Ad Networks: On the Verge of Extinction?

This week’s news from ESPN and Forbes has created a lot of buzz in the interactive advertising industry about the future of ad networks. On the one hand, we have a sports media giant rejecting ad networks as being detrimental to the integrity of their brand and on the other; we have a leading business publisher announcing the launch of a network of 400 financial blogs.

The question on the tip of many tongues: are ad networks growing or fading? This isn’t the question the industry should be posing. The real question is about the value of different types of networks and whether that value will grow or decline.

I discussed back in January that 2008 will be the year online publishers will leverage the opportunity created by increased audience fragmentation and boutique independent publishing. Target audiences are becoming more elusive and advertisers are looking for new ways to reach them with relevant content in the right context.

Enter premium vertical advertising networks.

The networks ESPN is rejecting, i.e. the remnant, performance ad networks, serve a purpose for many publishers. They monetize unsold inventory where your ad sales team cannot – often because the inventory is comprised mostly of pages like forums, e-mail and non-premium content that advertisers will not pay premium rates to be alongside. Direct response, Google or behavioral targeting can often more effectively monetize these pages. Google is the largest contextual remnant ad network on the planet.

Vertical ad networks created by trusted brands and knowledgeable entrepreneurs efficiently deliver premium inventory from smaller, high-quality sites to advertisers. This helps the advertisers reach their target audience – and they know the quality of the content and placement is high (something a remnant network CANNOT provide). It also lets large publishers increase the audience they can deliver to advertisers in the face of fragmentation (where online users spend 64% of their time online OFF the top 20 sites according to comScore). Finally, this allows quality, smaller publishers to realize significantly higher rates than possible with any remnant ad network.

Companies like Forbes, Martha Stewart, NBC, IDG and more are expanding their reach with quality, exclusive vertical ad networks. Companies like Gay Ad Network, Good Health Advertising, Yardbarker and Gamers Media are creating new media companies based on their knowledge of the advertisers and publishers serving very distinctive audiences.

ESPN’s decision is an interesting one, but they are clear category leaders in their space who may be selling virtually all their inventory at premium rates and who have become experts at monetizing all types of inventory on their site.

Will every major publisher accomplish this? Unlikely – so remnant performance networks have their place leveraging technology to monetize remnant inventory for direct response advertisers. Vertical ad networks are next generation media vehicles bringing brand advertisers to the premium independent publishers that are attracting the audiences they target. Different types of ad networks for different objectives — and solving very different problems.