This week I want to provide some basic info about ad networks for those who may have limited familiarity on the topic. The idea is that since ad networks are such a hot topic, it makes sense to provide a solid foundation of info so people know what they are talking about and why they have been so hot of late.

The content here is excerpted from a "Fundamentals of Ad Networks" white paper that will be made available this week.

So without further ado...

Lately it seems like there is a new ad network launched every day, or at least every week. The number of independent networks has exploded,particularly over the past 9-12 months.

Let’s start with the basics. Ad networks aggregate online advertising inventory from sites that find it difficult to sell that inventory on their own. Major sites (e.g., MSN) avail themselves of ad networks to sell the proportion of inventory that remains unsold after their sales forces make their best efforts to book it. The dirty little secret of online publishing is that even the largest sites have huge quantities of unsold inventory to move.

Let’s take Yahoo for an example. Yahoo finds it easy to sell its highly targeted inventory in key verticals, for example Autos. It also has a readymade market for its very low cost, relatively
untargeted inventory, like ads in Yahoo Mail. One of their toughest challenges is to sell inventory in the middle – ads on contextual pages, but ones where advertiser demand are modest. Ad networks can help vend this and other forms of unsold inventory and make an enormous difference in the publications’ bottom lines.

Minor sites often use ad networks to sell all of their inventory because they believe it will be more profitable to do so versus hiring and operating their own sales forces. Here, a well negotiated deal with an ad network can make niche publishing highly profitable.

It is important to note that even if a niche site attracts people who are very valuable to
advertisers, it can be difficult for such companies to connect with planners and buyers because so many publishers want to reach these individuals “with money.” Since planners and buyers have a lot more to do than just meet with media properties, not everyone gets a slot.

Most ad networks as falling into three broad classes:

Vertical Ad Networks aggregate inventory within a specific category. Such a category can be a demographic target or a contextual category (like auto, or real estate.) The idea behind Vertical networks is expertise through specialization – that a vertical network will have unique knowledge that helps sites sell out their inventory and helps advertisers derive extraordinary value from their buys. The most lucrative ad networks dominate their spaces and as a result can command
higher prices for their inventory.

Horizontal Ad Networks aggregate content across demos and contexts, which can give them enormous reach. These networks buy inventory from portals, small sites, sometimes even other ad networks. They offer advertisers the advantage of scale and publishers a means of liquidating enormous amounts of inventory.

Platform Specific Networks aggregate content on a specific digital platform other than the Internet. So for example mobile or gaming.

Tomorrow: Network buying models and why ad networks are growing so quickly in importance.