Do ad networks have a future in an exchange-enabled world?

With both an ad exchange and a network in its portfolio, Microsoft Advertising is particularly interested in the answer to this question. In this three part series hear how Microsoft, while bringing its Advertising Exchange to market, is simultaneously evolving its Media Network to capitalize on the changing dynamics of an RTB-enabled ecosystem.

Part 1: Industry Background / Overview

Increasingly, remnant impressions are being brokered in the real-time-bidded environment of ad exchanges, where impressions are auctioned off one at a time to the highest bidder. In this marketplace, the notion of volume discounts doesn’t apply. A small bidder competes on equal terms with a large one, effectively leveling the playing field between buyers.

In the past, many ad network business models have been based – at least in part – on the purchasing power that comes from aggregating demand from lots of advertisers. Essentially, ad networks have been able to drive a hard bargain with publishers because of the large budgets they control. Because of the operational inefficiencies associated with a typical buy, publishers were somewhat limited in the number of ad networks they could practically work with. This led most publishers to seek out partners who could monetize large chunks of impressions at a relatively good price.

In an exchange environment, publishers can efficiently expose their inventory to a much larger set of demand. Through an exchange, they can indirectly work with hundreds of different buyers, finding the one who can afford to pay the most for each individual impression. There are work flow efficiencies on both the sell and buy side as faxed IO’s and phone calls get traded for an API, but the real benefits come with impression level buying and selling. Buyers get to cherry pick only the impressions that are most valuable to them, eliminating waste. Because buyers get to eliminate the waste, they can de-average their buys and pay a higher CPM for the laser targeted impressions they wind up purchasing. Sellers wind up spreading their impressions over a larger group of buyers than in the old model, each of whom pays a higher CPM but consumes a smaller number of impressions.

With exchanges dis-intermediating ad networks’ relationships with publishers, and with any buyer able to leverage a DSP integration into instant universal reach, can ad networks survive this brave new world?

Thank you,

Eric Dahlberg

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