The use of ad networks in the US surged from 5% of total ad impressions sold in 2006 to 30% in 2007, according to a new study from the Interactive Advertising Bureau (IAB) and Bain & Company.
As online publishers continue to experience growth rates of 20-30% in ad revenue, the race to create new advertising opportunities has left publishers with an excess of inventory which they are selling through ad networks at up to 90% discounts versus direct sales rates.
The study finds the trend particularly foreboding for branded online publishers who traditionally earn between $10-20 CPM (the industry term for the cost per 1,000 ad impressions advertisers pay) and therefore risk severe price erosion.
It also found that online publisher revenues grew by a healthy 32% in 2007 versus 2006, yet ad network revenues grew more rapidly (in excess of 50%), as marketers boosted online spending.
John Frelinghuysen, a partner in Bain’s Global Media Practice and study author, said: “Online publishers are producing more inventory than the market demands, and risk devaluing the premium nature of their brands, particularly in light of ad networks growth and their dramatically lower pricing.
“Building more effective relationships between publishers and ad networks is critical. In the longer-term, both parties will benefit from gains in ad network CPMs.”
A recent report from e-consultancy forecast that UK media spend on online advertising networks will reach an estimated £385 million in 2008, following growth of 60% (see UK Spend On Online Ad Networks To Grow).
IDC, meanwhile, forecast that worldwide spending on internet advertising will total $65.2 billion in 2008, representing nearly 10% of all ad spending across all media (see Global Online Adspend To Total $65.2bn In 2008).
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