From AdAge.com — Last September, Henry Blodget asked me and several other VCs on an panel — titled “Dot Bomb 2.0” — how many of the estimated 300 to 400 ad networks were “toast.” (My personal view is that only 15 to 20 really matter.) Comments like “rampant consolidation” and “decimation” were used to describe the impending, inevitable shakeout that was sure to come.
Almost a year later, no apocalyptic shakeout has hit yet. So what happened?
Venture and private-equity investments in ad networks have been robust for the past several years. More than 60 ad networks — vertical ad networks, video, brand, performance, wireless, gaming, behavioural, contextual, etc. — have raised $1.5 billion in the past five years, and the top 25 firms have received almost $1.2 billion of that total, according to VentureSource. Significantly, more than 75% of the money has been raised in just the past three years. These funding numbers do not include the more than $250 million that was invested in other companies that have already exited (Adify, Blue Lithium, Quigo, Tacoda, Third Screen Media, etc.).
Ad Age Digital DigitalNext MediaWorks A handful of ad networks have indeed either shut down or been acquired for nominal amounts (Adzilla, Ad Infuse, AdEngage, Jellycloud, mSnap, NebuAd). A few others, like Peer39 (disclaimer: I sit on Peer39’s board) and Ringleader Digital, have switched from building ad networks to selling technology instead. And a few are even thriving. Most, however, are merely surviving in this down economy.
Many of the less differentiated, standard graphical networks have not shut down, because they are easy to run with very little expense these days. Most of the lesser-known ones (and even some of the bigger players) are essentially glorified brokers that acquire their inventory on the exchanges. They hire a trafficker, a salesperson or two, sign a 5-cent-CPM contract with an ad server and find someone who knows how to bid the exchanges to stay in business. They don’t need to invest significant resources in acquiring high-quality inventory or professionally managing relationships with publishers. These networks can generate a profit, enough to survive and to eke out a decent living.
Fundamentally, I would argue that the ad-network model still makes a lot of sense today and can be quite resilient. In particular, those ad networks that develop proprietary technologies and offer truly differentiated solutions are the ones most likely to be successful.
The basic reasons why so many ad networks are surviving:
- Online usage continues to increase and, according to a recent Forrester survey, has reached an average of 12 hours per week. That provides advertisers and agencies with strong incentives to move more of their ad spending online.
- The number of online sites and publishers continues to increase rapidly, which makes it increasingly difficult for advertisers and agencies to decide which sites to work with. Ad networks can help sort through this bewildering number of sites and target those that are most relevant and appropriate for their clients.
Warren Lee is a venture partner at Canaan Partners, where he leads digital-media investments, specifically in the New York corridor, from Canaan’s Connecticut office. Previously he was at Comcast Interactive Capital, where he led the media firm’s investments in several global technology companies. In the name of full disclosure, he has invested in and serves on the boards of several media and advertising startups, including Associated Content, Motionbox, Peer39, Tremor Media and Vivox.
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