Horizontal Vs Vertical Adnetworks – A View from the Trenches

Aditya Khanna, Business Head, Tyroo
Call 2 publishers in a vertical and tell them to align with you non-exclusively (who says no to a sitting monitory opportunity?), take a “plug & play” 3rd party adserver (there are dozens of commoditised platforms to choose from), and then start your pitch to an advertiser. And you’re good to go.

It’s easier to open a network than launching a website these days. I hear of one opening up every month.

Natural outcome is clutter. Lots of it.

To break away, potential networks have started scampering for cover (read differentiation). One of the easiest one again has to become aligned to a particular vertical.

Such a cosmetic differentiation has the risk of staying just that – cosmetic and might not translate into a ‘must buy’ option for an advertiser.

Let’s take a look at the overall market size for a minute – In 08-09, ad networks are expected to continue to gain momentum with a 30 odd crores billings (6% marketshare). Currently, the top 1-2 Indian horizontal networks are together expected to corner about 75% of this universe, outside of Google. The rest are testing their staying power. With the horizontal game not yet settled down, as to whom the top 1-2 are, I think that the vertical game can only be sliced out once the dust is a bit settled.

Consider this: If you breakup the 500 crores that the Online industry is estimated to do in 08-09, verticals like finance, jobs, travel, matrimony, technology, automobiles take 80% of the chunk. With 6 odd verticals of a certain scalable size, it is narrow enough universe for the horizontal networks to be playing in. Had the vertical channels been a couple of dozen, focus could be something that could have been a focal point of discussion.

Going away from the data for a minute, to start with, for an entrepreneur, a passion for adnetworks comes with the role one thinks networks are positioned to play. It might take a few years to do this, but networks are today best positioned potentially to reach closest to the performance benchmark that Search has set of reaching out to the right user at the right time when intent is strongest. With a page click-through of 20% for Search (each ad on a search page gets roughly a 1-2% clickthrough, multiplied by 10 ads typically on a page), everything else in online advertising is distant – horizontals, social media, emailers, vertical publishers etc.

Today a media planner gets excited with a 1% CTR, so the opportunity gap is very high for the 95% of inventory on the Internet (non-Search). Networks have the potential of coming closest to this benchmark because of the sophisticated platform that they currently use, where audiences are sliced out and inventory is rated according to the performance on a particular type of products. So, as a monetization play, networks have the edge over even horizontals as the latter is a content play primarily.

By starting out as a vertical at this point in India, one is already out of the race of inching closer against Search. Verticals today are opening up so rapidly, because they are essentially content aggregation plays only, with no different platform play.

Coming back to the market - if you go deeper into any of the verticals, there are limited players, in most cases, less than 5 so the longtail around them is not as fragmented as the vertical play would have liked. For a network to call itself aligned to a vertical, it needs to have an exclusive representation of atleast 4-5 players which is difficult to do with such small pockets of supply that are easily accessible to anyone – let alone other networks, but even agencies. If the vertical network doesn’t control a substantial part of the total inventory, say 50% (which is difficult to go with such a small supply pool) by an accepted standard, then again it doesn’t get into the must-buy option. Too much reliance on 4-5 publishers itself in a vertical to have your business model depend on is also downright risky.

Choosing the vertical to play in has its own set of risks. 08-09 hasn’t been a good year for the finance and travel industries in general, and online advertising will also bear a brunt of this. A vertical starting out in an industry going through a rough patch can seriously jeopardise one’s projections for reasons outside one’s control. Horizontals are more insulated from specific industry ups and downs, by switching focus to cover the other critical categories mentioned earlier.

Let’s take this question from another angle – to what a customer really wants from an adnetwork - Scale & Performance.

By slicing out a much smaller niche, albeit a vertical, vertical networks are not viewed as a very scalable audience. Similarly, even so-called premium networks are judged by higher click throughs and leads. Brand monies (without ROI goals) follow to the player who has the perception of performing the best. And that happens, when a network has the history to prove past performance.

And that’s where the greatest challenge for a vertical network with few supply points locked in will find an issue.

Performance is not just a vertical content game. While contextual content works well and the performance of the vertical content leaders proves that, it is just one way that a network uses to target and optimize audiences. As targeting and optimization become more sophisticated, chasing the user irrespective of the content he is viewing real time increases the bandwidth to reach the right user and therefore, performance. To be in the network game for long term, a network will have to have some technology differentiator that its platform or platform top-up brings. The vertical players currently mushrooming are playing more around content, than technology.

Where the horizontal networks have made a dent into is the admonies currently flowing into the horizontal portals, and that’s where the scale opportunity arises. The sheer size of the audience base that horizontal networks, coupled with advanced platforms that horizontal networks are prepared to invest in, give it the potential unfair advantage that a growing company needs. Millions of audience profiles give a network the bandwidth to understand what products work better in which audience profiles, in most cases reactively. It is a ‘learning’ phase, rather than just a sure shot decision based on content.

Now, let’s approach the question from an advertiser point of view. Networks are slowly creeping into media plans these days, consuming roughly 5-10% of an advertiser’s budget typically. An advertiser is just beginning to demystify one network from another. With agencies controlling 80% of the spends, of most big advertisers, they are typically comfortable dealing with 1-2 networks per media plan, usually going by past performance to determine which network works out best for it.

In the US, where the vertical networks have been successful, players like Travel Adnetwork (TAN), Jumpstart etc, the timing of these players came about at a time when players like Ad.com and Tribalfusion matured the market, opened up new categories and the proliferation of content across several players, gave rise to this vertical play.

In India, the horizontals game is still wide open right now, so the verticals will require all the staying power they can muster.