As the “AdWords-ish-ness” of DoubleClick’s AdX 2.0 interface makes
obvious, the goal of today’s exchanges is to bring greater scale and
efficiency to the display space. There have been several reactions to
this by the advertiser:
- Reaction A: “Great! Media buyers’ ability to cherry pick
impressions and effectively price each one will usher in a new era of
performance-based marketing.” - Reaction B: “Rats! These exchanges will force a consolidation of 90% of inventory into the hands of same 3+ Goliaths.”
- Reaction C: “So what?”
Don’t be quick to dismiss perspectives B and C as the view of the
naysayers and uninformed. A look at the differences between the display
and search marketplaces yields some important insights supporting these
views.
Remember, search grew wildly from the widespread adoption of small
advertisers who could go create a text ad themselves and fund their
campaign on their credit card. Display is the opposite: due to the
higher costs of entry, display is a medium-to-large advertiser/agency
game. Even with the emergence of self-serve interfaces offering
pre-packaged creative templates, the generation of non-amateur-looking
display creative with interactive rich media components is beyond the
capabilities of the vast majority of small businesses. Layer on the
complexity of managing audience data and impression-level bids required
for participation in an ad exchange, and most media buyers are brought
to their knees.
The point is that exchanges won’t have
the massive advertiser base that search leverages to maintain
competitive eCPMs for publishers. The one exception is a few highly
competitive categories such as retargeting, in which advertisers and ad
networks will be fighting over the same cookies. AdWords boasts well
over one million advertisers. The largest display networks have, what,
maybe a thousand?
Fragmented advertisers, all trying to test various pockets of
inventory at different times, will certainly create irrational bidding
patterns that will challenge even the best real-time bidders. To make
the pricing dynamics a bit more complex, publishers will maintain
artificial price floors through reserve prices. On the one hand, those
reserve prices will force enough transparency from publishers to get
advertisers to pay. On the other hand, they will create deeper channel
conflicts if the same inventory is sold directly. For most categories,
this leaves all but the dregs of display inventory out of the exchanges
for the foreseeable future.
For many marketers, display campaigns over ad exchanges will appear
to under-perform compared to search campaigns over content networks,
unless their branding value is actually captured. The Direct Response
marketers, most experienced with performance-driven, auction-based
marketplaces, will be using this new source of inventory, as the second
place to spend their search budgets. In addition, brand marketers will
be challenged to move their advertising budgets to ad exchanges because
of brand safety concerns and because most exchanges do not trade video
inventory. Even if standards for internet video advertising were to
emerge, publishers would still be unwilling to risk their highly
premium inventory on the exchange. Further, premium advertisers would
not buy long tail video inventory without guarantees on content quality
and brand safety controls. Those challenges are not insurmountable, but
they will certainly slow down the rate at which marketers adopt the
exchanges.
These reasons are why many agencies and even a few data providers
we, at Aggregate Knowledge, have spoken with recently are concerned
about (or rather unconcerned with) the nascent exchange marketplaces.
Back to the real world: why will Exchanges succeed?
Google. Google’s determination to bring all unsold
and preemptible impressions from DFP publishers into the exchange will
certainly create the critical mass of inventory necessary to bring
large advertisers and large agencies to the game. Though, in the short
term, Google will likely need to subsidize AdSense publishers with a
higher cut of revenue to take lower yielding display ads.
Networks. This just in: Networks are not dead. They
will continue to provide the targeting, scale and consistent delivery
that large advertisers demand across many sources of inventory. Most ad
networks are already leveraging ad exchanges to backfill IOs after
depleting their direct publisher inventory. With nascent real-time
exchanges, the most technology-oriented ad networks will be able to
successfully arbitrage exchange inventory for their clients.
Arbitragers. Just as in search, the big winners in
the Ad Exchange world will be the real-time arbitragers. These are the
players – including ad networks, agencies, holding companies, large
advertisers with in-house media buying capabilities, and small-timers,
some with their own bidder, some that run on others 3rd
party bidders – who can chew up the complexity of exchange inventory to
spit out consistency and predictability for advertisers – and make a
killing in the process. That been said, most pure play arbitragers will
need other revenue streams to sustain their business as arbitrage
opportunities get increasingly difficult. This is exactly what happened
in the SEM space.
Demand Platforms. Those next-generation buy-side
optimization agencies are the heroes of the exchange era – the ones
that are going to deliver on the efficiency, targeting, and scale
promises of the exchanges. More than just bidding for exchange
inventory, those technology savvy optimizers will leverage a high
performance, data-driven, and transparent infrastructure to execute
campaigns efficiently and at scale. They will smash down the
optimization silos, with data infused at every level to deliver the
best possible experience to consumers, cost-effectively. To succeed,
demand platforms will be relying on four core technology components:
- Robust data management infrastructure to collect, normalize, and manage the user, site, and campaign data under one roof.
- Easy-to-use interface to manage biddable audience segments and campaigns with precision, control, and speed.
- Real-time decisioning engine able to leverage all the data
available to bid for and match the best impressions with the best
campaign, the best creative, and the best content, algorithmically and
in split second. - High performance reporting infrastructure delivering timely status
and actionable insights on the cost and performance of the campaigns,
the audience reach, and the media purchased.
While I confess not being totally impartial, I remain convinced that
without those four core technology components, real-time bidders are
doomed to become a commodity. It will be fascinating to see how it all
plays out.
