Last week I explored the possibility of ad exchanges threatening ad networks from the point of view of ad agencies. Now, I compare ad networks to ad exchanges from the publisher perspective. This week I will compare ad networks to remnant exchanges; next week ad networks vs new premium exchanges.
Most ad networks are remnant networks. Most high quality publishers have a sales team selling advertising. These publishers give the ad networks the remaining or remnant impressions that they don’t sell. Ad networks and remnant ad exchanges sell these impressions at the best price they can get. Today they compete aggressively for this remnant impression business. Examples are Advertising.com, Casale and Interclick on the network side and AppNexus and AdMeld on the exchange side.
I want to detail how, in my experience, publishers compare the ad networks to the remnant exchanges. Generally they tell me they consider four things:
- Fill rate
- Percentage of high CPM campaigns
- Ad quality
- Competition with the publisher’s sales reps
Let’s examine how remnant ad networks stack up to remnant ad exchanges in each of these areas.
1. Fill Rates
Publishers want each network to sell a large percentage of the remnant impressions they are given, not just a few. Ad networks rely on sales reps to meet buyers in person or on the phone. That means getting into taxis to visit agencies, creating PowerPoint presentations, etc. Ad exchanges, however, rely on technology, not sales reps, to “meet” advertisers. Therefore ad exchanges with a strong user interface, or solid integrations with Advertiser Technologies, have the upper hand and can fill more impressions. Ad exchanges today already find and sign up more remnant advertisers than ad networks do.
Exchanges win. (Exchanges 1, Networks 0)
2. Percentage of high CPM campaigns
Each ad exchange or ad network usually finds some high quality advertisers that will pay the publisher decent CPMs. The rest of the volume they sell goes to Performance Advertisers that pay the publisher low CPMs. Publishers, of course, like exchanges/networks that have more high CPM campaigns. Ad networks are better than ad exchanges at this. Why? Today’s ad exchanges are used mainly by performance advertisers who buy mass volume of inventory, or buy Behavioral/Retargeting in tiny volumes. Both pay relatively low CPMs because the supply is high. Networks however have sales teams that visit agencies and convince them to buy on their sites. Networks therefore do better at finding and convincing the high paying advertisers.
Networks win. (Exchanges 1, Networks 1)
3. Ad quality
Publishers want high quality ads to appear on their site. They love to see Coke or Ford ads on their site but hate to see low quality “work from home” or diet ads. Most of today’s ad exchanges sell to Performance Marketers who have terrible looking ads: just like infomercials on TV. Performance advertisers use creative with anything that looks odd and costs very little to produce. Therefore ad exchanges which rely more on performance advertisers have more low quality creative. Currently, ad networks have higher ad quality for 2 reasons: (1) They focus on selling to high quality brand advertisers who use agencies to produce good creative and (2) they invest more in inspecting creative because they know that premium sites need this. So overall their ad quality tends to be higher than the ad quality of the ad exchanges.
Networks win. (Exchanges 1, Networks 2)
4. Competition with Publisher Sales Reps
Publishers hate hearing that their sales rep almost won an advertiser at $5 CPM, but that the advertiser bought the inventory from an ad network at $1 CPM instead. This happens because both Ad Networks and Remnant Ad Exchanges compete with the sales team and sell at a lower price. Advertisers are increasingly aware that if a site asks for $5 CPM they can probably buy that site through an ad network or ad exchange for $1 CPM. Both the ad networks and ad exchanges try to argue that they don’t compete. Until a year or two ago they used to avoid competition by selling “blind”: they wouldn’t disclose the site’s name to advertisers. But now technologies like AdXpose and DoubleVerify show advertisers what sites they are running on so networks are no longer blind. Therefore, today most ad networks and ad exchanges have started openly display the site names and prices. To prevent this competition some premium publishers like CBS have gone as far as banning all ad networks and ad exchanges from selling their sites’ inventory (ClickZ covered this in “CBS Interactive Quits Ad Networks“). In summary currently, publishers see ad networks and exchanges as both equally bad in competing with their sales team. So a tie here. They are looking for a new type of exchange that can help their ad sales team sell rather than compete with it.
Tie. (Exchanges 1, Networks 2)
The winner: Ad Networks
As you have seen, from the publisher perspective, ad networks currently win the battle for remnant impressions. They do this by focusing on the high end: selling more high CPM campaigns and getting higher quality ads. That is why ad networks still exist and do well.
Change is coming soon
This will all change very soon. I predict that we will see a new type of “Premium” ad exchange in the near future that will focus on high quality brand advertisers. It will copy the networks’ focus on only the best quality sites, but add the value of exchanges: the ability to find more advertisers. I think this type of ad exchange will take high end business away from networks, leaving them in trouble and even killing some.
Next Blog: The New Premium Ad Exchanges vs Ad Networks. Stay tuned!