Ad networks and ad representation firms typically charge publishers a revenue share of between 35 and 50 percent to bring advertisers to them. Traffiq launched in late 2007 touting itself as an online ad exchange where “Sellers pay 30 percent on ads sold; buyers pay no exchange fees at all.”

I guess I don’t understand how this is different from a regular ad network from a business model perspective. They don’t charge advertisers directly either (more on this in a second), and the rate, at 30 percent, is certainly in the ad network ballpark. The difference Traffiq has is that it has an open marketplace where buyers and sellers list information about their inventory available and inventory requirements. There doesn’t appear to be external validation of the publishers ahead of time, though when you run a campaign you have to grab their ad tags which they use to track delivery - so there may be other types of validation going on to ensure the ads are running on the site they are supposed to etc.

The problem with this model for advertisers, however, is that while they are not explicitly charged a fee for participating, they are paying in another way by simply not getting as much for their money. The more advertiser money intermediaries are soaking up, the less gets into the hands of publishers, and the less work the publisher will end up doing for the advertiser in helping to optimize their ad campaigns, find the right audience, and so on. In fact, the less sustainable the publisher’s business becomes… partially the publisher side gets propped up by some of the lack of transparency of prices and the fact that large publishers can often grab some of the price surplus because advertisers don’t have a view into the pricing environment (but that’s the topic of a later post!) but I digress.

I don’t mean to pick too much on Traffiq — I like their UI, I admire what they are doing in terms of adding more transparency to the ad network model, but they are indeed an advertising network. I don’t believe that if they really do want to be an exchange, that  Traffiq’s model is sustainable. The revenue share fees will have to be much lower - because otherwise the incentive is too great for buyers and sellers to find each other outside of the exchange. Even eBay, who developed a marketplace charging under 7 percent of sales historically faced and fought this issue and was able to win with the ultimate weapon: massive scale.

There’s still enough inefficiency in the online ad market for 30-percenters to make a go of it, but with an open platform I don’t see the opportunity for this type of model to achieve the massive scale that will bring with it so many other benefits.