As I already suggested previously, John Battelle has also now posted saying Google’s upcoming foray into third-party ad serving will be with a free product.
John suggests that the reason Google would take on that cost for free, is to get access to the margins and data of everyone. While I can’t say that’s not true, I think he leaves out perhaps the more important part of why I think they’re making it free.
Like any ad network, Google Adsense can only make money when it has inventory in which it can sell ads. Every ad network and direct advertiser is competing with each other over the available publisher inventory out there on the web. Because Adsense is primarily CPC, there is no limit to the amount of inventory that Adsense wants to consume. At no point do they ever run out of ad dollars, because it’s all charged per click.
For these reasons, the goal of most ad networks is to hold as much inventory as they can captive for their advertisers. They want this inventory all for themselves to monetize, and would like to keep their networks “closed” from competition.
The closed access to publisher inventory is becoming increasingly more competitive, especially as ad exchanges come to life that actually make ad networks compete on a level playing field for access to publisher inventory. Publishers are starting to learn that it’s NOT in their best interest to allow ad networks to control large chunks of inventory. They earn more revenue when ad networks must prove their worth and compete for their inventory.
Guess what, Google doesn’t want to compete. So, how can they increasingly get more access to publisher inventory? Why not give them a free ad server, make Adsense built into it, and have Adsense be the “default” for all unsold ad impressions. As Google moves more into display advertising and premium ad sales, they’ll probably tie that in as well and want the right to sell ads into the inventory of publishers using their free ad server.
The bottom line, is will this work for Google?
There are definitely people out there that like the price of free. However, there are free ad serving options that exist today like basic ad serving along with an ad exchange tied into it with RMX Direct or a free open source ad server you host yourself like OpenAds.org (formerly phpAdsNew).
And like Google Analytics customers learned, free has it’s price. Google Analytics has had a lot of scaling problems that resulted in downtime, slowness in reports updating with data, and other issues. Free also gets you a level of support that serious ad serving customers might find unsatisfactory.
Additionally, while the Analytics industry freaked out a little bit when Google went free, it actually just brought more interest into the space and allowed some of the products that cost money to differentiate themselves and truly prove to customers what that money gets them.
Along with that, John is right that there are lots of customers that won’t feel comfortable letting their ad network also see all their advertising information. Google seems to lose a little trust each and every day from the media and web community, will people trust them for ad serving?
As with anything it’s too early to tell, but I can tell you that as a company in the same advertising space, and as a guy who runs a product that will most likely be competing with Google’s product, bring it on.
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