact, some of the current DSPs were once Ad Networks, but were unable to gain traction in part because of the sheer amount of competition and the established players in our space. These new players adapted their model to attempt to address inefficiencies with the Ad Network model.

Supply Side Platforms (SSPs). The SSP model was formed in part to provide publishers with a more streamlined and efficient approach to working with the hundreds of networks that were vying for publisher inventory. Most publishers found it difficult to dedicate a team to manage their Ad Network relationships, instead choosing to give 10-15% of their profits to the SSP to do it for them. You guessed it; this model, too, was created out of the Ad Network business.

Not your father’s slightly older cousin’s network.

People would like to paint the picture of Ad Networks as outdated and increasingly irrelevant (never mind the irony that the Ad Network model has served as the genesis for many of the current models permeating the space). We would argue that the problem isn’t with the model itself, but rather, the definition of the Ad Network model. The traditional definition and description of an Ad Network is antiquated, though it remains the prism through which Ad Networks are typically viewed (and often negatively judged!). Most digital media press outlets and industry analysts haven’t caught up with how Ad Networks are actually operating and evolving.

And what does that evolution look like? In multiple ways and in a wide variety of capacities, the Ad Networks which continue to thrive are focused on increasing advertising efficiency throughout the ad stack and lifting the entire ecosystem as a whole. By the way, you might be surprised at how many Ad Networks are still thriving, and how many are substantially larger than their point-solution little siblings like pure DSPs.

Yes, the traditional Ad Network model has been under pressure for a number of years … and yes, like any well run business, the good Ad Networks are innovating and enhancing their suite of services for their clients.

A new definition – and our very own Three Letter Acronym (“TLA”)! – is in order, we believe: the Demand Side Network (DSN). A Demand Side Network is effectively an all-in-one offering, and has the ability to do virtually everything a DSP and an SSP can do, and much of what an Exchange can do (vis-à-vis proprietary inventory) … while also being able to bid on exchange inventory as necessary, and with scalable efficiency.

Here are the DSN’s distinctions, we believe, versus cobbling together the same capabilities ala carte via the DSPs, the SSPs, the Exchanges, etc.:

1)      Reduce costs and increase efficiency

2)      Data. DSN’s:

a.      Are integrated with all the major data aggregation providers

b.      Provide access to unique proprietary data sets not available to DSPs

c.       Provide efficiencies for accessing and reporting on performance across data providers

3)      Inventory. DSN’s:

a.       Provide access to aggregated, transparent inventory

b.      Access premium inventory which is not available on the exchanges

c.       Eliminate artificial bid pressure from inflated pricing (like exchanges do)

d.      Provide direct publisher relationships with pre-vetted premium inventory (some of which is not accessible by DSPs)

4)      More Margin to share with clients. DSN’s:

a.       Eliminate the standard 10% fee for DSP’s

b.      Can offer the same real-time bidding capabilities minus the fees

c.       Use automated optimization techniques developed over years of campaign management to meet advertiser goals more efficiently

5)      Media Buying Efficiency. DSN’s:

a.       Manage buys through their own platforms for real-time bidding

b.      Can focus on strategy and scaling campaigns through their own media buying team

c.       Can bring on direct inventory that will not sell to the Exchanges

6)      Trade desks. DSN’s can provide sell-side capabilities that allow publisher’s to present their inventory for real-time bidding.

All the while, the DSN continues to provide the same level of service to their publisher base without undermining their direct sales efforts or devaluing the traffic that publishers work so hard bring to their site.

The DSN: a holistic solution to defragment the ecosystem.

SSPs, DSPs and Exchanges, funded by venture capitalists eager to invest in the next new thing, do bring certain efficiencies, for sure. However, the industry should realize: 1) that these businesses evolved from the basic practices and technical capabilities of Ad Networks; and 2) that these businesses were founded while certain Ad Networks were simultaneously investing in added efficiencies to stay a step ahead, built upon a solid foundation of years of effective client services.

So long as Ad Networks continue to bring value to the online ad ecosystem, they will not die. Those that have evolved are, in fact, thriving. With a bench of deep experience, technological sophistication and a track record of execution, the new Demand Side Network model can be a powerful, consolidated service offering for advertisers and publishers who are fed up with the inefficiencies of the online media buying landscape today. Indeed, one could argue that the proliferation of new point solutions – which are best thought of as feature sets rather than true stand-alone companies – does not add efficiency, but instead further convolutes the already complicated marketplace.

Defragmenting the ecosystem is the true future wave, we believe. By consolidating the key nodes of the ad stack and optimizing across those nodes, we effectively combine the otherwise ala carte capabilities of the ecosystem into a one-stop-shop. When integrated with other forms of digital advertising – Social Media, Mobile, Search, etc. – we believe the Demand Side Network becomes not only the most effective and efficient solution for an advertiser, it unlocks far greater attribution and full funnel measurability for our advertising partners by virtue of providing integrated multi-channel and transparent campaign management. And at least with the advertisers and agencies we serve, that is what it is all about.

This post is authored by Don Mathis and Qayed Shareef. Don is the President and CEO, and Qayed is the Senior Vice President of Business Development, for Traffic Marketplace / Epic Media Group.

One Response to “Demand-Side Networks: the Modern Ad Networks.”

  1. Oh Pleeze says:

    Are you kidding me? What rubbish. Buggy whips my friend. You're hawking Buggy whips.

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