Small Ad Marketplaces: Can They Get Big?

    December 12, 2006

The past couple of years has been great for online advertising.

The market has grown tremendously, and with it there are more options out there for publishers and advertisers to get together to make money. I’m a big fan of this as a long time web publisher and small advertiser. I don’t want one or two companies dominating the online advertising world because I know that competition brings out the best in companies and choice is very important.

That being said, while I support and love to see the multitude of “ad marketplace” type of companies on the market, I see some things that make me wonder how they will get to be major players in the space.

So who am I talking about here? In the past two years we’ve seen Adbrite, BlogAds, Performancing Partners, Adify, Adster, and other marketplaces where advertisers essentially directly buy on publishers sites. There are some differences in these companies’ models, but they all hold true to the idea that advertisers buy on publishers or some type of category of publishers.

As a publisher I’ve found these solutions to be easy to work with, and have had moderate success with some of them. From my experiences and what I’ve found out from others, the biggest sites in their “marketplaces” tend to do the best from them, which is really no surprise. The biggest problem though is that often there just aren’t enough advertisers buying my sites, and many others have given me that feedback, and this is a crucial problem. If publishers don’t get ad buys through them, what’s the point in leaving the space available on your site and dealing with yet another ad provider?

Let’s look at it from an advertiser point of view. I’ve used a few of these sites as an advertiser as well. Again, they’ve done a pretty good job with the experience, but there are some inherent problems.

1. Volume and Time

The most popular platform for online advertising is Google Adwords. Although Adwords is a well-made product, the primary reason for that is because Adwords delivers quality and volume through Google Search. Advertisers can spend the time and effort to learn the Adwords interface because it will drive a high enough volume of clicks and conversions to make it worth the time. Because there is so much volume, it also allows lots of clicks to be bought at a low cost.

There is a huge drop off from the number that buy on Adwords to the number that buy on the next biggest self-service platform, which would be Yahoo Search Marketing. Then an even bigger drop off to MSN Adcenter. Then an even bigger drop off to these small marketplaces. Why does this occur? Each ad system I work with as an advertiser is another thing to learn, and to spend time on, and people use Google primarily because of the volume (and quality). You spend a few hours setting things up, and you get a large number of clicks and conversions. You spend the same time buying on a smaller marketplace and you aren’t going to get close to as much volume.

With these other smaller ad marketplaces, each one is a new interface to learn, and advertisers aren’t sure if they can drive the necessary volume to dedicate the effort to trying it out or sticking with it. I’ve tried a few of them and had this exact experience. It’s not always a case of just increasing your budget either. If you are looking for targeted traffic, you can’t just blow the bank on a small marketplace trying to drive larger volume and get what you want. So in my tests, I spent the time to learn these new marketplaces but couldn’t drive enough volume to justify continually monitoring and spending money there. My failure as an advertiser in turn hurts the publisher on the other side because they are no longer getting my money.

2. Hitting ROI

Additionally, very few ad marketplaces provide feedback on ROI, or guarantee that as an advertiser you’ll hit your ROI goals. In fact, I don’t think any of them do, although using Google conversion code and Google Analytics you can figure it out. Anyway, my point is that as an advertiser, I have to track and watch all the ads I’m buying to make sure I stay profitable. For the few places that provide me volume, I’ll do the manual effort with spreadsheets or some third-party application to track my ROI. Will I really have time as an advertiser to watch my ROI and check my profitability on a bunch of smaller buys on all the ad marketplaces? Personally I found that I didn’t.

What does this mean for the future?

How do these smaller “ad marketplaces” get to the next step? I don’t have the golden answer. You can tackle the volume problem by getting more quality inventory, but how do you get more quality inventory unless you are getting lots of advertisers spending their money with you? Do you shrink your revenue share to increase payouts in the short term? Do you focus on building publisher tools that allow them to work with you before you have the advertisers? It may just be that the company that can grind it out the best will win. But perhaps it means someone needs to take the next step in evolution? Perhaps it’s a company that opens all their data up for any use?

In regards to meeting ROI for advertisers automatically, on the Right Media Exchange advertisers can specify ROI goals that our technology then works to hit for them. At this point we don’t have a small to medium-sized advertiser solution, but if we do you can bet hitting ROI will be part of it.

It will be interesting to watch it play out. All the competition is good for publishers, but if all the ad money is fragmented out across all the small marketplaces it makes it hard for publishers to work with all of them to get the maximum revenue.

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Pat is the Director of Business Development at Right Media, the business unit owner for RMX Direct, and the author of the Conversion Rater blog.