Take a look at an "ecosystem map" by GCA Savvian banker Terence Kawaja. It is an 11x8.5, Pantone-hued, logo-vomit of incomprehensible names: Blue Kai, AdXpose, Yieldex, Apnexus, Dataxu, TRAFFIQ (full disclosure: I work for the latter one, pronounced "Traffic"). From left to right, the landscape depicts the players in the business of digital display advertising, from those that buy the ads (agencies and marketers) to those that sell them (online publishers) and everyone in between. Over the last few years, not only have the players on either side increased but, thanks (or no thanks) to technology, the broad middle ground between the two has exploded.
Now, the advertiser can access a buying platform and buy on an exchange that uses cookie data to target an audience found on multiple websites. The composition of that audience is verified by a third party, and can then be served an ad (featuring creative that might be dynamic), and finally reconciled and billed by yet another software provider. And this is just the run of the mill stuff. Even in an industry rife with middlemen, the noise in the marketplace for the average media buyer is epic. What is happening out there, and why is it so confusing?
To the optimist, all of this wonderful technology is helping marketers buy the audience they have always wanted to target. Instead of having to buy ESPN.com at double-digit CPMs, now the advertiser seeking "sneaker intenders" can plug into a million cookie-appended sites and hit users with a dynamically generated running shoe ad that hits the reader as he is accessing jogging content on a favorite long-tail blog and deliver him a geotargeted ad that shows him a coupon on his size Asics from the nearest shoe store. And all for an $8 CPM. So what's the problem?
For the publisher, the problem is that it's way too cheap. After years of publishing all of their content for free, and placing a dozen network and exchange ad tags on their sites to monetize remnant inventory, the world is overwhelmed with banner inventory. Publishers -- who sell only 30 percent of their total banner inventory on a good day -- are stuck monetizing the large majority of their banners at an industry average $0.75. Yet, the networks and exchanges who have co-opted the publisher's very audience via cookie data, are making a cozy $5 CPM selling "audience segments" and "behavioral targeting." Ouch. You wonder when the (decent) publishers of the world will finally wake up and firewall all of that content they've paid a fortune to create and distribute.
In addition to the fact that publishers have been caught flatfooted by the broader trend of buying an audience vs. buying the place where it is found, they haven't really learned to leverage the tremendous power they wield: owning some very nice eyeballs on one of the most important screens in the market today. Are television ad sellers dependent on several dozen third-party intermediaries who skim 90 percent of their revenue? No. The money that they have lost due to channel explosion, they have found other ways to make up: namely, monetizing their content through different distribution channels (DVD sales and rental, DVR rental, overseas distribution, and cable licensing).
The introduction of the iPad was another painful reminder of how poorly publishers are doing when it comes to content monetization. Essentially, they have allowed the ultimate third party (Apple) to monetize all of their mobile content for them, and they are left begging at Steve Jobs' table for scraps. Oh wait -- the "ultimate third party" is actually Google, and publishers have already let the company control their site traffic and much of their content monetization through search. Oops.
So, what is my point, anyway?
The point is about control, and who is exercising it in this increasingly complicated landscape. Looking at the publishers' dilemma, it is clear that they have (for the time being) surrendered control to a variety of third parties with technology expertise in the hopes of staying relevant in a digital advertising economy. In addition, today's advertising agencies are increasingly becoming irrelevant, as they are increasingly dependent on the dozens of technology companies that control the way ads are created, displayed, measured, and transacted upon. The agency value proposition of publishers (we have the audience) and agencies (we know how to reach them) has eroded, which essentially opened the door to this new horde of technology players.
Yet, I am pretty sure both sides have only started to fight to get some of that control back. On the agency side, we have seen agencies building their own DSPs so they can control the inventory and targeting capabilities. On the publisher side, smart companies like Glam are building their own ad platforms (GlamAdapt) promising to deliver "a third-generation ad platform built for emotional digital branding" -- whatever that means. Both sides are trying to take control of the value they create by building platforms, which is admirable. But, in doing so, aren't they building closed systems that, over time, will create their own ecosystems and be unable to quickly adapt to changes in the market? In other words, are they building Windows, rather than leveraging Linux?
This battle for control is going to see many of the ecosystem players in the middle get absorbed by the larger players on either side of the equation, as well as an explosion of platforms designed to make sense of the large array of choices and ultimately organize the ecosystem as a whole. The real battle will be among those companies that are building open, scalable platforms that enable both agencies and publishers to choose among the various moving parts, based on their need.
In tomorrow's platform, an agency will register, plug in what ad server it uses (e.g., Atlas), its primary third-party data provider (e.g., comScore), its existing publisher relationships, the different data companies it uses (e.g., BlueKai), and its billing system (e.g., Advantage) -- and have a single interface to manage its search and display. Publishers will log into the same system and be able to participate in a marketplace where they set their own rates, and are able to leverage in-system data providers to create discrete audience segments and match them with advertiser needs. Tomorrow's ad platform will also include both guaranteed buying (great from brands) and RTB buying (great for performance).
In the end, for such a system to exist, all players must start by ceding more control back to the buyers and sellers at the end, and the parties in the middle of the ecosystem must develop the APIs and integration paths that make systems interoperable. As a series, "platform wars" will look at all the different players in the space, and the ongoing battle for control as digital media technology evolves, and winners and losers will be chosen.
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