The future battle between ad networks and publishers...

Earlier I was writing about Jared Kopf's AdRoll, a new advertising network. I was thinking about the economics of the online advertising market.

Advertising networks get to charge a healthy cut of total advertising revenues. This is typically between 20 to 40 per cent but in many cases, especially with small publishers, it can be as much as 60 per cent.

That's a healthy margin for the ad publishers. And that's one reason I haven't been a fan of advertising networks such as Google AdSense, FM Publishing, AdBrite, BlogAds, etc.

I'd rather not use them than sell my readers so cheaply.

The other reason I'm not that keen on advertising networks is that it is not a defensible business. Once publishers grow to a certain size they can sell their own advertising and run their own networks.

Plus, they get an immediate boost because they gain the healthy margin that was going to the ad network.

Ad networks are potentially in trouble. There are many fast growing online sites in tech, fashion, business, and politics. Ad networks will be dumped and have to deal with a long tail of publishers that will eventually dump them too, if any get large enough.

However, right now, I think ad networks have the upper hand and here is why...