Andrew Chen Archives

For social networks, your customers are often remnant ad networks
In previous posts, I’ve discussed the reasons why social networks often resort to ad networks to monetize their sites. As a result, it could be said that remnant ad networks are often the largest customers for these sites.

Let’s spend some time in this post discussing these customers of social network ads, and how things are typically structured.

An example remnant ad:

What’s remnant advertising?
First off, let’s define some terms – feel free to skip this if you’re already familiar with online ads. For any site with a bunch of ad impressions, the entire “inventory” of all your impressions is broken up into different pieces. Quoting from one of my earlier essays:

• The first US impression in a session has the most value ($10)
• Then impressions 2-5 have some level of brand value or high CTR value ($3-5)
• Then after that, you’re hitting ad networks selling on category ($1)
• Then eventually, you hit remnant ad networks ($0.50)
• Finally, you hit pure CPA remnant networks ($0.10)

Usually at the high end, the advertiser gets to be pretty picky about what kinds of ads they get. They might be able to specify a bunch of targeting, how many impressions they want from each user, and most importantly, where the user will see the ad. So if you have a music section on the site, then a big record label is likely to spend brand dollars only on the first couple impressions, and only in the music section.

So after your ad sales team has sold all the premium impressions they can, what happens to the rest? Well, as my friend Jay Weintraub eloquently describes, the rest of the “remnant” impressions are typically offloaded to ad networks, CPA offer advertisers, leadgen companies, and other folks who don’t mind the fact that you as a publisher aren’t guaranteeing placement on their site.

What it means to be a “blind” ad network
Often times, one interesting characteristic of remnant ad networks is that they are generally described as “blind” networks – this means that the advertiser, in many cases, doesn’t know where their ads are going to appear. Unlike doing an ad deal with ESPN, where you know exactly what page your ads will show up on (the Golf section, let’s say), instead the ad network could put you across any of the publishers they work with. There isn’t much guaranteed, other than the fact it won’t be next to porn or other completely inappropriate content.

It’s not always true that ad networks will sell their ads blind, but it’s an important class of inventory since it often makes up a majority % of the ads that a network will touch. In the case of AdSense, I’d guess that number if >95%, for example. When it’s not blind, often publisher sites are classified into categories like “pets” or “cars” or other broad channels, but let’s focus on the blind inventory for now.

Advertisers who prefer blind ad inventory
Most of the advertisers that are willing to buy this blind inventory tend to be advertisers with very clear monetization strategies in the backend. This is often why you often see ads from companies like:

• Ringtones/wallpapers/etc (monthly mobile subscription)
• Mobile jokes/crushes/etc (monthly mobile subscription)
• Toolbars, like IAC’s Smiley Central (search toolbars = predictable ongoing revenues)
• Free ipods after you fill out an offer (leadgen where each lead as a concrete value)
• Dating sites (with a recurring subscription fee)
• etc.

And inversely, this is also why you don’t often see large brand advertisers or folks with very specific advertising goals (for example, if you did lawsuits for cancer caused by asbestos) advertising on blind inventory. Without control of the context, the dollars put into these campaigns can be wasted.

In fact, there are certain characteristics that advertisers who routinely buy remnant ads often share. Here they are below:

• Broad, horizontal offering
• Clear LTV in the backend
• More transactional than not

First off, you need a broad offering because you often don’t know where the ads are going to be placed. The broader the offering, in fact, the better, since you’ll also be buying primarily on inventory that other advertisers find low-value. A good example of this is ad inventory focused around communication (email/social networks/etc) or media/entertainment. So if your product or service is very broad, then you can maximize the # of likely people you’ll hit, and also be able to purchase on the cheapest ad inventory.

As discussed above, a clear LTV (that’s good!) is important since it lets you focus on the simple equation that your spending costs must be lower than the profit from each user you buy. In many cases, a higher LTV might even drive the advertiser to purchase more broadly, just because the value on the user is so good – I’d consider many “in-market” audiences like home buyers and such as a good example of this.

And finally, a transactional mindset is often important since it correlates with LTV. You want to drive the user down a fairly narrow funnel that gets them to act on a high-value action. A good example of this is compelling the user to download a toolbar, or fill out a lead form, or similar. That way the advertiser is within a very small steps of making money from the user they paid for, and can balance it all out in a “portfolio” basis of buying large number of clicks to their landing pages.

The future of remnant ads on social networks
Right now, most social networks and social network apps have a great degree of reliance on these remnant ad networks. Because there isn’t clear context in writing on someone’s wall or playing a game, these low-value impressions are disposed of fairly cheaply. It’s interesting to see some of these guys “going native” on social networks, like Super Rewards and Offerpal, particularly in regards to virtual currency. I have to imagine that this will only continue.

If you liked this blog post, you can get updates by email or RSS here.

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.