Conflicts of Interest

I have long espoused the conflicts of interest emerging in the hybrid network business model. Sites such as Google, who obviously owns Google.com but at the same time, sells on other partner sites via AdSense, and numerous (most) ad networks, who also are in the owner/operator portal business, have an inherent conflict of interest.

There is an economic incentive to run any premium advertising on their own portals and leverage their partners sites (where they must share revenue) to run the cheaper advertising. I can only imaging the difficulty faced by a hybring network in trying to look a publisher in the eye and saying, “we have your best interest at heart; Our goals our completely aligned”. It’s simply not a true statement for these hybrid networks.

While some have fire-walled organizational structures to make them “feel” less conflicted, the shareholder interest is the same.

The new deals taking place, cause some similar conflicts, but now they are not just “sell-side” conflicts, but the overlapping of “buy-side” and “sell-side”, which cause even greater potential for conflict and misaligned incentives. Ad Age had a recent interesting article on the potential for conflict in sell-side Microsoft owning buy-side AvenueA/Razorfish.

The only reason these conflicts have not surfaced as a much greater concern is because Internet advertising is growing so quickly. In a rapid growth market, conflicts might be overlooked as long as revenue is growing… but the other shoe will drop as soon as their is a dip, or even a speed-bump hit in the online advertising market. This may not occur for years, but advertising is cyclical. One thing we can all be certain of, is that speed-bump will happen, and these conflicts will become of great concerns, it’s just a question of when.