Adify: A First Step Toward A Multi-Tier Online Ad Network Ecosystem
Yesterday I posted ideas about the likely emergence of multi-tier publisher aggregation mechanisms for the online ad market. Things move fast. Today, via TechCrunch, I learned about Adify, one of 13 firms selected from over 200 to present at today's Web 2.0 conference in SF. Adify allows publishers to set up their own virtual ad networks to market ad space they have to sell on their web properties. Translated: it's sort of a specialized eBay or Amazon storefront for online ad space.
So, now advertisers can search and browse these storefronts to buy space at retail in highly targeted ways. But we can also predict that new intermediaries will emerge to package and broker value-added bundles to advertisers who lack the time or the sophistication to do the shopping themselves. These intermediaries could be new services provided by the traditional ad networks, or they could be new players entirely.
More broadly, what we're seeing is the predictable exploitation of the big arbitrage opportunity in online advertising. Rough numbers: a $20 billion online ad market, with (conservatively) a 15% margin*, featuring (my guess) a 50% arbitrage opportunity = a >$1 billion market available to the quick and the clever.
(*Prior to its recent stumble, Aquantive's March 10Q reports that, excluding consulting by Razorfish and DNA, revenues and pre-tax profits were $37 million and $15 million, respectively. After a share of corporate G&A and taxes, I make that a 15% margin more or less. Of course one company's profit margin is only a vague, flawed proxy for the industry profit pool, but it gives you a feel for how lucrative this business currently is. I'd guess Hellman & Friedman have done very nicely after taking DoubleClick private in 2005, what with lower overhead and tax-deductible interest on buyout debt.)