| Ad Networks and Internet Content Syndication: Two Approaches to Audience Aggregation
The continued proliferation of Web sites (up to 238 million as of June1) combined with a slowdown in online ad revenues (down by 5 percent in the first quarter of 2009) is putting pressure on content creators, Web publishers and advertisers alike.
Because users are generally reluctant to pay for content, advertising is the primary source of revenue for content providers and Web publishers. But with audiences fragmenting, it is difficult to attract a large enough audience to be viable. For advertisers, the fragmenting audience makes it harder to reach enough of their target audiences to meet their marketing goals.
The obvious way to counter audience fragmentation is to aggregate audiences across multiple Web sites in order to generate revenues and/or meet marketing goals. There are two systems that do this: Internet content syndication and ad networks. These systems are very different in their approaches.
Internet content syndication (ICS) is editorial-centric. It is defined as "the controlled placement of the same content across multiple partnering Internet destinations." Controlled placement means that the same content -- be it medical advice, an overseas news report, or a video -- is carried on multiple Web sites in a partnership arrangement that ensures that the content owner has a share of the revenue generated by each Web site. This could be in the form of license fees paid by the partnering sites or in the form of advertiser support. In this regard ICS is distinguished from viral distribution, where the content is appropriated with or sometimes without the owner's consent by other Web sites without necessarily providing a return to the owner.
The benefit of ICS for content creators is obvious: Placement on multiple partnering sites allows them to aggregate larger audiences and hence revenues than could be generated from a single site. Web publishers benefit from it because it assures them access to higher-quality content than they could afford by themselves. As with all syndication systems, the burden -- either the cost of license fees or the delivery of audiences to advertisers -- is shared across multiple partners.
For advertisers, ICS provides the assurance of a consistent editorial environment across all Web sites while aggregating a sufficiently large audience that is targeted in terms of its interest in the editorial content. The work of distribution -- essentially the creation of a "vertical network" of compatible sites -- is handled by the content syndicator. It's a system that benefits all parties -- content owners, Web publishers and advertisers -- and is therefore a sustainable business model.
Ad networks also involve controlled placement across multiple sites. However, what is placed is advertising, not editorial content, and this is a significant difference.
Various types of ad networks provide different levels of control over ad placement. "Performance networks" use optimization tools to try to increase the value of (often low-priced) inventory. "Behavioral targeting networks" analyze Web browsing habits to try to identify appropriate users. "Vertical networks" seek to identify Web sites with similar/compatible editorial. As a general rule, however, the primary usefulness of ad networks for advertisers is their ability to generate large audiences over many Web sites at low cost. In most cases, what they are selling is low-value, or remnant inventory.
For advertisers, it is generally conceded that ad networks can deliver audiences at low costs. However, most ad networks are "blind:" They do not provide advertisers with information on where the ads are placed. This protects publisher sites, so they can maintain premium pricing on their main pages, but it means that ads can end up on non compatible sites. Hence, this technique is sometimes characterized as "spray and pray." This lack of transparency may be why a study, "Ad Effectiveness Survey," conducted by Forbes among senior-level executives found that "respondents were least happy with ad networks, with half saying they did not live up to expectations." The survey indicated that 53 percent of them plan to spend less on ad networks in the second half of 2009.2
Nonetheless, plenty of advertisers find ad networks useful, particularly in a recessionary environment. While many observers have predicted a major shakeout in the crowded network sector, Mediaweek reports that hundreds are still in business and many are thriving, as advertisers seek to maximize online ad dollars mainly with direct-response inventory.3
But the same article also points out that what is good for advertisers -- lower costs -- may be bad for Web publishers. Ad networks are creating a polarization in the online industry. On one end there is still demand for high-end, big-ticket sponsorships bought directly from top publisher sites. On the other is inexpensive direct-response inventory, mainly bought through ad networks -- and the price differential can be huge, as much as tenfold.
It is no wonder that ad networks are generally credited (or blamed) for depressing pricing across the Internet: A recent BusinessWeek article reported that display ad rates were down by 20 percent in the first quarter of 2009, citing ad networks as the reason.4
"Publishers … know they really shouldn't be [selling to ad networks]," says an executive quoted in the Mediaweek article. He’s not the only one. At the Interactive Advertising Bureau's annual meeting last year, Wenda Millard, then president of media at Martha Stewart Omnimedia, warned attendees against "trad[ing] our assets like pork bellies." In a subsequent interview, she elaborated:
"I have a genuine concern that we not be too quick to commoditize the digital-marketing business before we've really had the opportunity to establish its value proposition … simply aggregating masses of inventory without consideration and appreciation for the context and the content is basically just creating volume, which leads to lowering prices … where in that equation is brand stewardship?"5
Similar concerns prompted three major publishers -- Forbes, Turner and ESPN -- to stop working with ad networks in 2008.
But there is a larger concern beyond harming brand image. In the long run, a continued cheapening of advertising inventory threatens not just individual Web publishers but the value of the Internet itself as a source of free-to-the-user original content. This should be of concern, not just to publishers but to advertisers who need a vibrant Internet to reach audiences that are no longer well-served by traditional media.
There is an increasing awareness that the current ad-supported model for Internet content is breaking down in a world of multiplying destinations and declining ad revenues. Some publishers may be able to move toward a paid model -- via micropayments with iPhones or subscription fees like Amazon's Kindle -- which would mean their user base would no longer be accessible to advertisers. However, users' general resistance to paying for content makes this option a non-starter for most publishers.
It’s a legitimate question, as Mediaweek says, whether editorial environment should rule online media buying or whether audience and data should determine it. However, ad networks tend to exacerbate the conflict between advertisers’ desire for low pricing and publishers’ revenue requirements, to the long-term detriment of the whole system. Internet content syndication, in contrast, is a sustainable business model that, as noted above, works for all participants. By ensuring an adequate revenue stream to the owner, it facilitates the continued creation of high-quality content that publishers need. Because it can help ensure the vibrancy of the Internet, it is in the enlightened self-interest of advertisers to support it.
- "June 2009 Web Server Survey." Netcraft. 17 June 2009. <http://news.netcraft.com/archives/web_server_survey.html>
- O’Malley, Gavin. "CMOs: Just Say No To Ad Nets, Yes To Viral Marketing." MediaPost. 1 June 2009. <http://www.mediapost.com/publications/
?fa=Articles.showArticle&art_aid=107121>
- Shields, Mike. "Not Dead Yet: Ad Nets Have Survived, Thanks to the Recession." Mediaweek. 28 June 2009.
<http://www.mediaweek.com/mw/content_display/news/digital-downloads/broadband/e3i344418db676344f04b10994f29e3fcb9>
- Hof, Robert D. "Ad Networks Are Transforming Online Advertising." BusinessWeek. 19 Feb 2009. <http://www.businessweek.com/
magazine/content/09_09/b4121048726676.htm>
- Klaassen, Abbey. "About That Whole 'Pork Bellies' Line..." Ad Age.
14 April 2008. <http://adage.com/adnetworkexchangeguide/
article?article_id=126241>
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