An insider's view of Web advertising, from autos to remnant networks

Online advertising is one of the few bright spots in the Internet economy, with U.S. revenues expected to double over the next four years. Nevertheless, many of the trends in the online adverising industry remain obscure to buyers and publishers. For instance, what are the roles of ad networks, and why is remnant inventory so lucrative to some of them? Why are automotive ads relatively rare online, even while they dominate broadcast and cable television? To answer these and other questions, The Industry Standard turned to Zander Ford, an account executive for Internet Broadcasting and the co-founder of SF Web Pages. The following interview reflects Ford's personal views of the online advertising industry.

The Industry Standard: Can you describe the ad network that you sell for?

Ford: I sell for a "local media advertising network." We sell ad-space/inventory for local television, radio, and newspaper websites. Most of the content on these websites is news -- much of it local news -- though there is a significant portion that is entertainment-based, sports related, and [incorporating] other local considerations, like traffic, weather, et cetera. The ads are banners and/or video.

There are more than 450 websites in our network of local news sites. Approximately 50 million unique individuals (our "reach") view at least one of the sites in our network each month, often several times in a month. We stream upwards of 18 million videos every month on our websites.

The pain points we solve for the buyer include:

• One bill (and request for proposal) instead of 50, 500, or 5,000 bills and RFPs.
• Guaranteed high-quality inventory (available ad-space)
• Reach local audiences with locally branded news sites, and/or buy across the nation and reach 99% of all US households.

TIS: Car advertising is ubiquitous on broadcast television, yet seems to be much rarer in Internet advertising. Why is that? Does this disparity present an opportunity for Internet ad networks and publishers?

Ford: The automotive vertical (advertising channel) has been one of the most significant "drivers" of online revenue. Similar to broadcast TV, most of the auto manufacturers' money is spent on "brand awareness." The most unique thing about Internet advertising is that an advertiser can "track" users actions more carefully -- such as if the user clicked on the advertisement, or signed up for that free trial. Google's pay-per-click (PPC) model, where advertisers only pay when their ad is clicked on, is the most widely known cost per action (CPA) example. It is "pay-for-performance."

The list you reference above is based on "performance media" buys, but, it's masked under a "Banner" of Awareness pricing.

I'd venture the equation used to generate the top 50 spenders looks something like this:

[# impressions a given advertiser bought on given website(s)] x [rate-card price(s) of the website(s) the ad appeared on].

Translated into English: if University ABC buys 100,000 advertising impressions on www.cool-hip-site.com at the price of $10 per thousand impressions (cost per thousand, CPM), then their total spend with www.cool-hip-site.com is $1,000 (100,000 impressions divided by 1,000 multiplied by $10 = $1000). Most premium publishers (Comscore top 100) typically sell ads on a CPM basis.

Here comes the fun part -- remnant inventory. If a publisher (website owner) can't sell all the advertising impressions generated in a given month by users looking at its Web pages, then ... they have to put something in those open ad-spaces, or the inventory goes to waste, and the publishers don't get paid for it. Most publishers would rather take 10 cents on the dollar for that space than have it go empty. However, some publishers want total advertising control -- to avoid offending users for example -- so they'll only publish ads from known brands.

All that to explain the absence of autos on the list above: CPA networks (also often called "blind networks) -- networks that only get paid when a user takes an action -- will often buy boatloads of inventory for 10 cents on the dollar (not always inventory from premium sites -- remember they get paid when a user takes an action -- so they're interested in clicks, purchases, and sign-ups -- they don't care where they came from). Sometimes they'll "tier-out" a network buy, saying "This is inventory on top-branded websites," or "this is a second-tier buy." Rarely do those remnant networks offer what is known as "transparency" in the industry. They won't tell the buyer what sites exactly their ads are appearing on, only that they're part of a large group of sites. This can lead to some potentially shady deals.

The other remnant opportunity is for brand awareness. If a publisher's ad sales force can't sell all their inventory, they'll have remnant inventory. Let's say they offer that up at 1/10th the cost. If a network can buy at 10 cents, and sell at 50 cents, they're going to make a 400% markup, and pocket that 40 cents.

TIS: The remnant networks are clearly helpful in terms of finding a market for unused inventory, but what are some of the drawbacks to publishers who use them?