A shakeout? Bring it on.

| Ad Networks + Industry Consolidation

Over the past few weeks, several industry publications have featured opinion pieces or interviews focused on ad networks. The common theme is that with 300 to 400 networks, a shakeout is coming. Today, the Wall Street Journal and the New York Times have announced that the shakeout has officially begun, citing layoffs and shops closing or seeking buyers.

As much as I hate to see companies fail (it’s a small industry and I know several good, talented people that have been, or will be, affected by all this), it should come as no surprise. There are several reasons for all this including the overall economic environment that has already had an effect on financial and auto spending. Frankly, another major reason that gets little press is that many ad networks do not know how to run a profitable business. Many scaled up too quickly and are now being forced to make hard decisions that include downsizing or shutting down entirely.

But the biggest reason is that most of the 300 or 400 networks out there add little or no value. Exchanges have made it incredibly easy to access cheap inventory. In fact, most networks get their inventory from working with each other directly or via exchanges. There is no innovation and very little that sets them apart from one another. They survive from revenue that comes from a few key agency or advertiser relationships. And now that those budgets are tightening, those networks are in real trouble.

We all hate to see people we know and like go through tough times but this trend is likely to continue. And as a network, we have to hope that it continues as there are still too many networks out there. In a desperate attempt to secure revenue, many networks do things like run brand advertisers across bad sites – witness the Verizon debacle of a few months ago. Or the networks that ran ads for a fast-food chain on the Rodale fitness site. While competition is a key component in a healthy marketplace, practices like these are bad for everyone and give the entire ad network industry a bad name.

Where are we as a business amidst all this? Undertone offers the highest quality and best differentiated model out there, which helps us continue to grow. We are executing: we had our best month ever in September and Q4 looks very strong. We started this network amidst the last downturn and are sticking to our plan for continued success.

Eric Franchi

Eric Franchi is co-founder of Undertone and serves as senior vice president of business development, leading the company’s relationships with its most important partners. A respected industry leader, Eric has been featured in publications including Ad Age, Adweek and The Wall Street Journal, and on stages worldwide including IAB MIXX, Advertising Week and Cannes. He has held a place on the board of the Interactive Advertising Bureau (IAB) for several years, helping guide the digital advertising industry through a period of rapid growth and change.

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