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I’d like to continue my series. If you haven’t already, be sure to read Part I and Part II first.

After my first two points I received multiple questions around the lines of “Who will make money off of this?”, and “Who benefits most?”, “How will ad-networks survive in this environment?”. Well, I thought we’d take a look at the various types of players in the market today and discuss how they will thrive/survive/die in the exchange environment. When discussing each of these I imagine a world in which there are two or three major ad-exchanges. Say, Googleclick, Righthoo & Micro7 … Any business that wants to play has to in involved with one or more of the exchanges as in this new world, 95% of all inventory gets sold on the exchange.


This one is a no-brainer. The publishers still own the inventory they sell, and they have the sole right to sell this inventory. The exchange model will enable better technologies and more competition, which will increase demand for the Publisher’s inventory. CPMs will go up.

There is one type of publisher that may have trouble surviving in the coming Exchange environment — desktop software/spyware/adware publishers. Today, it’s extremely difficult to stop ads from running on Spyware (if you don’t know what I’m talking about, go visit Ben Edelman’s site). One of the main reasons this is so difficult is because desktop software companies essentially ‘launder’ their traffic by passing it through multiple ad-networks before it reaches the advertiser. Since the exchange model doesn’t have multiple redirects this will become increasingly difficult.


This is an interesting question. Exchanges will make media buying far easier than it is today. With no more ad-tags to pass back and forth or pixels to setup it will become much easier for Agencies to buy online. The question arises then: how many will survive and how will they differentiate themselves from each other? Now to be honest I’m not too familiar with the Agency model, but as I understand a lot of the business revolves around relationships — which is something that won’t necessarily change on an exchange. If there are agencies out there today that pride themselves on the quality of their media buying team, they might want to start thinking about how to adjust their models to fit the changing marketplace. Would love some comments on this topic, as I’m really clueless here!

Lead Generators

The Lead Gen business bring a lot of money to the industry, and I don’t necessarily expect that to change. Think about, a company that generates leads for various financial services. The reason the company is so successful is because it’s incredibly difficult for one financial services company to sell their services online. Think about selling a Mortgage — how many people a month are buying a new house? How many would respond to an online ad about mortgages — not very many. This is where lead generators provide an incredibly valuable service. They find a large number of individuals that may be interested in financial services, and then sell their contact information over to companies that provide services that match needs. The financial services firm can then focus on actually acquiring the customer instead of bumbling around the online advertising world. The lead-gen firms that survive will be the ones that create the best campaigns, and can generate the most leads. Again — Media Buying will become less of an advantage, but the companies themselves have the potential to thrive in the exchange environment. Think of the retargeting capabilities if every ad online was served through the same adserver?

Random aside — Personally I wish that every single “free ipod” ad would disappear off the face of this earth, but I’m guessing that’s not going to happen.

Ad Networks

I like to put ad networks in a couple different categories:

  1. Technology Networks — These networks have a certain ‘competitive advantage’ in their technology. Whether it’s their behavioral platform (e.g. Tacoda), their Contextual scraping technology (e.g. Adsense) or some other custom optimization.
  2. Data Driven — Although Behavioral could fall under technology I will put these guys separately. Example networks would be Tacoda and TribalFusion.
  3. Brand/Aggregators — These are networks that group together multiple sites within a certain category. For example, Tickle Grapevine reps a couple social networking type sites. Casale is also known for having ‘niche channels’
  4. Arbitrage — These are networks that thrive on the inefficiency of the market today. They price inventory better than others and manage to make a hefty chunk of money buy serving as a middle man.
  5. Performance — These are networks that know how to make campaigns work. Two great example are CPX Interactive and ValueClick/Fastclick. The real value these guys provide is by “doing all the work”, essentially allowing advertisers to focus on their core business while the performance network drives their online advertising.

Lets look at each of these:

Technology Networks

There is clearly a place for technology in the exchange model. Contextual works for many sites, and an exchange without a contextual provider would be a rather crappy exchange. The question is, how many different contextual engines do you need? One? Two? How many are there out in the market today, 10? 20? I don’t imagine that anybody will be able to compete with Adsense on the GoogleClick exchange. Similar goes for optimization technologies. I would imagine that there would only be a max of 2-3 on each exchange, with potentially a couple niche providers that focus on very specific segments of the market that are underserved by the leading technologies. If you’re technology can’t compete with the best of ‘em, you’re in trouble.

The good news here is that the exchange will most definitely foster technology. One of the biggest challenges today is getting access to inventory. You may have a great optimization model, but how do you actually bring it to market? Today companies have two choices — sell it to an established network, which poses rather large tech and integration challenges, or start their own ad-network. The exchange removes these barriers to entry as as soon as the tech is integrated with the exchange it can (theoretically) be used on all traffic that flows in!

Data Driven

There are two things to consider here — data providers, and data technologies. I would put the providers in the same bucket as the Publishers. They have goods to sell and the exchange will provide them with new and better mechanisms for selling this data. What will be done with the data is up for grabs — I can’t imagine more than a couple algorithms that will optimize campaigns based off of behavioral data, so just like the technology networks above I wouldn’t expect more than a handful of these companies to thrive in the exchange marketplace.

Brand Aggregators

These guys are really up in the air. Depending on how the exchange is setup, the services that these companies provide (consolidated sales, trafficking, etc.) might become redundant. I can easily see one company forming for each exchange that simply provides ‘management services’ forcing the aggregators to differentiate themselves somehow. This may be with a better sales force, better services or potentially enabling a new level of cross-property brand campaigns. It will be exciting to see what happens here.


Arbitragers take advantage of inefficiencies. Exchanges bring efficiency. Nuff said.


This is really the brunt of the online ad-networks that are out there today. Each one has their own ‘special sauce’, whether it’s better media buying, campaign management, creative optimization, creative services, etc. etc. etc. If we assume that on the technology side there will be 2-3 solid models integrated with each exchange, the question arises as to how much value will these guys really provide? Every network on the exchange will have access to the same technology! There are plenty of small advertisers out there that will gladly give a network a 30% cut in exchange for managing their campaigns, but do we really need 100 networks out there that do this? I imagine we’ll see massive consolidation here, with the larger players (e.g., Valueclick, CPX, Remix), acquiring smaller players, or simply driving them out of business.

It’s very likely that country-specific networks will remain. For example, doing business in France is rather difficult due to the massive bureaucracy that plagues the country. It makes total sense for a company to focus on buyer and selling French media.

Final Thoughts

The days in which two college kids could start their own ad-network in mom’s basement and easily make $20-30k profit per month are over. (Yes, there are PLENTY of examples of this out there, I’ve personally met several!) The larger and more powerful exchanges become, the more efficient and competitive the space will become. This will be great for those who either have the $s to spend (advertisers) and those with the impressions to sell (publishers). It will be fascinating to watch what will happen to the 100s of businesses that currently make a hefty chunk of money sitting in the middle.

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  • Greg

    Nice post.

    I definitely see a large role in the future for any agency providing management services, but I don’t think you’re going to see rapid consolidation to a single company per exchange. Think of them as the equivalent of stockbrokers — they all essentially do the same thing, yet there’s an absolute ton of them.

    It’d surprise me if arbitrageurs were to suffer unduly as the exchange model rises in popularity. More efficiency = greater volume = more volume to arbitrage. (There’s tons of arbitrageurs on the financial exchanges, which are more efficient than we’ll ever hope to be simply because the goods are fungible.) You’ll go from parties making fat margins on a little traffic to thinner ones on a lot of traffic, that’s all.

    Ultimately, any company with a decent creative department has nothing to fear from an exchange — targeting and optimization will only take you so far if your ads suck. There’s always going to be a market for ads and landing pages that convert. That, incidentally, is one of the biggest reasons why lead generators like are successful, not because “it’s because it’s incredibly difficult for one financial services company to sell their services online.” Some banks have ridiculously good lead generation departments in-house.

  • Mike

    Thanks for the feedback Greg, lotta good points.

    The one thing I will disagree with is the financial market stockbroker analogy. Hedge funds thrive on their models, this is how they arb. That doesn’t necessarily translate to the Exchange model, unless you integrate your model with the exchange — at which point you essentially become a technology provider. There will simply be too much data and too many different transactions to do too much offline modeling.

    Although — I will refute my point that on the premium side of things this might actually work. It might well be possible that arbitragers will assume risk on inventory. E.g., place a buy for the next month at a flat rate assuming that they will be able to sell it at a higher price later. Assuming publishers are risk-averse, in that they would rather take a lower guaranteed price today than have a higher potential payoff, this might become a very lucrative market.

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  • Somesh


    Now that more than 3 years have passed since the post, can you pls update the post on what actually has happened in the value chain, how have ad exchanges evolved and what effect did they have on ad networks, publishers and advertisers? Would be very helpful to know.


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