Twilight for the Network Wild West

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desert_small1.jpgADOTAS – It was not all that long ago that pundits forecast a day when the Internet would emerge as a mainstream advertising medium.

Now with overall broadband penetration in U.S. homes topping 63% and approximately 95% among active Internet users, according to Pew Internet and America Life Surveys, respectively, there is no question that day has come. Consumers are turning to the net for everything from health advice to shopping to planning vacations or even a Saturday night get-together with friends.

But as more consumers move in to “settle the net,” it’s driving out the Wild West advertising practices that once prevailed. Once pioneers, ad networks must adapt to the new, more civilized environment or become marginalized as outlaws.

Looking ahead, I see two major trends in store for ad networks.

Cleaner Business Practices

Past abuses have to led to a crackdown. Overly aggressive and deceptive practices by online advertisers have produced a rising tide of consumer complaints that has caught the attention of the more proactive, activist and aggressive regulatory powers that be.

Regulatory pressures, litigation and prosecutions will continue to mount against both advertisers and publishers who engage in marginal marketing behavior. Some recent examples are:

Oct. 5, 2009 — FTC: “…[A]dvertisements that feature a consumer and convey his or her experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect.

“…[B]oth advertisers and endorsers may be liable for false or unsubstantiated claims made in an endorsement -– or for failure to disclose material connections between the advertiser and endorsers.”

Aug. 19, 2009 – Illinois Attorney General and Oprah: “ Attorney General Lisa Madigan… filed consumer fraud lawsuits against three suppliers and a local affiliate marketer of acai berry products charging that the companies lure customers with free trial offers –- through aggressive Internet marketing techniques –- and then charge customers’ credit cards prematurely, do not always supply the product and make it nearly impossible to cancel.

“In addition, Harpo, Inc., producers of ‘The Oprah Winfrey Show’ and ‘The Dr. Oz Show,’ along with Dr. Mehmet Oz, filed a trademark infringement complaint today against 40 Internet marketers of dietary supplements, including acai berry products among others.”

July 15, 2009 –- FTC: Federal Trade Commission Chairman Jon Leibowitz, joined by California Attorney General Jerry Brown, today announced Operation Loan Lies, a coordinated national law enforcement effort to crack down on mortgage modification scams.

July 7, 2009 –- FTC: “The Federal Trade Commission today announced a law enforcement crackdown on scammers… promising non-existent jobs; promoting overhyped get-rich-quick plans, bogus government grants, and phony debt-reduction services; or putting unauthorized charges on consumers’ credit or debit cards.”

To protect their customers and provide a more positive user experience, Google, Yahoo! and others are becoming more restrictive in the types of ads they’ll take, and requiring more verifications and disclaimers to comply. Some recent examples are:

Oct. 5, 2009 – Google AdWords: “Beginning in the coming weeks, we’ll no longer accept ads that promote Unacceptable Business Practices. This includes, but is not limited to, negative option or unclear billing, the sale of normally free items or services, and false celebrity endorsements.”

Sept. 29, 2009 — Bing: “Microsoft Corp., in collaboration with the Federal Trade Commission (FTC), the U.S. Postal Inspection Service (USPIS) and Western Union, today launched a series of online public service announcements (PSAs) designed to help protect consumers from scams related to mortgage foreclosure rescue offers and promises of credit repair and advance fee fraud, also known as lottery scams.”

July 21, 2009 — Yahoo: “… any affiliate-type offers (i.e. teeth whitening, colon cleanse, weight loss, etc.) must cease from running on the Yahoo! Network. In addition to this, dating offers cannot run through our exchange either.”

Networks have been burned by non-paying advertisers and by fraud perpetrated by publishers. Increasingly they will seek to eliminate these risks by being more stringent in the campaigns and publishers they accept. Supposedly “free” offers that are in fact negative option continuity and other ploys that used to work so well will have diminishing returns as they are more widely publicized and consumers wise up.

The low-value, “deceptive” negative continuity offers (neutriceuticals, cash grant offers, tooth whitening, etc.) that have traditionally been the mainstay of CPA networks will become increasingly marginalized. Those who persist in running them — likely the smaller networks — will face decreasing revenues with high financial and legal risks. Those who can will shift to legitimate “big brand” business.

The Convergence of Agency and Distribution Services

Many agencies have been adding direct distribution capabilities –- primarily for low-cost CPM buys. The middlemen — ad exchanges and CPM display networks — will increasingly find themselves cut out of the process. To battle commoditization and defend their position in the value chain, the large networks have been adding creative and other value-added, agency-like services.

Online success requires rapid optimization based on campaign metrics. CPA networks that depend on results for revenue can’t afford to wait for long approval chains through outside marketers and agencies. This will put increased pressure to develop marketing plans and creative in-house.

Networks of the future will more closely resemble agencies — or in fact may be agencies — offering turn-key solutions for mounting online campaigns. Only those big enough will be able to afford the resources to pull it off. Those who fail to evolve will become marginalized as bit players and be gobbled up by bigger players or be driven out of the market entirely.

For the past several years, it’s been the industry joke that every day another ad network is born. But with the low barriers to entry and big, easy revenue that existed, ad network owners laughed all the way to the bank.

Now the market is growing up — the easy money is gone and ad networks must grow up or come tumbling down.

1 COMMENT

  1. LOL. And Hydra was a huge pusher of two of the biggest scams of 2009 – GrantsForYouNow – and Google Money Tree.

    They’ll do the right thing and give all that ill-gotten money back to consumers, right?

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