Network Efficiency Is Double-Edged Sword for Some Publishers

There are more Web pages than ad sellers and buyers know what to do with. Although ad networks have stepped in to make the monetization process more efficient for publishers, they’ve become a blessing and a curse. Refined targeting and broader reach enabled by networks were supposed to help publishers monetize the pages they couldn’t sell directly. Now, publishers are grappling with steadily dwindling CPM rates resulting from a social-media driven inventory glut, and — some argue — the efficiencies networks have allowed.

“No one would have predicted that better tools would produce a lower yield for publishers, and that is exactly what has happened,” said J. Moses, co-founder of Hearst’s UGO Entertainment. “The actual CPMs have gone down for the publishers,” he said during a panel discussion at this week’s UBS Global Media and Communications Conference in New York. Moses blames “an enormous supply of inventory” pushed into the marketplace, mainly by networks.

“The eCPMs across our business have gone from about $2 down to about 40 cents, and I imagine within the next year, two years, it will continue to plummet.”

The network promise of targeting advertising with relatively broad reach is valuable to brand advertisers, a segment of advertisers representing hope for higher ad revenues. However, there are caveats, said Mark Karlin, associate media strategy director at Lowe New York, an Interpublic Group agency. A key factor is placement. Though networks and targeting technologies might enable advertisers to hit someone with the right characteristics who has shown interest in a particular subject or product, it matters very much to brand advertisers where they’re hit.

“It’s not just to be in front of the right person, but to try to be in front of the right person and in the right place,” said Karlin. “Your targeting can get really, really good. But you can be in some of the poorest inventory, in front of the best person, and it’s kind of a balancing…there between the quality of the environment as well as the audience that you’re targeting.”

The price of targeting is also a big factor. The more accurate the aim, the higher the cost, and the fewer people who fit the targeting criteria. When you hit the best target and they’re in the best place, said Karlin, “You’re limiting yourself in what’s available, plus increasing costs.”

Premium ad offerings should help counteract the fact that network efficiencies and excessive, low-value inventory have turned online ads into commodities. But that’s not necessarily the way it’s playing out, according to UGO’s Moses. Although brand advertisers have gravitated toward high-profile placements sold direct by publishers, he explained, there aren’t enough brand advertisers online to support what he called “high touch” advertising. “That takes a lot of…people, a lot of producers. It’s very, very high-touch and very expensive,” he said, noting that there are fewer publishers offering the well-placed, custom opportunities that bring in bigger brand dollars.

The premium stuff appeals to brand advertisers because, like with traditional media, they have more control over what their brands are attached to. Still, the accountability of Web advertising and cost efficiencies enabled through networks are also of interest to them, particularly in the midst of the recession.

“As we enter…a very difficult time, clients are starting to say, ‘OK, I’m paying more attention to my spending now. I’m looking at things [with] established ROI,’ ” said Karlin.

Networks certainly hope to benefit from more brand interest. “For brand advertisers who care about where they show up, you have to be able to deliver that in a network setting,” said Rodney Mayers, GM of Cox-owned Adify, an ad management firm serving vertical networks.

According to Karlin, the small and medium brand-sized clients he works with need to balance splashy premium buys with more targeted, less expensive media. “Having different platforms to better target users is very important…Even on the branding side, I’m looking at a balance of the two,” he said.

“Even brand marketers are looking at some sort of ROI metric to manage their campaigns,” said Bill Wise, Yahoo’s VP business development.

Another thing contributing to downward pricing pressure is the extreme competition that exists among ad networks and exchanges. There seems to be a consensus that network consolidation is on its way.

“As margins within ad agencies and marketing teams get tighter…a media plan cannot contain 60, 80 media companies online. It’s just way too complex,” said Wise. “So I do believe there will be some fallout there in terms of the network business.”

A need for simplification could attract media buyers to the Yahoos of the Web. It’s a “scale game,” said Jonathan Miller, founding partner of Velocity Interactive Group. Only a few companies — the big ones like Google, Yahoo, Microsoft, and AOL — can even ask advertisers to spend all their money with them.

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