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Yesterday I read a long treatise from Chip Bayers at AdWeek about the problem with internet advertising; or why digital media ad sales suck. It’s a lengthy and somewhat convoluted article, jam-packed with factoids and quotes from indusry big-wigs and sprinkled with some good analysis. There are a few key points I took away from this article, that are demonstrative of some market opportunities open to a cunning entrepreneur or innovative corporation.

Mr. Bayers points to a $60 billion gap in Ad Spending online, compared with TV ad spend. Given the amount of time consumers spend online relative to the amount of time spent watching TV, there should be $60 billion of additional ad spend in digital than there is currently.

The easiest explanation for this gap is simple supply/demand economics. The internet offers virtually limitless supply of advertising space. There is so much excess supply, that the price of advertising online is necessarily devalued.

Another issue that Mr. Bayers points to affects the demand side of this imbalance. Because there is so much excess supply, digital ad space is cheap. The low cost attracts low quality advertisers, like debt relief agencies and weight loss scams. The major advertisers like car manufacturers and CPGs don’t want their brands represented next to the chaff that currently advertises online. Thus, many of the biggest spenders in advertising are not buying much online ad space.

Much of the cheap-o advertising you see on About.com and similar content farm sites is serviced by digital ad networks that are highly automated. Many of these ad networks place ads based only on a rough cpm and how many people the advertiser hopes to reach. Others are more targeted and use cookies to track users web history to allow advertisers to directly target users with specific search histories or patterns. But even these techniques for targeting do not address the basic issue of excess supply that underlies deflated digital ad prices.

From my perspective, Mr. Bayers has missed one essential issue with the current digital advertising landscape: the excess supply and low CPMs–resultant from ad networks–have driven many high quality digital content sites to keep their ad sales in-house. Ad networks are particularly unappealing to sites with high-quality content and desirable audiences. These sites have high-quality digital ad space and fear an ad network would force lower CPMs and thus lower quality ads. Low quality ads reduce the brand value of the site, by tarnishing the consumers perception of the site.

So we see that many high-quality sites don’t use digital ad networks, lest it harm their brand value. And we know that many high-quality advertisers don’t use digital ad networks because they only want to advertise on high-quality sites, lest it harm their brand value. It seems to me there is a big opportunity here for a differentiated ad network! If a digital ad network were created specifically to connect high-quality advertisers and high-quality content sites (using a differentiation strategy) it could ease the frictions which have created this $60 billion advertising gap and capture a lot of that value in the process.

Of course, this raises one huge question: why haven’t the existing ad networks already done this? Or if they have, why doesn’t it seem to be working? I don’t know the answer to this. Mr. Bayers would suggest it is because the successful ad networks are owned by tech firms who abhore advertising. So instead of focusing on sales and making the customer happy, they just build algorithms. I don’t know if this is true, but if it is, this prejudice has cost them dearly. They’ve left a lot of money on the table!

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