What is Ad Network? How It Works And Its Types

An online advertising network or ad network is a company that connects advertisers to websites that want to host advertisements. The key function of an ad network is an aggregation of ad supply from publishers and matching it with advertiser's demand. An ad network is essentially a middleman; it connects advertisers to websites that host advertisements.

Ad networks are beneficial for all three parties involved; the advertiser pays a certain amount each time their ad is clicked by a potential customer (or a set amount for every 1,000 impressions), while the network and publisher each take a percentage. For example, if an advertiser pays INR 5 per click, every time the ad is clicked, the publisher might get INR 3 and the network INR 2.

Brief History

Ad network systems or set-up grew up during the dotcom boom in the mid of 90s. As the number of sites and digital publishes proliferated, they needed a simple way to increase inventory demand and ad revenues. Likewise, advertisers need help scaling their digital ad buys across a growing number of websites without having to deal with each publisher individually.

Before anything else, there was DoubleClick. Founded in 1996, it was the digital ad service agency that has created the concept of an ad network and attracted many brands with its ad performance tracking and reporting mechanism. DoubleClick acted as an agent, facilitating ad buys between advertisers and a massive network of publishers.  

It was strong enough to survive the dotcom bust of 2000 and Google acquired it in 2007. By that time, Google AdSense was a 4-year-old baby. Today, the Google Display Network of Google AdSense publishers is the world’s largest ad network and DoubleClick for publishers acts as Google’s premium network of publishers.

With the growth of mobile and video, ad networks that cater specifically to these areas formed, and many have been scooped up by the likes of Google. Today many independent ad networks like Smaato, Chartboost, TapJoy, MoPub, LiveRail etc. are offering their services in this domain. 

Mechanism 

Ad networks basically pool inventory of unsold ads from publishers and sell it to advertisers and earn money by taking a cut of ad revenue, sometimes marking-up inventory before selling it.

Ads are delivered to a publisher’s site by an ad network’s ad server and performance is tracked using tracking pixel from the ad network that the advertiser places on the conversion page(s) such as a thank you page on its site. Apart from this, the ad network’s ad server extends features like ad targeting, tracking and reporting on the campaign. It’s a platform where advertisers and agencies manage bidding, targeting and optimization themselves.

There are many other networks which do similar stuff but in a different fashion. Here, an ad network and buyer negotiate the terms of an ad buy such as audience targets, impressions and average cost per impression. The ad network then executes the targeting, optimization and reporting on the campaign.

Type of Networks

There are three types of ad networks, each based on how they work with advertisers and publishers. These include:

Blind Networks Offers low priced inventory but lacks transparency and have no control over where ads are placed. The success of the campaign purely depends on its performance. Brands here are less concerned about brand safety.  

Vertical Networks tends to have higher quality traffic with advertising across general categories. Such networks pool multiple sites on their platform and categorize them on the basis of content they cover. Automobile, Travel, Beauty, Fitness, for example, may be grouped into vertical channels and sold to advertisers that want to reach audiences interest in those topics.

Targeted Networks are the most expensive for advertisers, and focus on specific targeting like behavior or website context. These networks basically sell audience segments built on interest, demographic and other data from publishers and third-party data providers. 

Targeting Parameters

Some ad networks are very selective about the type and quality of publishers allowed in the network. More restrictive ad networks may have exclusive access to premium publisher inventory and thus maintains premium pricing whereas some networks trade ad impressions in bulk from ad exchanges and re-sell them with a mark-up. Some ad networks also sell inventory from publishers on open exchanges. Another strategy is to syndicate ads sold through other ad networks.

Transparency 

Ad exchange buys and ad syndication are two reasons why buyers soured on some ad networks since it’s often unclear at the outset where a brand’s ads will run on (or off) the network. Pricing transparency has been another concern. For example, an ad buys sold on an average CPM could end up showing on a large number of low-demand, low-CPM impressions, offset by a small number of premium, high CPM impressions. The ad network hits the CPM target with a big profit margin while the advertiser’s “premium” buy turns out to be anything but.

Buyers also need to trust the networks’ targeting technologies will properly match their ads to relevant content and audiences for contextual and behavioral targeting campaigns. That hasn’t always panned out.

Fraud has also been an ongoing problem, costing advertisers billions. There are many variations of ad fraud. In some cases, botnets, which can infect thousands of users’ computers with malware, generate bogus ad impressions and clicks that appear to be generated by humans. Another tactic of `scammers is to infect ad networks with publisher sites or simple pages that are crammed with ad units.

Even when fraud is not involved, studies have shown fewer than half of the digital ads shown are actually seen by users because they are served below the area in view on a user’s screen. In reaction to these issues, advertisers have pushed to have ads measured and sold on a viewable impression rather than served impression basis.  The industry has agreed on a standard for viewability for display (at least half the ad needs to be in view for at least one second) and video (50% of the ad needs to be in view for at least 2 seconds), many ad networks and publishers now offer viewable impression pricing and verification.

Pricing

Ad networks started in the age of the desktop banner, but they now offer almost all kinds of digital inventory, including mobile and video. There are ad networks that specialize in one type of ad format or medium and others that sell just about anything. In addition to standard IAB ad units, some examples of other ad formats sold by ad networks are native display and video ads, in-image ads, content recommendations, and in-text ads.

Many networks offer several pricing options. Pricing models include cost-per-thousand impressions (CPM), viewable CPM (vCPM), cost-per-click (CPC), cost-per-acquisition (CPA), cost-per-view for video (CPV). Some buys are fixed-rate, while others are auction-based (like AdSense).

Publishers typically earn a percentage of ad revenues.

As the internet evolves, so do the advertising methods. Nowadays, a new form of an ad marketplace has shown up and is slowly phasing out the traditional marketplaces. New age platforms are dynamic and offer liberty to bid on individual impressions, or clicks, instead of bulk orders. These platforms offer huge scope for flexible advertising strategies than the typical ad networks. Most networks are starting to offer these services, or are switching to a new model.

Special Thanks to:

Andrea Andi Joseph @ verticalrail.com

Ginny Marvin@ martechtoday.com

Xavier Santana @ mobidea.com

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