Online Ad Exchanges Are the Next Stage of the Long Tail

Microsoft’s recent purchase of online ad market platform AdECN Exchange highlights the rise of neutral ad market platforms as a new venue for the buying and selling of ads between content publishers and advertisers.

Online ad market platforms represent the next stage, or second generation, of ad networks. The first generation was represented by Google Adsense, the company’s successful platform for publishers, which provided ad inventory from independently-published websites for Google Adwords, the ad targeting and delivery system, and Google’s cash cow.

First generation ad platforms such as the Adwords/Adsense platform have used real-time indexers, or spiders, to scan content for keywords, and then match up advertisers with inventory. Technologically, this is great non-trivial technology, but there are also problems with it.

  • If you are an ad publisher or advertiser, you need to join a network (Google, Yahoo!, MSN, Baidu, etc.). By joining a network, you automatically lose advertising and revenue opportunities with other prospects who may not be members of the same network.
  • Advertisers and publishers are entrusting a third-party to act as their facilitator and to act in their best interests. While search engines make claims to be objective and neutral; this is in fact impossible. Just do a search on a term of your choosing across several different search engines, and compare the search results.
  • As search engine companies go public and come under pressure from Wall Street and investors, management’s strategy is always to blur the line between organic (free search) and pay-per-click (PPC) search. As revenue becomes more important, search results become more skewed to favor sites which belong to their publishers’ network.
  • Click fraud is a major problem which the search engines have never been able to come clean about. Aside from waffle statements to the effect that “click fraud is a minor problem which does not affect most users”, all search engines, even Google, have been reluctant to provide independent third-party statistics about click fraud. This reluctance to come clean has led many to believe that the problem is greater and would affect their revenue more than they want investors to know. In a worst case scenario, it could be manipulated into a Ponzi scheme.
  • In certain markets such as China, where keywords are sold through distributors, there is even wider room for abuse through distributor collusion. This is why advertiser groups have formed organizations such as Fanbaidu who have challenged charges for advertising clicks made to their accounts.
  • As the Cluetrain Manifesto made clear, along with Seth Godin, marketing and blogging are becoming increasingly about conversations. Blogs are nothing more than linked conversations on a given topic, and sometimes they ramble on by themselves. For this reason, blog content resists a “one size fits all” approach, hence the attractiveness of the long tail approach. For unique content, neutral ad platforms where buying and selling is done by human buyers and sellers online work better than networks which have their algorithms continuously tweaked. Since the most knowledgeable seller is the creator of the content, this means that more and more, content creators will become marketers and publishers of their own content. After all, the main task of a publisher is to attract good content creators and market their work.

This is why the ad exchange system is the trend of the future; it works best for unique content and for the long tail. Compared to ad networks, they are more transparent. Click fraud collusion is made much more difficult because the market is real-time and more dynamic, and the content creators and publishers would have it in their own best interests to fight and resist click fraud. Transparency rewards the honest over the long term. Exchanges are not perfect and Ponzi schemes can also develop in exchanges, but this has more to do with human nature than exchanges.

The problem with the advertising industry, as it exists today, is it is built for a world where advertisers and inventory are comparatively static, and where audiences are defined as being “mass market”. In today’s online market, where peoples’ needs, care and interests are constantly changing on a real-time basis, the question should become “Is there a mass market anymore, and what is its definition in quantitative and qualitative terms?” If the answer is no, then the main currency of advertising becomes attention, which would then have to be translated into monetary terms not only on an individual, but on a time basis. Pushed to its logical outcome, advertisers would need to pay consumers for their time and attention.

In an article on Ogilvy China Digital Watch, Kaiser Kuo raised the question about why ad exchanges were slow to take off in China. Although there may be many reasons, I believe the most important single reason is that content creators want to just create content, and don’t like the idea of marketing, buying and selling their own content or becoming publishers. They want to write for someone else and be paid, and don’t want to take the risk themselves. This problem is not unique to China; it will affect takeup of the online ad exchange model all over the world.

Of course, the market always tend to reward the individuals who see and act on opportunities before others.

5 Responses to “Online Ad Exchanges Are the Next Stage of the Long Tail”

  1. […] is blogging again, with a new and very promising site called The China Vortex. Please check out his latest article, which examines the ad exchange phenomenon in the aftermath of Microsoft’s acquisition of […]

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  3. […] native son in the search market, has significant problems which I have discussed at some length in an earlier article on the Chinese advertising […]

  4. […] of course, media publishers might decide to sell their advertising space in online exchanges or auctions, instead of just selling wholesale. CCTV (China Central TV) already does this; it will […]

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