Last year, the rush of excitement on purchasing direct inventory via the exchanges felt a bit like when Wal-Mart opens its doors to a mob of zealous shoppers every year on Black Friday. The appeal of billions of daily impressions where advertisers can virtually cherry pick their audiences at low, low prices has been a big draw to marketers who, up until now, have had to work through middle men in order to buy digital inventory.
But, as Gordon Gecko stated in the film "Wall Street," "Money is not lost. That's the illusion. It is simply transferred." Thus for all of the winners affected by the exchange revolution, there are bound to be losers as well. As debated heavily in conferences and blogospheres last year, the overall consensus was that ad networks would take the hardest hit as more campaign budgets shifted to this inventory.
In January, I discussed the future of ad networks with a few ad network execs to try to figure out how these business models would adapt to succeed in a market being flooded with directly purchased inventory. What I discovered was that there were a few major directions that ad networks would likely pursue.
The data side
This year, we've seen the rise of the data management platform (DMP) to not only help advertisers manage their data for exchange buying, but also as a centralized system for managing all of their data. In my previous post, Interclick's insightful CEO, Michael Katz, made a pretty valid case that just having access to inventory doesn't guarantee success. There's a lot that goes into buying audiences efficiently, and I think that any of us who have tried heavy buying from exchanges knows this to be true.
In line with Katz's comments, Interclick recently released Genome, a tool it has dubbed as "the first self-service audience recommendation and planning platform." In August, another major ad network player, Lotame, shut down its media side to focus solely on its top tier DMP, Crowd Control.
Pure data players with their own DMPs such as BlueKai and Aggregate Knowledge are now competing against ad networks that, although they might be a bit late to the game, have certainly arrived on the scene before the major rush toward these platforms. Nevertheless, many of the ad networks I've spoken to feel that they're positioned perfectly to capitalize on their pre-existing advertiser and agency relationships to funnel clients to their DMPs. They also are betting that their expertise in account management will be a better fit for traditional advertisers than the pure tech companies that might not yet excel in customer service.
Jeremy Mason, VP and GM of the AudienceScience Gateway (full disclosure -- my agency uses this product) hammers home this point: "Because we have a decade of experience as a technology platform, and the last several years' experience of a full-service network, we have a well-rounded view of how to engage clients in the current industry landscape. As Van Halen put it, you need 'the best of both worlds.'"
The private exchange side
If you can't beat 'em, join 'em.
A major opportunity of growth for ad networks is to actually become a supply side partner (SSP) for exchange inventory. This is a natural extension of their original mission to be a reseller of inventory for publishers looking to sell their unsold ad space.
The term private exchange has been defined various ways. Some trading experts narrowly have defined private exchanges as unique inventory set aside to a single advertiser who has first look (i.e., first right of refusal). In this case, there would be a set level of spend and probably a pre-defined CPM to lock in this relationship
However, the most common way the term private exchange is being used is simply to classify inventory that an advertiser must be granted access to and isn't available for every exchange trader. For ad networks, this level of control is on par with the publisher relationships they've been used to for the last decade. Publishers obviously want to sell their remnant inventory but not at the expense of channel conflicts with their direct sales teams with advertisers that already have relationships.
"We are supporting a growing revenue stream that comes from advertisers buying programmatically, without competing with or separating from the revenue from advertisers buying branded solutions," says Jason Lohr, VP, Midwest, for Collective. As well, premium publishers want to have some level of quality control to ensure their ad space is not inundated with teeth whitening and Flash alien banners. They rely on ad networks now as their buffer layer, and that role can continue with private exchanges.
With the sole focus of exchange buying being the purchase of audiences with little regard for the site context, one major concern for advertisers on the public exchanges has been brand safety. Ad networks can offer advertisers a solution for exchange buyers to not only purchase directly via demand-side platforms (DSP) but also ensure that the pages on which they're placing advertising are in line with their expectations of quality content. Daniel Levine, trading strategy manager for Undertone, agrees. "Where Undertone DirectConnect's private exchange comes in is providing high-quality, brand-safe inventory at scale with all the benefits that come with RTB exchanges," he says. "Our value proposition is about filling the void of where a very high percentage of inventory within an exchange is below the fold on extremely long-tail sites. Do strong brands that are aiming to communicate their value and differentiation want to be associated purely with UGC that may not have favorable context? I would imagine that is not their main goal."
What have been the results of this shift in the ad network business model? "The growth of brands buying from our exchange, and publishers reaching out to us to make their impressions available in a more premium environment has eclipsed our expectations," says Andrew Casale, VP of Media at Casale Media, which has been actively selling its private exchange. "The most gratifying validator has been the responses we have received from those buying through our exchange. They notice the difference, usually in a matter of days, and that's enabling them to reposition the supply environment to their clients. With better supply becoming more readily available, I expect to see continued adoption of this new buying model."
Mario Diez, quadrantONE's CEO, has also received promising reactions to the company's move into the private exchange space. "Feedback has been overwhelmingly favorable, and those who have been in the local segment for years have been most forthcoming in their praise," he said. "We knew that this was an idea that was going to require some heavy lifting, but one that would ultimately be worth it because of the media brands and national reach we have. That is exactly how this has played out."
Certainly, ad networks knew that they would have to shift their thinking and products to adapt to the changing landscape. Since the beginning of digital marketing, there have been numerous game-changers that have forced all of us to evolve or be squeezed into irrelevance by the Darwinism brought on by things such as paid search, social, mobile, and even the economic downturn.
Ad networks are realizing this new vision by going with the flow on where the industry is headed. Some are offering new and exciting data products that will meet the heavy technical demands of exchange traders while others have found that leveraging their current ad space in their own private exchanges will be enticing for marketers. Some are doing both. The fact remains that if they can provide value to clients, they will continue to thrive and grow -- even in a post-exchange world.
Josh Dreller is VP of media technology and analytics at Fuor Digital.
On Twitter? Follow Josh Dreller at @mediatechguy. Follow iMedia Connection at @iMediaTweet.
iMedia Communications, Inc. All Rights Reserved.