MarTech Landscape: What Is An Ad Network?

Ad networks make it possible for advertisers to buy digital ads across a slew of publisher sites and apps. How they came to be and how they work is the focus of this installment of our MarTech Landscape Series.

A Brief History

First, a walk down memory lane. Ad networks sprouted up during the dotcom boom that started in the mid ‘90s. As the number of sites and digital publishers proliferated, they needed a simple way to increase inventory demand and ad revenues. Likewise, advertisers needed help scaling their digital ad buys across a growing number of websites without having to deal with each publisher directly.

In the beginning, there was DoubleClick. Launched in 1996, the digital ad services agency pioneered the concept of an ad network and attracted buyer demand with its ad performance tracking and reporting solutions. The company acted as a middleman, brokering ad buys between advertisers and a network of publishers.

DoubleClick survived the dotcom bust of 2000, and Google bought it in 2007 for $3.1 billion. By that time, Google AdSense was four years old, having launched in 2003. Today, the Google Display Network of Google AdSense publishers is the world’s biggest ad network, and DoubleClick for Publishers (DFP) acts as Google’s premium network of publishers.

With the growth of mobile and video, ad networks that cater specifically to these areas formed, and many have been scooped up by the likes of Google (AdMob), Yahoo (Flurry and BrightRoll), Twitter (MoPub), AOL (Millenial Media, Adap.tv) and Facebook (LiveRail). TubeMogul and Tremor Video are examples of independent video ad networks. Chartboost, InMobi, Smaato, StartApp and TapJoy are among the still-independent mobile ad networks.

How Do Ad Networks Work?

At the most basic level, ad networks pool inventory of unsold ads from publishers and sell it to advertisers. They earn money by taking a cut of ad revenue, sometimes marking-up inventory before selling it.

Ads are delivered to a publisher’s site by an ad network’s ad server via code on the publisher’s site that calls the ad. Performance is tracked via a tracking pixel from the ad network that the advertiser places on the conversion page(s) such as a thank you page on its site . The ad network’s ad server powers ad targeting, tracking and reporting on the campaign.

Unlike AdSense where advertisers and agencies manage bidding, targeting and optimization themselves, many ad networks manage campaigns on behalf of agencies and advertisers. In these cases, an ad network and buyer negotiate the terms of an ad buy such as audience targets, impressions (the number of times an ad is served) and average cost per impression (CPM). The ad network then executes the targeting, optimization and reporting on the campaign.

What Types Of Targeting Are Available?

Some ad networks categorize the sites in their network by the types of content they cover. Automotive, travel, beauty, fitness sites, for example, may be grouped into vertical channels and sold to advertisers that want to reach audiences interested in those topics. Some networks cater to specific verticals while others are open to nearly any type of site. Or ad networks may instead sell audience segments built on behavioral, interest, demographic and other data from publishers and third-party data providers.

There are also ad networks focused on low-priced inventory that give little to no transparency into where an advertisers’ ads show up. These blind buys can offer scale on the cheap, and are typically bought by direct response advertisers who measure performance by CPA and are less concerned about brand safety.

Are All Ad Networks Equal?

In short, no. Some networks are very selective about the type and quality of publishers allowed in the network, while others are decidedly less so.

More restrictive ad networks may have exclusive access to premium publisher inventory. In fact, groups of publishers have formed their own ad networks to control the types of inventory in the pool and maintain premium pricing.

Some networks will buy ad impressions in bulk from ad exchanges and re-sell them with a mark-up. Some ad networks also sell inventory from publishers on open exchanges. Another strategy is to syndicate ads sold through other ad networks.

Transparency Concerns

Ad exchange buys and ad syndication are two reasons why buyers soured on some ad networks since it’s often unclear at the outset where a brand’s ads will run on (or off) the network.

Pricing transparency has been another concern. For example, an ad buy sold on an average CPM could end up showing on a large number of low-demand, low-CPM impressions, offset by a small number of premium, high CPM impressions. The ad network hits the CPM target with a big profit margin while the advertiser’s “premium” buy turns out to be anything but.

Buyers also need to trust the networks’ targeting technologies will properly match their ads to relevant content and audiences for contextual and behavioral targeting campaigns. That hasn’t always panned out.

Fraud has also been an ongoing problem, costing advertisers billions, according to a 2014 study by the Association of National Advertisers. There are many variations of ad fraud. In some cases botnets, which can infect thousands of users’ computers with malware, generate bogus ad impressions and clicks that appear to be generated by humans. Another tactic of scammers is to infect ad networks with publisher sites or simple pages that are crammed with ad units.

Even when fraud is not involved, studies have shown fewer than half of the digital ads shown are actually seen by users because they are served below the area in view on a user’s screen. In reaction to these issues, advertisers have pushed to have ads measured and sold on a viewable impression rather than served impression basis.  The industry has agreed on a standard for viewability for display (at least half the ad needs to be in view for at least one second) and video (fifty percent of the ad needs to be in view for at least 2 seconds), Many ad networks and publishers now offer viewable impression pricing and verification.

Pricing And Ad Formats

Ad networks started in the age of the desktop banner, but they now encompass all kinds of digital inventory, including mobile and video.

There are ad networks that specialize in one type of ad format or medium and others that sell just about anything. In addition to standard IAB ad units, some examples of other ad formats sold by ad networks are native display and video ads, in-image ads, content recommendations and in-text ads.

Many networks offer several pricing options. Pricing models include cost-per-thousand impressions (CPM), viewable CPM (vCPM), cost-per-click (CPC), cost-per-acquisition (CPA), cost-per-view for video (CPV). Some buys are fixed-rate, while others are auction-based (like AdSense).

Publishers typically earn a percentage of ad revenues.

You might be wondering how ad networks are different than ad exchanges. Stay tuned. Ad exchanges will be the focus of the next installment of the MarTech Landscape series.