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Expanding the Reach, Not the Labor, of Online Ads

By Nov 10, 2008

In the ongoing effort to achieve relevance in online advertising, marketers increasingly use combinations of ad exchanges and networks to gain the most efficient and successful audience targeting and reach. But innovation is opening up new pricing models and value added services.

The proof of the channel lies in the phenomenal growth of these business models. Consider some of the points covered in “Leftover Ad Space? Exchanges Handle the Remnants,” a New York Times story that ran earlier this year:

· Ad exchanges deliver ads “at lower prices than what publishers’ sales forces fetch – usually around $1 per thousand impressions, versus the $20 and up that top sites’ sales forces ask for.
· “The growth of exchanges has a clear benefit to advertisers, allowing them to test multiple ads quickly with specific groups, potentially minimizing expensive campaign testing and focus-group work.”

And these comments pertain to the most basic of the networks and exchanges, those that sell inventory on a cost per thousand (CPM) model, based on impressions. Today, some exchanges help marketers apply the same model while buying advertising on a cost-per-click (CPC) basis.

But the evolution of ad networks began with CPM pricing. Built to syndicate ads through variously related sites, hundreds of ad networks formed during the past decade, built around such categorical variables as geographic location, vertical market and others. Many CMOs already have their teams putting networks and exchanges to work, and the offerings also make it easier for smaller advertisers to get in on the cost effective game.

After a decade of expansion, though, the natural course of consolidation is driving marketers to a smaller universe of top networks that offer safe choices based on technological sophistication and the proven ability to deliver the right audience. CMOs should ensure their teams’ standards regarding ad networks and exchanges increase in lock step with the networks’ and exchanges’ increasingly effective ability to protect advertisers. The right option in 2006, 2007, or even early 2008 is not necessarily the best option today.

Marketers should question networks and exchanges about their plans to offer pricing alternatives, address click fraud or hold publishers accountable for quality of clicks. Although most networks and exchanges still leverage CPM pricing today, where click fraud is a non-issue, marketers must ask about these threats as they begin testing other exchanges that leverage different, more performance-based pricing.

These simple questions about fraud and pricing models can prove invaluable to advertisers looking to make sure they’ve got the best partners in place to help them accomplish their goals and keep up with competitors.

Overall, networks have established their value by creating order from the chaos of the Web and assuring advertisers of reach and relevance, to say nothing of reducing the amount of work that media planners and buyers face in evaluating online inventory. But they’ve also spurred development of improvements, visible in some next generation ad exchanges that address issues with network overlap and pricing inefficiencies.

Advances in technology hold the promise of continued growth and success for exchanges and increasingly added value for marketers. For example, by combining CPC pricing, fraud prevention and dynamic pricing technologies, services like the ValidClick AdExchange offer publishers and advertisers alike new ways to boost efficiencies.

If the innovation and progress continue, exchanges may become the dominant online media business model needed to support the sustainable growth and success of effective and accountable online advertising for marketers large and small. As promising as the future looks, though, consolidation will have a major impact on networks, exchanges and the marketers that work with them.

As the most successful exchanges provide value to all, ineffective exchanges will only survive until enough good advertisers raise the bar and move onto one of the superior options currently taking shape.

CMOs that want to stay a step ahead of the competition should check with their teams about the current use of ad networks and exchanges and the level of accountability they receive through the arrangement.

Stan Antonuk (StanA@kowabunga.com) is CEO of Kowabunga.