5 Symptoms That An Ad Network Is Going Out Of Business
With all the excitement on our original post about the next ad network to most likely go bankrupt, we decided to follow this up with a post to help you diagnose whether an ad network is about to go out of business. We know how painful it is to lose a huge sum of unpaid ad revenues because of an ad network bankruptcy so we want to help you prevent a huge chunk of your ad revenues to disappear overnight:
5. Responsiveness and quality of answers suddenly decreases
When ad networks start having cash flow issues and they are late on payments, responses tend to come a lot slower and the answers tend to be increasingly vague. If the late payments were company-wide, then they would be flooded with many emails and response times would be delayed. If the late payment was due to cash flow issues, then leadership would most likely tell their ad reps to delay or give vague answers but to assure the publishers that everything is fine so that the publishers do not drop their volume which would make the situation worse. Many publishers have reported that was their experience with Mode Media and Say Media before they went out of business.
Keep in mind, some ad reps tend to lack responsiveness and tend to give obtuse answers on a regular basis. That would not be a symptom of an ad network going bankrupt. If lack of responsiveness and vague answers coincides with late payments, then this might not be a coincidence and prudent decisions should be made to continue to run the ad network’s volume or pause them. If you decide not to pause the ad network, be aware that you are risking to lose more ad revenues if they do go out of business and do not pay your unpaid ad revenues.
4. Proposal for longer payment terms
Ad networks tend to offer shorter payment terms than the payment terms that they have with their advertisers, DSPs and/or any other demand sources. They do this to be competitive with other ad networks. To offer shorter payments terms vs. when they are paid, requires financing the difference which sometimes can create cash flow strains if the company does not have a good finance team or is not consistently profitable.
Once companies start having cash flow issues, the next logical decision is to increase the payment terms so that the cash flow strain is relieved (At least temporarily). The problem is that increasing the payment terms doesn’t necessarily solve the core problems. This announcement to publishers could also spur the loss of key publisher accounts and could perpetuate a negative spiral for the ad network.
If an ad network does announce longer payment terms, make sure to get very specific reasoning out of them. If they are vague, this is cause for concern. If they give you specific reasoning that is logical and does not stem from a negative financial situation, then the longer payment terms would very well be a false alarm.
3. Executives leave companies
The leadership team are the ones that first see the top-level issues in the company and are able to have a good idea how much of a future the ad network has. Many executives know the financial numbers, have an idea how healthy the cash flows and profits are and where the company is heading long term. It’s common for executives to be compensated with stock options or equity so if they think the company is going out of business, there is very little incentive to stay with the company. If the financial picture for an ad network is looking dreary, executives proactively search for other opportunities directly or via head hunters.
Keep in mind that changing companies in the ad tech industry is quite common. One executive jumping ship isn’t a huge cause for concern. However, if many executives leave the company in a short time period, it’s worth looking into because it might not be a coincidence. The atmosphere at dying companies are dismal at best and the executives are the first ones to feel it and usually the next levels of management follow. Everybody wants to jump on a rocket ship but people tend to jump off a sinking ship in droves.
If you are worried that an ad network is going out of business, make sure to save the executives names in a Google News Search. Usually it’s announced in a press release when a new company adds a high profile name to their roster or when an executive starts a new company and announces it. If it’s a small ad network, you could even add the executives on LinkedIn. That would be the most sure-fire way to know when they change companies.
Lay-offs are an obvious symptom of unhealthy companies that could end up going out of business. They hired too many staff and have to shrink to be able to make ends meet. Many lay-offs in the ad tech industry are due to rapid growth followed by hiring too quickly. However, some are due to an underperforming company that is struggling to grow or is even experiencing declining revenues which could mean there will be more lay-offs to follow.
Lay-offs could also be a symptom of “trimming the fat” of a company. They could be the result of an internal audit and the recommendation is to lay-off the employees that contribute less value then their compensation. Although this recommendation is harsh for the employees involved, it can result in a more efficient company and healthier finances in the short term and long term. If this is the reason for the lay-off then it would not likely be a sign of going out of business.
If you hear about a lay-off at one of the ad networks that you are running, take a closer look. If you have any contacts that were laid off, try contacting them via LinkedIn. When you get an email that you have a new rep because your current rep is moving onto a new opportunity, that doesn’t necessarily mean they took another job. Ad networks obviously like to keep news of lay-offs quiet, so the reason given for the ad rep moving on could be a cover. We recommend sending a friendly message to any of the employees that were laid-off about what company they are moving onto. If there isn’t a company, that’s your opportunity to ask what really happened and the health of the ad network.
1. Payment deadline missed
An ad network missing their payment deadline is the biggest symptom towards future bankruptcy. However, it is not uncommon for an ad network to be late on their payments unfortunately. It is when ad networks are very late on their payments, when you should be worried. You should be even more worried when you see late payments in combination with one or more of the other four bankruptcy symptoms. There’s always a chance of coincidence but you can rule that out by doing further research and asking specific questions that hopefully the ad reps will not dodge.
There are many reasons for late payments though. Below are just a few:
- Incorrect banking information was entered on the publisher side
- Banking holidays delay payment delivery
- Human error on the ad network side
- Negligence from the ad network finance team (Usually results in payments consistently being late)
- Advertisers or DSPs being late on their payments
The above reasons tend to be false alarms instead of symptoms of going out of business. Running an ad network is not easy and there are a lot of outside factors sometimes they can’t control. Sometimes employees can be unreliable as well but that doesn’t mean an ad network is going out of business anytime soon. It’s best to be reasonable with this symptom for at least the short term when the payment is under a 15 days late.
If your payment is more than 15 days late, that’s when you should kick it to high gear. The ad reps should be responsive and give specific reasons why the payments late. Watch out for news about lay-offs, executives leaving the company and proposals to extend payment terms. These red flags are what you should base your decision on whether to continue to run that ad network.
If you’re running header bidding, you could even scale their bids to include the longer payment terms and the risk that the ad network may not pay in the long term. We’ve seen some of the most sophisticated publishers incorporate this strategy to manage their risk.
If you are worried that an ad network that you’re running is showing one or many of these symptoms and might go out of business, please notify us. We are all in this together and we would like to do our part and notify you if ad networks are showing a high likelihood of defaulting on their payments to publishers. No publisher should be blind-sided like what happened with Mode Media and Say Media. We’re here to help ☺