Ad Networks -- Dying or Just Getting Started?

(MoneyWatch)  Over at iMedia, Chris Weiss, director of marketing at ad network LucidMedia, offers up an impassioned defense against the growing sentiment that ad networks may be on the way out. While Weiss is the furthest thing from an impartial observer, he offers up some compelling reasons why the myriad ad networks, which Weiss pegs at numbering around 314, may still be on the rise:
1. Price Isn't the Determing Factor For Advertisers
According to an eMarketer report, 90 percent of advertisers plan to use ad networks for media buys. If price were the main concern, ad networks would be worried. But advertisers aren't focusing on that -- they're focusing on the quality of the inventory. As Weiss says:

The major differentiators cited in the eMarketer study were quality of inventory (28 percent), targeting (27 percent) and transparency (11 percent), followed by service, optimization, reporting, reach and finally price. It's not yet a commoditized economic battle that will drive the Darwinian stragglers from the plains of the marketplace.

2. Advertisers Need Big Numbers and Small Markets, and Sometimes Both
Correlating with the above point, advertisers care more and more about finding the exact right niche of consumer, which ad networks are busier than beavers trying to produce. At the same time, what media buyer doesn't want to be able to place a buy that will reach massive numbers of eyeballs. Weiss states:

One day they may need laser-like focus on a specific online audience segment, and the next they may need sheer numbers on a near-Biblical scale. Oftentimes, they need both at the same time: the "massive niche." This is driving a new breed of massively scaled aggregators, bringing niche pools of inventory together under one roof then injecting intelligent targeting and more-transparent reporting into meta-networks.

To translate that last sentence from jargon into English, advertisers will be forced to turn to ad networks that can bundle together many specialized publisher's inventory into broad buys. Though Weiss acknowledges that this isn't a reality yet:

Until there are more of the new hybrid meta-networks out there that are big enough to satisfy advertisers' thirst for quality reach and, at the same time, give them the finely tuned depth they require for performance, we will continue to see a plethora of specialized networks serving the market.

Which seems to point more towards a future of consolidation of existing ad networks, but let's give Weiss the point on this one: Ad networks are the only place advertisers can currently turn to when they need to make the surgical buys that today's tough market demands.

3. Publishers Can't Sell All Their Inventory
Weiss' final point also perhaps is the strongest argument for ad networks continuing existence. Publishers frequently find themselves unable to sell anything but their high-quality impressions, and forced to push their remnant space over to online ad networks. As ad networks gobble up increasing bits of remnant inventory, they find themselves bumping up against one other. But Weiss says that this, like having too much money, is one of those good problems:

This is where the channel conflict that so many ad networks critics cite originates. But it's actually self inflicted and intentional on the part of ad networks. Channel conflict only happens when things are selling. Call it surplus selling, if you want. Maximum yield trumps any sales force's headache any day of the week. And maximize they do. Publisher optimizers can even automate the reselling of unused inventory back to the highest-paying networks ad infinitum, which begins to approach the mystical 100 percent fill rate.

It seems clear to me that Weiss is a bit over the top in his estimation of ad network growth, saying "the supernova ending is nowhere in sight." Like it or not, the growth rates for online ad spend are contracting, and ad networks, along with every other member of the online ad ecosystem, will feel the crunch. For many of the existing ad networks, acquisition by larger competitors may be the best outcome to be hoped for. But there is the basic reality that ensure something like ad networks will continue to exist: Publishers have inventory they want to sell, advertisers have consumers they want to reach, and the distance between the two remains vast.