More ad networks or less?

Just finished reading Razorfish digital outlook report for 2009. (Razorfish is a US interactive ad agency). While surfing the internet this morning, I found this blog post that sums up the findings/predictions related to ad networks:

• An increasing reliance on ROI and proven channels like search
• A continued shift of budget away from portals
• Renewed fragmentation in the ad network space

More specifically:

Despite the drive towards increased efficiency because of the recession, ad networks as a category saw only a slight increase in share year-over-year. One trend reversal we saw was in the concentration of spend amongst the top five ad networks dropping to 62% from 76% in 2007. A few things contributed to this change in direction. The first is a rise in spend outside the U.S. and the development of branded networks such as Forbes, Turner Entertainment and Fox Audience Network, and the move of many premium advertisers away from general networks. Additionally, the rise of specialty vertical networks like the community sites BuzzLogic, Six Apart, Lotame and BlogHer has further fragmented this category and put a refocus on testing the emergent opportunities.

But at the same time as Razorfish is seeing more ad network diversification, they are predicting:

• Online ad networks will contract; open ad exchanges will expand

In 2009, the online ad network world will see both contraction and expansion:

• The traditional ad network world will contract as competition for declining ad dollars increases. There are simply too many broad networks competing for the same inventory and not telling a new story.
• At the same time, branded networks will expand. Large publishers (e.g. the Fox Audience Network and Turner Entertainment) will continue to take back control of their inventory and monetize it themselves, or they will work with fewer ad networks to ensure quality and maximize value.
• Expansion will also come in the form of Ad Exchanges like Right Media, DoubleClick and AdECN, which are newer open markets for online ad inventory that increase buying efficiency by delivering unprecedented transparency in the process. Development of this ecosystem will put further pressure on small and mid-tier ad
  networks to survive. If Ad Exchanges are widely adopted, it could revolutionize how online media is bought and sold.

So which will it be, more ad networks or less? Most pundits are predicting less. However, I believe that there will be more. The fourth generation of ad networks are living in an environment where access to inventory is getting commoditized (through ad exchanges), data for targeting is getting commoditized (albeit slower, through companies like Lookery and Blue Kai), and targeting algorithms are turning out to be not as effective as previously thought (more data usually beats better algorithms). In this instance, sales execution becomes the key differentiator. And sales teams typically work best when they can focus on a set of accounts with a lot of commonality, whether demographic, industry, or geography. This means that it will be easier (not harder) for smart small teams of sales people to start their own targeted ad networks. We’re already seeing some of this as Razorfish notes above.

So, what do you think? I think we’ll see more ad networks, not less… and I think that in 2009 we will see the rise of more branded networks (Fox Audience Network, CBS, Turner Entertainment etc.)

Download the full report from Razorfish.