March 4, 2010

The Fourth Generation Ad Network Is Product Oriented

Jeremy Liew (Managing Director at Lightspeed Venture Partners) wrote a post on February 25, 2009 asking what the fourth generation ad networks will look like.  In his post he described the evolution of ad networks into three generations, which are:

  • Controlling Inventory
  • More Data
  • Better Targeting Algorithms

Together, he went on to say that these three elements represent three of the four core competencies of ad networks, which he describes as:

  • Aggregating Inventory
  • Aggregating Data
  • Targeting
  • Sales

Without the ability to aggregate inventory and sell, you clearly don’t have ad network.  Jeremy also correctly pointed out the commoditization of inventory and data from companies such as Right Media, DoubleClick exchange, Bluekai and others. 

I would also argue that targeting and sales will also eventually become commoditized through the ad servers and exchanges respectively.  If you’re a rockstar in ad sales, you can easily find inventory on the exchanges to buy, and eventually, as OpenX, AdJuggler, Zedo and others develop better targeting capabilities, there won’t be much differentiation within the targeting competency either. 

In fact, when I founded Gamers Media in 2007, I believed that ad data and ad targeting would eventually become commoditized by ad serving companies.  So we focused our efforts on sales and aggregating inventory (First Generation) to accelerate revenue and profits to bootstrap a product effort that would create a defensible business. 

There are 400+ ad networks attempting to offer a unique value proposition to the advertiser, yet there is very little technological differentiation among them, and even less defensibility.  Ad networks like Betawave attempt to become thought leaders with catchy taglines like “attention based media”, but ultimately these networks are dependent on recruiting and retaining publishers and selling their story to agencies. 

The fourth generation ad networks will be product oriented.  They’ll need to compete for users, not advertisers.  The fourth generation ad network will need to provide products to publishers that add value to their users.  These products should include game mechanics that create addictive repetitive behaviors and high barriers to exit for the publishers once their users are addicted, while serving ads along with the product.  The ads will also likely be non traditional (non-IAB).  That’s not to say these fourth generation ad networks won’t sell IAB ads as well. 

Jeremy finished his post stating that sales must always be the core competency of the fourth generation of an ad network.  Although I agree that sales is a core competency that any ad network clearly needs, if you succeed at building a product oriented ad network, you could always open your inventory up to the ad exchanges to help fill any sales voids you may have. 

I’m interested to see what others think.