Based in the heart of the world’s advertising industry (NYC) and having backed numerous advertising businesses (i.e., Massive (sold to Microsoft), Ingenio (sold to AT&T), ContextWeb, IZEA, and Searchandise), DFJ Gotham is sought out by founders of the newest and most innovative advertising companies.  As a result, I have had the opportunity to learn from many of the brilliant entrepreneurs that have entered this space.  Through those numerous meetings I have developed a framework for evaluating the strategic positioning of ad networks.

The framework is relatively straight forward. Aside from all of the usual considerations associated with an investment, ad networks are generally differentiated in three ways:  inventory, product and targeting.

• Inventory: Ad companies can be differentiated by where they place their advertisements.  As an investor I am always interested in companies that pursue non-traditional inventory – meaning inventory that is not currently considered a location where advertisements should be integrated.
  
  As one entrepreneur informed me, radio, magazines and the Internet where at one point places where pundits believed advertisements should not be placed – clearly our culture has evolved.  Where will ads be next?


• Product:  By offering unique products that are technically difficult to create, ad companies can offer advertisers a differentiated value proposition.  New products are constantly being invented to meet the changing media landscape of the web.


• Targeting:  Ad companies can differentiate themselves by the manner in which they pair their advertisements with available inventory.  Within the worlds of contextual, behavioral and other more nascent types of targeting there is room for lots of differentiation, as strategies within these categories may vary by types of media and device.

While this isn’t a complicated framework, it does help me:

• determine what I am ultimately betting on by investing in a given ad network, and
• advise entrepreneurs on how to further differentiate their business.

If you’re starting an ad company be sure to figure out which of these three characteristics is really your secret sauce, then think about how you can differentiate your company in the other categories.

Comments

[Dave Kustin]

Mark,

Great post and very relevant to my business as we are currently building our own non-traditional network by way of emails from college students as the 'vehicle.' Our patent pending technology imbeds images in emails without installing any software on any desktop. The 'wrap' will feature info on the college and include an ad.

We have a commitment from Broward College to authorize 3rd party ads/sponsorships to appear in student emails. BC has roughly 30,000 active students during the semester and a recent 10 day email audit showed roughly 500,000 emails sent, which equates to roughly 18,000,000 over the course of the year. That's a lot of impressions. We have pending meetings with 3 other colleges to engage in the program which calls for a portion of the revenue to go back to the school. Their investment in the program is 0.

As you mention though, there are challenges with this. We are though, in effect, the network and the owners of the inventory. We just need the advertisers...

Dave Kustin
WrapMail, CMO

[Jim Kerr]

I have the opposite problem. Through my clients' relationships with traditional media, I have access to a pretty significant amount of prime inventory, much of it traditional in nature but untraditional in its implementation (embedded video widgets and such).

Mark, I'd love to chat with you about this situation if you have a moment or two. Maybe I can even utilize a company of yours. :)

Jim Kerr
Pollack Media Group
VP/Digital Development
jim@pollackmedia.com

[Darren Herman]

Mark, you're writing quite a bit about ad networks, though some would say they are dying a slow death. How will the exchanges affect the ad networks in your opinion?

Darren