The Online CMO by Philip Hallenborg

More and more often I come across companies that are trying to build ad network exchanges. They come from all parts of the world. Some of them are technology based but many are led by former ad network guys who are running with a new business idea.

Typically, these market entrants will address big publishers with the mother of all business propositions: “we will deliver constant money making peaks to your site”. Or even better: “we will optimize your eCPM at all times”.

In theory, the model is a good one and works in most free markets. The unique selling point is spelt liquidity. By plugging in the biggest advertisers in one exchange, publishers can benefit from a constant flow of ad placements to which they can deliver abundant traffic. The exchanges will typically address the biggest online advertisers and the biggest online ad networks to source traffic to their systems.

There are however two major problems that new entrants and exchanges face. Firstly, incumbent ad networks are in fact aspiring to be exchanges in most cases. The ad network business model i.e. making a percentage off transactions is identical to the exchange model where there is always an overall objective to optimize traffic and money making opportunities for publishers.

Secondly, incumbent ad networks are already the middle man and functioning as a market maker. By adding another middle man, incumbent networks become obsolete in so far as they lose their raison d’être and constitute one out of two layers between an advertiser and a publisher. That is one too many.

Bottom line is that most exchange entrants will find that incumbent adnetworks lock them out immediately out of fear of competition. Few exchanges will last without traffic and liquidity (publishers who bought in will quickly move on) more than a month. This is already happening every day.

As a result, we are seeing some aggressive exchange entrants acquire publishers that are not making money (typically old publishers that experience little growth and low profitability). The publishers’ traffic alone is worth little. But as a component in an exchange effort it is worth much more.

Question is – are ad network exchanges just ad networks with new technology?