Bronte Media

I really wish accountants would make ad networks disclose net revenue instead of gross. From memory, Google or Yahoo had to initially account for its ad network businesses on a net revenue basis.

If the rule was there, firms like Federated Media wouldn’t have 2007 revenues of $25m and expect to grow to $60m this year.

Obviously firms like Oak Hill Partners value the business on a net basis (well I sure hope they do) but at least in the press releases we’d see revenues from $10m in 2007 growing to $24m this year (assuming they can keep their 40% cut, which ultimately they wont be).

Long time readers know that I despise the economics of pure ad networks. There is one exception: if you are the category leader, an ad network piece can be cream on the cake. But as a stand alone business it sucks.

As members of your network get bigger, they leave. In Federated Media’s case this has happened with Digg, who has moved the majority of their inventory over to Microsoft.

Not only that, the percentage you charge is under constant pressure and goes down as you grow. Witness Overture, whose revenue doubled the year before it was sold to Yahoo, but profits halved.

I hold so little a view of ad networks like Federated Media and Glam that I am willing to say broad-based ad-supported communications companies like Slide (their avenue may be widgets but their user intent communications based just like email, free web page hosting etc.) are even worth more.

And that’s saying something. Companies like Slide, RockYou and Meebo are square pegs in round holes. Advertising doesn’t work in communications and tangential task-based environments.