Darren Herman, Founder & President at Varick Media Management, published a white paper last year outlining how many ad networks would eventually be disintermediated from the online display market’s chain of supply. He argued that agencies, advertisers and publishers could now trade ad inventory through the ad exchanges, and the market would become less reliant on ad nets to broker deals:

Networks have had a great ride so far, but are moving toward a big brick wall that could determine their fate rather sooner than later. This big brick wall is the promise of advertising exchanges, or platforms that allow any publisher, big or small, to allocate inventory to be bought, sold, or traded, at fair market price with the addition of usually free targeting and bring‐your‐own‐data. Some of these exchanges are blind, some are listed by vertical, and others are transparent. Google, Microsoft, AOL, Fox, Yahoo!, and many others are moving into this space and the promise of not just online advertising being made available but all digital advertising is extremely interesting such as digital TV, radio, print, etc.

Herman’s predictions didn’t come to fruition here in Europe last year – but 2010 could be a game changer. The arrival of a number of US, European and UK demand side platforms could herald a big change in the way some of the big media agencies buy display advertising.

The re-launch of the DoubleClick Ad Exchange will also have an impact. DFP publishers can now put their non-guaranteed ad inventory on the platform, making it relatively easy to sell directly to agencies and advertisers.

This site has been live now for over a year now, and admittedly the adoption of ad exchanges in Europe has been painfully slow. The arrival of the DSP and the push by Google and Yahoo in the exchange space will hopefully bring the market up-to-speed with the US.

What will this mean for ad networks here? There are over eighty – yes, eighty – ad networks operating in the UK online display market. Most are just aggregating inventory across brand sites. In many cases these ad nets have non-exclusive agreements. Those that don’t offer any real value to advertisers and agencies in terms of optimisation or targeting will find it very difficult this year. The argument that ad nets help supplement the sales efforts of a publisher will be negated by the reach of the ad exchange and the option of a more direct route to the agencies.

Despite all this, the ad network will continue to flourish in the UK and Europe. But there will be fewer, and the ad net will be more technology-driven. Better targeting, optimisation and audience segmentation will become the standard offering.

The traditional lines between agencies and ad nets are becoming even more blurred. This will give the ad networks further opportunities to win more online display spend. The evolution in the market will ultimately lead to instances where big European ad nets will look to outmanoeuvre slow-moving agencies (particularly those without an exchange strategy) and work directly with advertisers. Stay tuned. There's going to be a lot of interesting developments over the next twelve months.