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The PostView: The Last Hurrah For The Horizontal DR Ad Network

The PostView is a new coulmn written by senior execs working in the European online advertising industry.

They used to be the kings and queens of media arbitrage. The ad tech watering holes of Goodge street and Dusseldorf would only mention their names in hushed tones. Nobody could beat them on margins. Nobody. Not even Google. But times have changed. The business model of the typical horizontal DR ad network is in real trouble - and it is going to have to battle hard for survival in a landscape that's been radically altered by the emergence of automated ad trading and the arrival of buy-side/sell-side technology.

About twelve months ago, ExchangeWire published a piece on the future of the ad net model, entitled "The Life And Death Of The Ad Network". It still remains to this day one of the more controversial posts on ExchangeWire. The post detailed why existing ad net models were doomed, and why they would have to pivot in order to survive. It would seem much of what was predicated has already come to pass. But how did we get here, and what now for the DR ad net market?

Those Pesky DSPs/ATDs Stole My Business

It was inevitable that some bright spark in New York would come up with a way of disintermediating the ad networks. For years the ad nets acted as the go-to aggregation and optimisation layer for all of the top agencies. They delivered on that CPA target but made sure it was optimised at the lowest CPM possible. The ad network became very big. Large amounts of VC money was thrown at the new ad "middle man". Some were acquired. Some IPO'd. And most built very healthy businesses. ExchangeWire estimated that around £260 million of display spend in the UK was going through the ad net channel. There was a slight flaw in their lucrative model though: it was almost totally reliant on the agencies. Getting on the agency media plan was the nexus of their business. So when the agencies starting using DSPs to aggregate and optimise, it was always going to be difficult for ad nets to hold on to that kind of margin in the market.

No... The Automated Channel Is Killing My Business

For DSPs to work they needed dynamic supply. The Yield Optimizers (later to pivot to SSPs) - who were essentially managing the yield of unsold inventory on behalf of publishers - were about to offer the agencies the supply they needed to compete with the ad networks. It was at the time that the concept of RTB appeared. Buying at the impression-level, offered the agencies the type of transparency their clients craved - kicking traditional media-buying on its proverbial arse. While RTB has had its teething problems, its growth in the market has been phenomenal.

Despite the obvious protestations form current incumbents, it's hard to deny we are now in the automated age. Automated trading - whether at the impression level or at a pre-agreed price with agency trading desk/ marketers - is the way publishers are going to trade their unsold - and possibly premium - inventory. That is a fact. Where this leaves the traditional DR ad net is open to debate. But anybody can see that its traditional brokering role in the market is no longer required by publisher or agency. Ad nets have been forced to buy inventory from same dynamic sources. All well and good. But where's the differentiator from the agency trading desks.

The Inevitable Ad Tech Pivot

Ad nets are not clueless. They saw this coming and the pivots have been coming thick and fast. The most notable has been Specific Media. Cursed by countless agency execs over the years for the eye-watering margins they were making in the European display market, Specific was clearly going to be the biggest casualty of the move to automated buying - especially when you consider they have no prop inventory and data as well as an ageing ad server stack.

While Specific has been ridiculed for its celebrity hookup with Justin Timberlake on the MySpace acquisition, I think it could end up being quite an astute move. MySpace has 30-40 million uniques globally. If Specific succeeds in turning this into a a proper distribution channel, and can execute on its plan to produce ad-funded video content, it could move the company away from DR and into the lucrative brand budget. I have to admit I like it. It doesn't seem as flimsy as its under-threat DR model. With brands looking to produce their own content and requiring go-to distribution platforms, Specific could easily leapfrog agencies to service advertisers direct.

The same logic could be applied to the thinking behind AOL's recent GoViral acquisition, and why its abandoning Ad.com. Is abandoning a tad extreme in the case of AOL? Arguably. But then if you let all your talented people move to competitors then I think you are entitled to be accused of neglect.

Pivot Number Two... Moving Closer To Publisher And Agency

It's interesting to see how many middle men DR networks have moved either closer to the agency or publisher. On the publisher side you now have some ad nets claiming to have SSP capabilities. While white-labelling the AppNexus platform for the purpose of managing publisher inventory in the real-time channel would seem like a smart move, it is a tough market. Lots of well-funded players play in the space and given the small margins you have to have serious scale to make this work. And on the demand-side you have ad nets working closer with just the advertiser. Smart. Until you realise you are competing directly with the agency trading desk. Incidentally, whatever happened to going direct to the client? The agency relationship could work of course if all re-targeting was in-housed and the ad nets on the plan were left to prospect...

Enter The Direct Response Prospectors (DRP)

While it's probably the last bloody thing we need in this industry, this TLA will be popping up with some regularity over the coming twelve months. It is fact that re-targeting will be internalised by the agency. Anybody moaning about the situation needs to go and get their own clients. If you don't like it, then you need to go client direct. If you don't want play the agency's game, go client direct. It's that simple. As long as the agency controls the relationship you must play by their rules. And most DR networks will be forced into a new prospecting rule. Now it will be interesting to see how these ad nets survive without the re-targeting pixel. Is prospecting really for them? I can only count two or three pure prospecting networks doing this at the minute, MediaIQ and CPX spring to mind. But then bigger players, like Tribal and Unanimis, could also pivot. There might even be a big opportunity for some pure play CPA affiliates to capture DR budget too.

Whatever happens next, the DR landscape in Europe has utterly changed. Things will never be the same. So lets bid a last hurrah to the traditional DR network. Long live the arb!