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One of the hallmarks of the last few years on the internet has been the growing length of the “long tail”. Compete released some data last year showing that its panel was visiting 77% more websites than it did five years ago:

Long tail getting longer

Interestingly enough, Compete also released data showing that the “head” of the internet was growing in size:

Top Sites account for a larger percentage of pageviews

Together, this suggests that there are now many new sites getting only moderate traffic. While these sites may never grow big enough to become public companies, they are very likely getting to a scale where they can break even. I spoke on this topic at the web 2.0 expo where my presentation analyzed how big sites needed to get to hit both of these goals.

Many of the smaller ad supported sites turn to ad networks for monetization. This trend is being matched by advertisers embracing the channel. A recent report by Collective Media found that:

* 66% of advertisers plan to increase their usage of ad networks in 2007

* 88% of respondents planning to use online ad networks in 2007 (up from 77% in 2006).

* 57% of respondents believed how an ad network targets audiences was the #1 differentiating factor between networks

* Reach (at 52%) and Efficiency (at 66%) were still the key drivers for why agencies/advertisers include ad networks on the buy

I believe that among the biggest beneficiaries of these trends have been the content specific ad networks. With more advertising buying on networks, and with audience targeting being the #1 differentiator, networks that can offer extremely targeted audiences focused where an advertiser is endemic are hard to beat. As I’ve posted about in the past, having endemic advertisers makes for higher RPMs, and hence a smaller level of overall traffic scale to get to high revenues. At AOL, the channels with endemic advertisers always got the highest CPMs and sell through rates, and content specific ad networks are essentially creating synthetic channels.

Many ad networks do contextual targeting in their efforts to get endemic advertisers next to content (with Google and Yahoo being the most prominent). Others use behavioral targeting. Both of these approaches have been effective in lifting RPMs, but both require a leap of faith from the advertiser that the “black box” truly works. To mitigate this risk, contextual networks usually have CPC or CPA based pricing models. However, these models don’t capture all the value of a branding campaign, which can only be fully priced by a CPM model. This leaves some value on the table. Many endemic advertisers are not looking just for “in market” buyers who are looking to make a purchase decision imminently. They are also looking to build brand awareness to influence future purchase decisions.

Synthetic channels, like the channels on the big portals, have an advantage in this respect. By guaranteeing that all sites in their network are about a single topic, they can aggregate a critical mass in traffic while still enjoying endemic site RPMs. This is, in a sense, a “hack” to true contextual targeting, but it has the advantage of being simple to understand and hence simple to sell to advertisers.

One example is Jumpstart, a synthetic channel reaching 5m UU/month and focused on the auto industry. It was bought by Hachette Filipacche (publisher of Car & Driver and Road & Track) in April of this year for up to $110m.

Another example is Glam, which started life as an site focused on fashion, but quickly morphed itself into a synthetic channel focused on “Women: Fashion and Lifestyle” and reaching over 12m UU/month. It claims to be the “fastest growing web property in 2007“.

A third example is the Health Central Network, a synthetic channel focused on medical information and tools. Many of Health Central Network’s sites are actually owned and operated by the company as it rolled up small health content sites during the internet bust.

I think we’ll see more synthetic channels emerge, focused on the high ad spend categories:

ad spending by category

Note that automotive, retail and medicine, the content targets of the three examples above, are the three of the top four advertiser categories. I’m sure this is not an accident! Are readers aware of other synthetic channels?

Update: Conincidentally, Techcrunch just posted about Active Athlete Media, another synthetic channel.