I just got back from a series of meetings in New York. In one of those meetings the person we were presenting to pressed us on an issue I hear way to often. It had to do with the bad behavior of people in the ad industry. We have a really good answer for the line of questioning, but unfortunately we have to come back from an initial feeling of distrust that was seeded by people before us.
On the flight back to Boulder I started thinking about why this happens and why companies like ours are put into an unfortunate position of having to build back up what others have torn down. The root of the problem is bad behavior by companies with poor economic models, poor value propositions, or both. Unfortunately they also have good salespeople.
Here’s what I mean. Company A develops an offering that either doesn’t deliver good value to the customer or is economically not viable as a growth company. They’ve raised capital and hired a team. Now they’re screwed. So what do they do? They sell that shit to a buyer for more than its worth so they can make some money and hopefully develop a better solution, or keep the economic engine of their business rolling until they find a better business model. In the process of selling an inferior offering they end up peeing in the pool for everyone.
Take the example of a typical ad network. In and of itself, an ad network can be a terrifically efficient business and serves a critical piece of the online digital advertising economy. The notion of aggregating inventory into a network and then enabling an advertiser to efficiently and effectively buy that inventory for their campaigns is completely sound. The problem occurs when the behavior of the ad network goes off the rails. The root of the problem has a lot to do with the asymmetry of information and the lack of meaningful publisher relationships. It also has to do with the sheer number of companies without a real and sustainable value proposition beyond just the aggregation of inventory.
I think the slide downhill starts out pretty innocently. An ad network’s business model is to be a middleman. They recruit and aggregate inventory (usually publishers) and then they sell that inventory at a mark-up to an interested advertiser. Here is where the bad behavior takes root. The publishers have little to no knowledge or interaction with the advertiser and the advertiser has little to no relationship with the publishers. The ad network is a for profit enterprise with investors to satisfy and employees to pay. In most cases the only bond connecting the ad network to its publisher base is the money that changes hands, this by definition makes that relationship fraught with adversary potential. Multiply the problem if the ad network acquires inventory by guaranteeing publisher payouts – the motivation for bad behavior just went through the roof as the whole thing just became an arbitrage shell game. The typical ad network is motivated to pay the publishers in their network as little as possible to keep them around – and at the same time – charge the advertiser as much as possible to generate the highest margins. After all they’re simply a middleman with little value-add. My point is that the lure of bad behavior for some in the business is inescapable.
Back to my meeting in NY. I was asked good and pointed questions from the person we were talking with about how we were different and how we wouldn’t exhibit the same behavior.
My answer was this: we built a massive network of tens of thousands of publishers by giving them incredible value. We do this by helping them better engage and understand their readers. We built the network without running a single ad or paying them a dime. They’re all incredibly loyal to Lijit and we have a culture of amazing and personal support. Why would we risk fucking that up by trying to make a quick buck? After all, the publisher and their audience of readers (read: consumers) is what we’re all trying to reach. Any ads you run in our network be reported back to you daily, by site and by zone, along with any optimizations or 3rd party verification tools you want to use. I doesn’t get any more transparent than that.
Helping the advertiser reach their audience in a way that was interesting and important is where our conversation went next, but the bad behavior of people before us created an unnecessary distraction.
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