One of the nice things about the continuing acceptance of narrowcast networks as a viable advertising medium is that we can ponder how advertising will evolve, instead of whether the networks themselves are viable. In reading Jason Calacanis’ recent post, “Ad Networks Are For Losers”, as well as the spirited responses to it, there appear to be lessons that digital signage network owners can learn.

Calacanis’ article questions the value of ad networks (which place ads across a variety of available web inventory as agents), and suggests that publishers generating in excess of $250,000 annually in ad sales sell their own inventory, save steep agency commissions, and maintain control of what appears on their sites. It seems like logical advice. However, some of the subsequent comments correctly point out that it is not always the ad networks that are to blame, but the way they are selected and utilized. From where I sit, it is really about balancing the need to sell ad inventory with the need to control who it is sold to and for how much.

In the digital signage space, we don’t have ad networks per se, but we do have aggregators, such as SeeSaw Networks and Adcentricity, who help ad buyers place ads without dealing directly with dozens of networks. For this service, they earn a nice commission based upon the gross ad revenue. For the network owner, being aggregated with networks offering similar geography or demography is valuable, as ad buyers prefer to make one buy, not many. It also provides the network owner with a de facto outsourced ad sales function. For smaller networks this is critical, as it allows owners to focus on building the network itself and developing compelling content. For larger networks, who will typically have the resources to build an ad sales team, the aggregators provide a terrific outlet for unsold inventory. As a former retailer, I learned long ago that unsold inventory is expensive in many ways. Taking a markdown (analogous to paying a commission to an aggregator) is often the smartest decision a merchant can make. In the case of digital signage inventory, the actual price (and therefore the intrinsic value to the advertiser) is maintained; it is just shared with a partner.

Anyone who has been in this business for a while has examined, built or edited spreadsheet models for ad-based narrowcast networks. When all is said and done, the two variables that drive success are quite clear: the percentage of ad inventory that is sold, and the (net) price it is sold at. Having an inside ad sales team drives salary costs up, but should increase the net ad revenue. Using aggregator networks to augment that team increases the percentage of inventory sold, while reducing the net revenue. Finding that balance between inside and outside sales for network owners will be an important effort, and that balance point may well change as the network grows and evolves. Maintaining the value of the ad slots themselves will also be important.

The aggregators provide a valuable and strategic service to network owners, and they will remain a key part of the digital signage ecosystem. It will be interesting to see if someone tries to emulate the ad network paradigm of the web, and sell contextually relevant ads as overlays, sidebars or “pop-ins”. My hope is that if this comes to pass it doesn’t cheapen the viewer experience as it most certainly does on the web by reducing the value of the other ads on the network.

The viewer experience has a direct relationship to impressions, recall and value. Network owners need to guard that value as the precious asset that it is.