What is the future of ad networks?

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We have all seen the hockey stick charts and innumerable slides about growth in mobile advertising. We have also seen the stats on mobile Web adoption and wireless data usage, and heard the pundits speak on and on about how “this is the year.”

Sound familiar? That was 1998.

Here we are, 10 years later, and a whole industry has been born on the speculation of mobile advertising. The players making a big gamble on the future of mobile advertising are the ever-increasing number of ad networks.

In the beginning, mobile ad networks were focused on the first basic need in mobile advertising – lack of inventory.

From there, the land grab was on and most ad networks focused on the long tail of mobile advertising to secure this precious inventory. They offered to take anyone and everyone who had mobile content and deliver and optimize their advertising efforts.

Essentially this has been a good deal for publishers, even premium publishers, because as long as their mobile platform was small, having an outsourced group monetizing their content works well.

But now the problem isn’t inventory, but a lack of quality inventory.  The big brands that advertise on mobile need to know that their brand is associated with content that is of a caliber that they feel comfortable with, and that it is contextually relevant to the consumer. Advertising a food product makes a lot more sense on Good Housekeeping than it does Joe Schmoe’s blog or a local car dealership.

Another challenge currently facing mobile ad networks is the current usage of search in mobile.

Unlike the big online ad networks that rely on search to target and serve ads, in first-quarter 2008, less than 7 percent of mobile site and content discovery is derived from search, according to the latest Crisp Wireless Index.

The majority of mobile discovery (53 percent) is through on-deck carrier portals, with 39.5 percent of discovery being performed off-deck through users directly typing in site names or bookmarks on users phones.

The problem ad networks will have, as the market grows, is that top-tier publishers will bring the inventory in-house.

In the online world, where ad networks can do behavioral targeting without content management systems, only 11 percent of ad sales are done through ad networks.

In mobile, there is the additional complication of the need for content management. Therefore the number will almost certainly end up even lower.

The future
Big brand publishers today dominate mobile advertising. They have more traffic, stickier sites and, most importantly, complex content management systems that allow them to understand how people are using mobile very differently than they are using the Internet.

As these publishers begin to realize real revenue from mobile advertising, they will bring their ad sales in house. When this begins to happen, ad servers will start to drop prices and become as commoditized as they are online.

Online ad serving has survived due to its ability to offer behavioral targeting and cost-per-click pricing. Almost all online ad networks now differentiate themselves in these two ways.

In mobile, you can take away the behavioral targeting and get some remnant CPC companies. This still represents a large market opportunity for ad networks, but very different from the premium positioning they have now.

The winners will be infrastructure companies that can offer the ability to provide publishers with real data about how consumers are using their sites, where those consumers are coming from, where they are going, and what they are consuming.

Even more important than that, the infrastructure companies will be able to deliver comparative data; how one site is doing with respect to the mobile Web universe in general, in the vertical, and any other properties specific to that site’s focus. This is the future of mobile advertising.

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