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Epochs of Ad Networks

The history of the ad network can be described in three eras:

  1. Portals and search engines aggregate large audiences across billions of uniformly high quality pages impressions (AOL, Yahoo, Google)
  2. Ad sales for these destination sites drive billions of dollars because of the significant reach and attention. Education was a key component of these sales. New media, metrics and formats required re-education of agencies and marketers alike.
  3. Ad networks aggregate non-portal inventory to deliver additional scale, differentiated audience segments. First they compete on reach then they compete on inventory quality

Ad network inventory segmentation

Additionally, the ad network market can be broken into three segments depicted in the image to the right. The y-axis is the rpm (revenue per thousand impressions) and the area of the segment is representative of the volume of ad impressions. 

Brand impressions have high RPMs but are relatively lower in volume. Remnant inventory has enormous volume but with RPMs two orders of magnitude smaller than Brand. Direct display is a relatively new category that has been enabled by combining intent data about users with remnant inventory, resulting in better performing ads and consequently higher RPMs.

Do Hyper Local Ad Networks follow the same model? 
Portals and Search Engines: Mobile app traffic resembles portal traffic. There is significant mobile app fragmentation but there are huge players: Facebook and Google. Both companies have applications with more than 25M monthly active users on mobile (Facebook and Google Maps for Mobile). Additionally, both have direct ads sales forces already and one of them, Google, has an ad network. 

Ad Sales: Advertiser and agency education is different this time because HLANs target an SMB customer base. Current large Google and Facebook advertisers are sophisticated and use local targeting already. The HLAN is targeting a new type of customer: the SMB who requires significant education and a different sales process than the agency sales process driving the majority of revenue. A sales process that has required thousands of sales reps in the past, like Yellowpages. 

Ad Networks: Despite some concentration in traffic, mobile app user fragmentation is enormous HLAN will provide the same benefits to the mobile ecosystem as internet ad networks. Initially, reach will be the most important given the relatively small user bases of many applications limited to the single digit millions at the top end. In their evolution, then, HLANs have had very similar history to regular ad networks. 

In conclusion, the ecosystem for HLANs mirrors internet ad networks. 

The difference between HLANs and Ad Networks

The direct display market in ad networks was the last to materialize on the web because of the infrastructure required to build it and because it was invented to resolve the publisher inventory glut (too many impressions, not enough ads at high enough RPM). But it will come rapidly to mobile through HLANs.  

The market has leveraged existing direct display ad infrastructure, combine it with location data to create mobile direct display ads like coupons, discounts and loyalty cards. Therefore, I expect the HLAN to represent a significant proportion of the mobile ad market in the medium term, possibly representing a larger segment than display and remnant in dollar terms because HLANs extend coupons, loyalty cards and discounts to a huge new targeted audience, at scale and most importantly, at times when the consumer has intent to purchase – the key element in driving revenue and ad sales, particularly for SMBs. 

As we’ve discussed in the past, the key to unlocking this enormous new market will be the sales process. 
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