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Why build a vertical ad network?

VentureBeat writes an article on a vertical ad network centered around women’s interests: Women’s online network, Glam, fastest growing on the Web.

Pretty interesting stuff, and shows some smart thinking by the folks at Glam. When you’re an ad network upstart, by far the hardest problem is the chicken-and-the-egg problem. To have a happily functioning ecosystem, you need publisher ad inventory and advertisers that want to buy it – but neither set of parties will come to the table without the other.

Owning a destination site is good
In the case of Google, they already had their own destination site, so they were able to bring their own inventory to the table. Once they had that, they were able to attract advertisers, which they could then tap as they expanded their base of inventory through partner deals.

In fact, you could imagine that since YouTube is such a huge % of videos played on the internet, they might try to do the same thing with video ads. Very smart.

Not controlling your own destiny is bad…
In contrast, if you don’t have a destination site, you are very much at the whim of your partners. You may be able to do a couple key deals to get publisher inventory or advertisers, but that might not be enough of a critical mass to provide the highest rates. And on top of that, because you are competing with all the other ad networks, you’re forced to optimize for RIGHT NOW so that you can retain inventory, at the expense of longer-term experimentation. Bad news for a startup.

Glam’s business future
For Glam, they can do the same thing as Google. They can aggregate all the mom-and-pop bloggers and websites that have been able to hit on the right consumer nerve, and provide them with the sophistication and expertise to sell to the brand advertisers that drive the higher CPMs.

There are a couple dangers to this business model, in the long run. The first is that advertisers may think that they are buying inventory on Glam-quality sites, and may not approve if the umbrella gets too big or the standards are too lax. So the advertisers will try to figure out what sites are ACTUALLY in the network, and whether or not they should be buying directly from them. The second issue is that within the Glam network, a couple sites may emerge as outsized winners by pageviews or people – over time, these sites will want to build their own direct sales teams and get capture more of the higher CPM dollars. In either case, Glam can probably acquire some of their publisher partners to get bigger and keep those dollars in-house – that might be a smart way to spend their venture dollars and cashflow from their advertising business.

Can you build lock-in with ad networks? An example with MySpace…
And finally, one might ask where the vertical ad network thing could go in the long run? Could more large destination sites create loose conglomerates of sites under one ad network? For example, you could imagine that MySpace has various reasons they might want to assert control over all the MySpace-related layouts/backgrounds/icons sites out there. They could ask ALL of those sites to run under a MySpace ad network, and trade that for preferred access to an API or something similar under a "Premium Partner" program. That way, they can make sure they are getting a slice of all the ad dollars related to MySpace, whether it’s directly on their site or not.

UPDATE: Here’s an example of the bad coverage that can happen if you slap advertisers’ brands on websites you don’t own… (and report the stats as your own)

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