WSJ: Shakeout Threatens to Thin Out Web-Ad Brokers

The financial crisis on Wall Street (and now the Global Economy) has many industries including banks and brokerages cutting spending. Other industries such as telecommunications and automotive have also cut spending as well.

These events have had a disastrous effect on the world of online advertising as reported by Emily Steel of WSJ, that a couple of start-up ad networks like Adzilla and JellyCloud have already ceased operations and larger ad networks like AdBrite have cut as much as 40% of its workforce.

I agree with Emily Steel that when faced with tighter budgets, media buyers will buy ad networks that offer sophisticated targeting and the largest audience reach. Sophisticated targeting is how many of these new start-up ad networks have attempted to differentiate themselves. But where they fall short is providing the large audience reach that other ad networks like a Tribal Fusion and ValueClick can provide. To media buyers, you cannot offer one (targeting) without the other (reach).

Start-up ad network will have continued difficulties increasing audience reach as publishers now have more than 300 ad networks to select from. Publishers make decisions on ad networks based on pay-outs and “eCPM” rates. Top publishers typically work with several ad networks already and convincing them to implement a new ad network these days require a lot of data (on other publishers) and sometimes guarantees. There’s a chicken-egg scenario because often times, you can’t get data without having the publishers first.

I anticipate ecommerce companies to increase holiday online ad spending over last year. But I am not confident that the ad spending by ecommerce companies will offset the loss of key advertiser verticals like banks, brokerages, and automotive. Look for more coverage of failed ad networks by early 2009.