The ad exchange revolution: Crucial insights

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We're arguably two to three years into the exchange buying revolution. I say arguably because buying online display ads via a real-time, auction-based model has been around in several forms for years. However, it was only as recently as 2009 that demand-side platform (DSP) became a household term in this industry.

So, how fast is this channel growing? Fast. In the eMarketer report, "Methods Used by US Ad Agencies to Buy Online Advertising, Q1 & Q2 2011," 10.6 percent of the agencies surveyed were buying ad inventory via a DSP in the first quarter of this year. By the second quarter, that number doubled to 19.4 percent. I've seen other reports showing that almost half of all online display budgets will be purchased this way by the end of next year.

If that's not worthy of "revolution" status, I don't know what is.

But fast success has bred deep growing pains. Audience buying has risen so quickly that buyers are scrambling to get their act together. The demand has outpaced the infrastructure, training, and human expertise needed to take full advantage of its potential. In terms of hiring talent, if you have one full year on a DSP, you're pretty valuable. Two years? You're an expert. Three years? You're a guru. Whoa.

Ask any exchange buyer who is actually in the trenches for an agency trading desk or in-house buying team, and they'll tell you that there's still a lot to learn with audience buying. Standard best practices that have been virtually set in stone by now with other channels such as search and email are still yet to be determined. What this means is that we're a little over a year away from this channel becoming a dominant force in the digital industry and only a few pockets of folks have really figured out how to approach this thing right.

Ultimately, there have been a lot of expectations that have built this tremendous demand, but the jury's still out whether or not we're actually there yet. I decided to tap into three prominent players in the exchange ecosystem in order to do a deeper dive into the promises of this revolution and how they feel things are netted out so far. This panel includes members from each of the three major parts to audience buying: the demand side, the supply side, and the data that powers both.

  • From the demand side: Zach Coelius, CEO of Triggit
  • From the supply side: Jay Sears, general manager of PulsePoint Exchange
  • From data side: Russell Glass, CEO at Bizo

Coelius, Sears, and Glass have not only lived through this revolution but have been key players in its growth. How you negotiate through the true value, the misinformation, and the noise will help determine your success in this area. It's more important than ever to set your practice on solid ground and sift the clutter. 

The following are the nine major value propositions that this channel has presented. Have the promises been fulfilled or is there still more work to do? What's the future of these expectations? Let's see what our experts had to say.

Promise 1: Buying audiences is better than buying sites.

Glass: Over time, buying audiences will become standard operating procedure for marketers, and there will be no such thing as "buying sites." There will certainly be money spent on the big brands, but all buys will ultimately have 100 percent targeted audience composition on the site that the advertiser is looking to advertise on.

Sears: First content was cool. Then audience was cool. And then content was not cool -- content was the kid getting beat up in the lunch room. Now content and audience are together again. Both are cool, and they are cooler together. We can now have audience, in context. The best of both worlds, with scale brought to you by real-time bidding.

Coelius: The fight between buying audience vs. buying sites is very simply a false choice. Sites matter. Audience matters.  Disregarding one or the other is huge mistake. One of the reasons why the exchange and DSP market has seen such tremendous growth over the last years is that it is finally possible to do both at scale. A DSP can now provide full transparency and control of where the ads will run while concurrently leveraging audience data at scale.

Promise 2: It doesn't matter where the inventory is, just who it's being served to.

Coelius: The "where" matters. The quality of the media placement has a tremendous impact on the efficacy of the ad. It doesn't matter how beautiful the targeting is if the ad runs below the fold on a scrapper site running an impression fraud scam.

Glass: Inventory control will become more important, and solutions are already beginning to expose attributes like "below the fold," "banner engagement," or "political content," etc. This will help the situation, and bid prices will be affected by these inputs. However, this will only further drive the notion that the inventory does matter, and ultimately pricing for the impression will take that into account. The better the inventory, the more the advertiser will bid for the impression.

Sears: Somehow some people think serving out-of-context ads in digital is OK. It's not. Unless you are betting your career on belly fat ads, your client puts value on environment. It's audience plus content. Over the next three years, look for an industry definition and taxonomy around quality -- what are the common measuring sticks of quality that will enhance the liquidity and trading of digital impressions. The taxonomy will by lead by IAB, and the delivery of the measuring sticks will be a battle between companies like Trust Metrics, verifiers going upstream like AdSafe, ad servers that should have done this years ago, and other new emerging entrants.

Promise 3: Data is the new currency.

Coelius: Data by itself is worthless. Leveraging data successfully requires experience, technology, and a willingness to experiment. Marketers who are able to get over that hurdle will crush their competitors who don't.

Sears: We always had data. Data per se is not really new. What is new is how dynamically data can be applied -- in real time, at the impression level. There are "three legs of the data stool" -- first-party data from the advertiser, third-party data from various data partners, and "supply provided data" from the exchanges -- what programmatic buyers see in the RTB bid call (see "A Smart Pipe Manifesto"). Marketers should have a strategy in each of these three data areas.