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May 1, 2007

Will Too Many Exchanges Defeat the Exchange Promise?

The online ad industry is known for innovation, but like most industries, innovation often spurs replication. The ad exchange bandwagon is loading up with wannabes and hangers on, some with big names and big parents. Contextual ad network ContextWeb is the latest to hoist itself on, announcing plans to launch an exchange this summer.

The exchange apparently will feature some differentiation. According to the firm's press release, "This exchange provides pricing control - the ability to set a firm 'Bid' or 'Ask' price - to all traders (publishers and advertisers)….In other exchange and network businesses, publishers are not permitted to set an 'Ask' price but receive a revenue share of the 'Bid' price from the advertiser. This model only allows for a remnant inventory pool and inhibits market volume and liquidity."

I'm not sure whether this is actually the case, but as ClickZ delves more deeply into the exchange world, we'll find out. I'm pretty sure most exchanges allow publishers to set a minimum amount they'll accept.

The ContextWeb exchange is dubbed ADSDAQ, which leads me to wonder when NASDAQ will align with ADSDAQ to form….oh geez.

The emergence of the exchanges does make sense as ad networks mature and auction-based systems continue popularity. Still, the exchange concept was developed to reduce the amount of work advertisers need to go through to buy network inventory. If more and more exchanges are created, the promise of the exchanges will be lost.

Advertisers will want to go to the hub or hubs that allow them access to the most inventory spokes. I expect the bigger exchanges with the most connections (Google's DoubleClick, Yahoo's Right Media, or whatever 24/7 or Microsoft end up launching) will be the most successful simply because the exchange model is based on efficiency.

I'm just waiting for the rumors about who will buy AdECN to start…

Posted by Kate Kaye at May 1, 2007 11:42 AM

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