Why don’t 3rd party ad networks take any risk? (or why the “floor CPM” is the future)

There are at least 200 ad networks and revenue-sharing service companies calling us every month. These are real companies too like over 10 employees and some level of funding.

However, as a publisher the cost of signing up new networks like Tribal Fusion, Fast Click, Google Adsense, and Burst is very high. We have to stop what we’re doing, negotiate a contract, and then install tags across 10 ads slots on 80 blogs (i.e. 800 ad units).

In other words, we can’t really afford to add 3rd party networks to our network, a fact that most of the sales folks at the 3rd party networks don’t seem to get. They typically say “we’ll have you up and running in an hour.” Yeah right, sure. You’ll turn on our account in an hour, we’ll spend days setting everything up!

This all has me wondering, how did we get to the model that the publishers take all the risk? Said another way, what are these networks risking by signing up publishers?

As far as I can see they take no risk when they take a publisher’s inventory. Now, this was fine when we didn’t have five really effective ad networks in placewe had nothing to lose back then. However, today we have to spend a couple of weeks to sign a new network and install their code. The risk of putting up their tags and getting less performance than the ones we already have running is real.

At some point we moved to testing networks on one blog (say TVSquad), but not giving them the entire network (and certainly not the big blogs like Autoblog and Engadget).

However, we’ve reached the point at which 3rd party ad networks have to take the risk if they want to run with our surplus ad inventory. I’ve been telling the ad networks calling (and 10 of them call some days I’m not kidding!), that if they want the inventory they have to commit to buying 10M impressions at a $2CPM.

This is a great technique to tell if a network is confident in their ability. I had one network tell me we would be getting $4 to 6 CPMs. So, I offered to run them provided they gave us a $2CPM floor (in other words if we ran the ads the least they would pay is the $2CPM, if it was greater we would take the split). They said that wasn’t their model. So I told the sales person to buy at a $1CPM and that I would let them take *all* of the upside.

In other words, I told the 3rd party network that they could keep ~80% of the revenue they promised. He said it wasn’t their model, to which I said “but why wouldn’t you take 80% of the revenue if you’re saying you’re going to get us a $4-6CPM?”

He stuck to “it’s not our model” nonsense, so I offered him a .25CPM (or like 95% of the revenue!) and he said they couldn’t do it! I thought to myself “gee, this is a sick deal I would buy inventory at this level and we don’t spend any money on marketing!”

The future of the 3rd party ad network and publisher relationships is the “floor CPM” and as publishers we should push ad networks to make this the standard. If we’re taking the risk of creating the content the 3rd party ad networks should take some of that risk.

If I was running a 3rd party network I would be buying up inventory this way I’m wondering why some smart entrepreneur isn’t doing this?

Does anyone know of an ad networking buying inventory like this?

Update: I’m told http://www.bluelithium.com and www.advertising.com are buying inventory anyone have information on this they want to post to the comments?

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