Digital Media Ad Network Business Models

Digital Media: Ad Network Business Models
(Abhishek Uppal)

The ad networks typically take on one of three business models: dynamic network, the traditional ad-network, and ad representation.

Dynamic Network Model
Under this model, the ad network will buy inventory from the publisher's sites in advance at a specified rate, group the inventory and select the best types for each advertiser, and resell the inventory to an advertiser or agency at a higher price. Given that there are no assurances this inventory can be resold or resold at a profit, this model presents the most risk for the ad network. The ad networks under this model may obtain preferential inventory from the publishers as the ad network guarantees payment. These networks include Advertising.com and DrivePM (owned by aQuantive). While the lead generation companies often use the at-risk model as well, do not consider them a pure ad network model as they typically buy inventory from wherever they can (including email and search) in order to drive leads with little value-add in the process.

Traditional Ad Networks
In a the traditional ad network, the network contracts with the publisher to sell inventory at a certain price but does not guarantee that the inventory will be sold. Essentially, an ad network will represent all or part of a publisher's inventory and agrees to pay the publisher a fixed percentage or revenue share. The ad network under this model would typically pay a higher price for this inventory than a network that guaranteed payment, but does not assume the risk for unsold inventory. ValueClick, 24/7 Real Media, Casale Media, Tribal Fusion, and Burst Media are examples of the traditional ad-network model. These networks also group their inventories and add value to them, but the process is not as complicated as the value-added groups.

Ad Representation
The third business model, which may not be considered a true network model, is the ad representation model. Under this model, the ad representation company will typically represent all or a majority of the ad inventory from a group of sites and will receive an agency commission for selling the inventory. The ad representation company essentially serves as an outsourced sales force. The margins are also typically lower for the ad representation companies, in the 20% range, given that these sites are often larger and there is less risk to the ad network. For the publisher, ad representation can offer higher ad rates than working with the other network models. Additionally, the ad representation companies typically only work with the larger publishers (usually in the top 1,000). Ad Representation companies include Winstar Interactive, Specific Media, and Gorilla Nation Media.