Internet Entrepreneurs Blog

Remember the late 1990s? It was such a magical time for the internet with big promises of using the web to slash prices on everything from pet food to real estate to airline fares by “cutting out the middle man.” Yes, the late 1990s were a trying time for the middle man but it seems like in the era of Web 2.0 he’s been able to get back on his feet.

I’m particularly disappointed to see the middle man butting his way into the online ad sales market. You see I’m an online publisher who makes a living building great websites for niche communities (like mountain biking) and online ads are a major revenue stream for me. Advertisers like REI and Sierra Trading Post place their ads on my websites and I get paid every time someone either views or clicks on an ad (depending on the arrangement). Seems simple and fair, huh? It isn’t.

Instead of working with me directly, REI and Sierra Trading Post end up buying ads across multiple websites using services like Google Adwords or the increasingly ubiquitous “ad network.” For those who don’t know, an ad network aggregates publishers within a particular niche (say outdoor sports) and then bundles pageviews across all those small and medium-sized websites into a neat package for advertisers. The ad network does the “hard work” of tracking down the advertisers and convincing them to purchase online ads and for that, they are rewarded half (50%) of the ad revenues generated via their publishers’ pageviews. Fifty percent is a pretty steep commission for a middle man.

As a publisher I look at it this way: I work hard getting people to visit my website (branding, marketing, coding, writing, etc.) but at the end of the day I give half of my money to someone else who sold my ad inventory for less than it’s worth. Why did they sell it for less than it’s worth? Because to them any sale is worth more than no sale at all (as a publisher there are always alternative ways to monetize pageviews). Ad networks are classic middle men - they don’t allow buyers and sellers to speak directly to work out a deal that makes sense for both parties.

I could go on about why the online ad industry is horribly inefficient and unfair to publishers but I’ll close this post with an idea: Why not use the internet to match ad buyers and sellers? It’s a novel concept I know (sarcasm) but consider that when financial stocks are bought and sold the middle men (traders) take just pennies per share for matching buyers and sellers (less than one percent of the transaction value). A fifty percent cut, on the other hand, is simply an embarassment of riches that economics tells us will be competed away in the future (sooner rather than later I hope). A NASDAQ for online ad sales? I can only dream.