Marketers Turn to Web Ad Nets

Mike Shields

JULY 23, 2007 -

Online ad networks, long the domain of direct marketers looking to blast their “act now” offers to large audiences across the Web, are being invaded by brand advertisers. And, some say, those traditional, image-focused marketers are shoving aside their direct-marketing cousins that, as it happens, helped carry the Internet ad business through its darkest days early this decade.

There’s little doubt that the robust market for online advertising—particularly among traditional brands—has benefitted from leading networks like Advertising.com, ValueClick and Blue Lithium. Those players, many of which date back to the mid-1990s, aggregate ad space across numerous sites, ranging from remnant inventory on larger sites to ad space on thousands of smaller sites.

Several of the networks boast reach that rivals that of the portals. For example, AOL-owned Advertising.com, which was built as a network focused purely on direct response, says it reaches a whopping 158 million unique users, or 88 percent of the Internet. “For us, brands are the fastest growing part of our business,” said Advertising.com president Lynda Clarizio.

As major marketers like Ford Motor Co. and Procter & Gamble increase their online budgets, “they’re left with the issue of needing to spend money beyond the portals,” said Brian Fitzgerald, president of Gorilla Nation Media, an online rep firm working with more than 500 publishers. “So they are saying, ‘Let’s start spending it on the mid-tail’”—exactly where the ad networks have strength.

Ad categories that have embraced networks in a big way over the past year include autos, consumer electronics, pharmaceuticals and packaged goods, and big spenders in those categories often look to make a splash, said David Yovanno, general manager of ValueClick Media. “The trend is that we are getting more whales [big brands that take over all inventory] than we used to.”

Some say those “whales” are causing a problem for marketers like LowerMyBills.com and University of Phoenix, the ubiquitous online brands that are the equivalent of late-night infomercials. A few years ago, those players blanketed the Web with their messages by buying bulk inventory at low prices. Now, insiders say, they’re getting squeezed to the fringes.

“I definitely think that is happening on the quality [Web] inventory,” said Will Margiloff, CEO of Innovation Interactive, parent of search agency 360i. “DR advertisers are being pushed aside to less desirable inventory.”

Yovanno said that while ValueClick’s bread and butter is still DR spenders, he’s seen some bargain-basement advertisers get marginalized. “There used to be brands like Casino.net that dropped a million dollars a month,” he said. “They haven’t really evolved since then. They always grinded everybody down on price.” Once bigger brands came along, he added, “It was so easy to squeeze them out.”

Some in the network business say it’s only going to get tougher—even for more established brands like Vonage that rely on tonnage to sign up customers—as online video becomes more prominent, since it doesn’t necessarily lend itself to driving immediate response. If that holds true, it could change Web-marketing for good. After all, could a Netflix or Orbitz build names for themselves the way they did a few years ago?

“Many great brands were built because online media was so inexpensive,” said Michael Cassidy, CEO of Undertone Networks. “They were able to leverage a buyer’s market to brand online while only paying for direct response.”

Adam Kasper, senior vp, director of digital media at Media Contacts, which handles Vonage, believes direct marketers will soon shift away from networks and toward ad exchanges that better suit their needs.

Recently, he’s noticed, networks are catering more to mainstream brands. “Ad networks in general are starting to become less of a clearinghouse for impressions and are starting to become more full service,” he said. That means offering more assistance with creative and ad-serving.

Scott Hagedorn, OMD Digital’s director of innovation, said his agency still spends millions with networks on behalf of DR-oriented clients. And the surge of brand spending, coupled with more savvy clients, has forced networks to be more accountable, he added, offering brands more buying control and transparency while agreeing to more stringent terms and conditions on insertion orders.

Besides cleaning up their operations, both Hagedorn and Kasper said, networks are getting more sophisticated when it comes to behavioral targeting, appealing to both to DR and brand advertisers. Yovanno said 20 percent of RFPs ValueClick receives ask for behavioral targeting, versus just 5 percent a year ago.

That’s essential, as competition grows more fierce, said Jay Sears, senior vp, strategic products and business development at ContextWeb, which recently launched ADSDAQ, an online ad exchange focused on premium inventory. “You are going to see consolidation [in the space]. Unless you have a unique targeting ability, you are not going to be around for a while.”

But some doubt that ad networks will ever be able to service big brands to a large degree, simply because large publishers will never be inclined to let others sell their best inventory.

“That’s always going to be a barrier,” said Ben Crain, vp, media at Rapt, which consults publishers on the pricing of online ad inventory. “I don’t know if there will ever be a critical mass of brand advertisers on networks. I don’t think the University of Phoenix has anything to worry about.”