The New York Times reported this morning that DoubleClick plans to launch an exchange for online advertisements. The system is described as follows:
“DoubleClick, based in New York, views the exchange as the centerpiece of a growth plan and may derive the majority of revenue from the new service within five years, said David Rosenblatt, the companyÄôs chief executive, said in an interview yesterday. ÄúWe already have the largest sellers and the largest buyers,Ä? he said. ÄúThis will link them for the first time.Ä?
He described the exchange as a mix of eBay and Sabre, the airline reservations system that travel agents use. The service will let advertisers see information about what competitors bid for particular ads, in the same way that eBay shows visitors past bids. And it will let publishers try to ensure that they sell their ad spots at the highest possible price, the way that airlines try to do with the seats they sell.”
DoubleClick was reportedly in serious talks with Microsoft about being acquired and later it was rumored that Google also became interested. According to the New York Times, the announcement of the exchange “may make DoubleClick a more attractive acquisition target, according to advertising industry executives.”
The fact that DoubleClick would choose to go public with these plans right now, certainly validates the interest in advertising exchanges from both publishers and advertisers. Therefore, I thought it would be an interesting time to step back and look at the market landscape for advertising exchanges.
Difference Between Ad Networks and Ad Exchanges
One important note of clarification, an ad network is simply a 3rd party that websites partner with to serve ads on their site in return for part of the revenue generated. There are literally dozens of large ad networks, including Google’s AdSense, Yahoo! Publisher Network, and AOL’s Advertising.com network. Typically, an ad network takes care of unsold inventory for larger sites, or all inventory on smaller sites that can’t be sold by a direct salesforce.
On the other hand, an advertising exchange is a marketplace that attempts to optimally match sellers (publishers’ available inventory) and buyers (advertisers’ desired campaigns). In many cases, some of the buyers include ad networks. For example, in the DoubleClick exchange, Advertising.com will be one of the initial groups testing the system.
The Other Major Advertising Exchange
The most significant player in the advertising exchange space is New York based Right Media. In October of 2006, they closed a $45 million round that was lead by Yahoo (Read/WriteWeb Coverage). They were also recently profiled by Business Week. Especially interesting in the context of today’s announcement was the following quote:
“Right Media helps match display advertisers with Web-site publishers, and it hopes to do for display ads what Google has done for search ads. It’s an idea Walrath [CEO of Right Media] began exploring while working as director of direct marketing and senior vice-president of strategy and development at DoubleClick, the maker of online-advertising and media-management tools.”
Could we be heading towards another Google and Yahoo showdown, if Google ends up acquiring DoubleClick? I’ve also read speculation that Google will be releasing their own ad server, setting up the possibility of a Google, Yahoo and Microsoft competition if Microsoft were to buy DoubleClick.
Other Players
Other competitors are admittedly blurring the lines between advertising network and exchange. For example, Adify is a solution that allows publishers to work with the Adify network or pull in ads from another 3rd party ad network (if the revenue associated with the ad is not greater than a value specified). While certainly less automated than the exchanges, this does empower publishers to work with multiple sources of advertisements to maximize the value of their inventory.
Conclusion
While search results are a relatively small percentage of overall web traffic, it is traffic that is very easily monetized via search engine advertising. There are lots of companies trying “to do for display ads what Google has done for search ads” (ref BusinessWeek article above.) The exchange approach certainly is a promising part of the overall solution. As DoubleClick’s exchange launches and competes with Right Media and other online advertising solutions, it will be interesting to see if this approach leads to more profitable monetization of display ads.
