It is a crisp autumn afternoon, football is on the television, you are being reminded that have to rake the lawn. You check the network application system and another 10 sites have come into your network and applied to join. There is pressure from above to make the network grow quickly and you want to make a good impression on your new boss. Not only that, but there are four other companies building vertical networks in your space and category. You need to move quickly. You scan over the sites and decide they all look ‘close enough’ to your vertical and you accept them all into the network. You have just gone down a path of no return.
Of course there is pressure when you are building out your vertical ad network. Day in and day out you will come across hundreds of sites that appear, at the face value, to be good matches for your overall business model. You will have plenty of inbound inquires from sites and blogs that seem to be perfect partners for your new business model. Given your overall objective of growing topline revenue exponentially, you are going to be tempted to cut corners and build quickly (aka accept everything). You might say to yourself ‘Why not, I can build out this network quickly by searching the web and finding sites that match and then worry about the details later.’
Oh no, you just fell into the money pit of vertical advertising networks! Time and time again, businesses that are building out their properties will approach the network/affiliate relationship in a very casual and non-analytical manner. Building a vertical ad network is complicated, and if you are not armed with the right market data, you will be at a major competitive disadvantage. Make sure this is clear, it is critical you know what sites are important to your success and which sites will be the slippery slope to failure.
Now, you don’t have to develop massive data models or run your scenarios through your multiple P&L’s. Of course these things never hurt, but when it comes down to it, the information that is vital to know is the five critical value metrics for your network. You are doomed for major pain and potentially even more painful failure by not leveraging market data to define your market.
The five critical value metrics are based on your goals for your network, size and growth of your category, along with a handful of data points around the sites themselves. What these metrics provide is a window into your network performance based on the inclusion or exclusion of each site. These metrics are based on the knowledge that not all sites will contribute equally to the topline of the network, but this is not a function purely of how large the sites are or how much inventory they allocate to you.
The five critical value metrics in combination provide you with the important insights into how important any give site is to your network. The first metric is the projected size of category and what percent of your category is sold out. This measure is usually calculated by analyzing the sell through rate across the top 10 sites within the category and understanding the percent of the total impressions being served into house or remnant networks. This critical metric is a baseline for your opportunity score.
The second critical metric is the gap percent between the brand sale eCPM, the run of category eCPM, and the run of network eCPM. Additionally, pulling in the average remnant CPM within both endemic and non-endemic will provide an even better understanding of the opportunity gap (aka potential margin).
The third critical metric is a fragmentation score. This score measures how much fragmentation there is in the category/niche. This score is actually calculated by leveraging a large database of site classifications and segmenting your category into subcategories and even micro categories. The score i
s calculated based on fragmentation at each level in the classification scheme, thus really measuring the precision of the category to service endemic/category buyers. This metric also could provide you with an understanding of how many sites you ultimately would need to recruit.
The fourth critical metric (performance score) is the site level performance data. This data includes how many impressions are available per user, how engaged are the users/visitors of the site, what percent of the sites traffic is coming from the US, how much of the site traffic is monatizable for any given brand campaign (given standard frequency capping and targeting), and even historical performance data, thus measuring sustainability into any given performance campaign.
The fifth critical metric is a measure of incremental reach and frequency for the given site to your target audience along with the intersection between your current network and the potential site joining the network. This measure really provides you with how much you really gain in opportunity to deliver a campaign when this site joins your current network. This metric is the true measurement of value gained by including this site.
These five critical metrics are used together to provide you with how to build your network, with a ranking of each site and how important they are to your overall success. By combining the opportunity measurements, performance scoring, fragmentation curve, incremental value metric and finally the network margin, you will know what sites to recruit and beyond that know how important any given site is to your network success.
It is really important to realize that just using a quick gut check on top of some estimate of size is not going to ensure you have the sites the matter. You lose leverage with the sites that don’t matter, and don’t know how important the critical sites to your success are, thus you don’t know how to go after each site based on their importance to your success.
The below graphic is a data model from market data, based on a network in the Entertainment: Music category. What this chart illustrates is that sites that have a lot of page views or visitors may or may not contribute to your overall revenue for your network. The sites on the left-hand side of the chart are sites that are contributing disproportionately to the network’s topline; where as the sites on the right-hand side of the graph are not performing. You need to focus on the sites on the left, and not engage with the sites on the right.
Many network builders in the past had to learn the hard way. By including sites based on finding them randomly in search results or because they seemed to have a lot of traffic always ended up being a decision that you wish you could reconsider. You don’t want to leave good money on the table, and not using data to build your network will guarantee many unhappy customers. Because of poor performance you will not only have unhappy advertisers, but the publishers/blogs that joined your network with aspirations to be a part of something new and exciting will be sorely disappointed.
Remember, you are building this network to drive your topline revenue. By building the network correctly and including the right sites, you can create a tremendous and sustainable asset in the marketplace. You can, and will own your category online, but only if you are smart about how you build your vertical ad network.
Between your knowledge and experience in the category/marketplace, and the critical data scores, you will succeed.
Mitch Lowe from iMedia wrote an interesting take on the vertical ad network in his article called Vertical Ad Networks: Do They Measure Up? He dug into some of the values and benefits of the Vertical Ad Networks and some of the trends that are showing up in the market. This is a good snapshot of what the market looks like and he does a good job of highlighting the real benefits of going vertical. 
Not to say the small guys can't build a vertical and own it, we have seen this already with most of the Vertical Ad Networks, but the big guys are moving in. The smaller guys can move quickly and can beat the big guys out of the gate.
