A specter is haunting the ad network industry.

The number of ad networks has mushroomed in recent years.  Some of them were born from technologists building a better mousetrap; others resulted from the Rolodex of sales executives who caught the entrepreneurial bug.  The result was the same: the ability to sign large, high-volume, low-margin deals to place ads on countless of sites.  The relative lack of barriers to entry increased the number of networks outbidding one another by nickels and dimes as they competed for ad inventory on publishers’ sites.

Today, marketers are increasingly fragmenting into two camps: 1) branding and 2) performance.

If you are looking for the former, a display banner — no matter how interactive — just doesn’t cut it relative to video ads.  If you are looking for the latter, you prefer search ads or text links — and you require performance-based pricing models that, let’s face it, most publishers shun.

Meanwhile, publishers are growing more sophisticated: some are joining ad rep firms, a few are building their own sales forces — while the largest ones are shunning ad networks altogether and launching their own (admittedly to varying degrees of success).  If that weren’t enough, new products are changing the balance of power by adding some transparency in an otherwise opaque landscape.  Finally, demand-side platforms and exchanges are creating opportunities and threats throughout.

As a result, if you are running a traditional ad network, one of your main assets (the real estate on a publisher’s site) is becoming as endangered as a Polar Bear on a Texan ranch.

Disruption from all sides

While the above-mentioned pose challenges to traditional ad networks, video will in fact cause the biggest wave of them all.  For proof, look no further than the recent mergers and acquisitions in the space.

The rise, fall, rise, fall… and rise of ad networks?

Ad networks have been glorified and vilified over the past decade.  For a period in 2006-2008, BlueLithium, aQuantive, DoubleClick and Right Media all exited at lofty valuations.

Today, ad networks can be broken up into two buckets: 1) display ad networks and 2) video ad networks.  Over time, these two groups will collide on the battleground (if they aren’t already).

Display ad networks are much larger from a top line and reach perspective, but video ad networks are riding the growth. For all of the reasons we’ve outlined, display ad networks are changing their game plans and dipping their toes in video.

Back in 2007, when it was becoming clear that the video aggregators would not be generating meaningful volume or revenues for us (a video content producer), I reached out to a number of ad networks and pitched them on a partnership whereby they would swap out their low-yield display banner advertising for video advertising followed by our video content.

The response to my emails was literally nothing.   Today, ad networks seem to have all gotten religion.   Not a week goes by where an ad network isn’t reaching out, seeking to license our video content or discuss a broader plan for so-called world domination.  There is admittedly no telling if this is a fad or a new direction for ad networks, but the conditions on the ground are forcing them to buy into video and content in particular.

The elephant in the room

YouTube’s grip on the market has strengthened, accounting for four out of every 10 video view in the U.S.  However, since a lot of the most popular videos are not monetizable (UGC, pirated, etc.) and YouTube has artificiallyreduced inventory (in all fairness, to protect the user experience), then marketers and publishers have had to scramble and get creative to place ads.  One way has been to run video advertising in-banner.

But as television and online display advertising begin to shift towards video advertising, you are seeing the ad networks become more proactive in seeking video opportunities.  Of course, it’s not all proactive; some of it is defensive.

Differentiation will come from degree of video strategy

For the longest time, ad networks failed to differentiate from one another; they were printing money and contenting themselves with the lowest hanging fruit.  But now, they see that their existing strategy caps their earning potential as video advertising takes off. What you are about to see is an uptick in partnerships, investments and acquisitions between video and ad networks to help take the lofty expectations facing both segments from concept to reality.