Crossing The Rubicon: Die Is Cast With Bid To Become The Google Of Online Display
- by Joe Mandese @mp_joemandese, October 7, 2009
The move should not come as a complete surprise. Rubicon Founder and CEO Frank Addante has been hinting at his desire to expand the role it plays in managing the messiest components of publishers' online advertising businesses, and many of Rubicon's biggest publishing clients have helped it develop beta versions of components that comprise the REVV platform.
Other so-called "ad optimization" firms that compete with Rubicon, such as PubMatic and AdMeld, are expected to follow suit, but Rubicon, founded in 2007, has a running start and is well capitalized. It just closed on a $43 million round of funding from big venture capital firms including Clearstone Venture Partners, Mayfield Fund, IDG Ventures and GE/NBC Universal's Peacock Equity Fund.
It has been using those funds to both expand internationally and to invest in the development of technologies that automate and simplify much of the processes publishers use to manage the disparate array of third parties that have emerged in recent years to represent their unsold ad inventory, including advertising networks, ad exchanges, rep firms, audience data and targeting firms, etc., which has made that a chore in and of itself, creating a market opportunity for Rubicon and others to step in.
In some ways, Rubicon was always a sleeper play: Start with an overly complex and somewhat unmanageable part of a publisher's business - the management and optimization of its ad network relationships - and then expand into other troublesome areas.
Troublesome indeed. According to various marketplace estimates, as much as 80% of the online publishing industry's inventory is now managed or influenced by a third-party intermediary other than the publisher's own internal sales organization. But it's been an 80/20 rule of sorts, with the preponderance of a publisher's revenues coming from the 20% of the inventory it sells in-house. That direct sales inventory is typically referred to as "premium," because it involves creative concepts, and human interaction between publishers, advertisers and agency executives to execute them, and is not seen as something that might soon, if ever become automated.
But the stratification of the marketplace has created a slew of ancillary markets that are ultimately broken down into three sales channels: premium (or a publisher's own direct selling efforts), non-premium (inventory sold by third-parties for a lesser value), and remnant (unsold inventory sold at the bottom of the marketplace, and a fraction of the premium CPM). That stratification has created a sales channel dilemma for publishers who fear their non-premium and remnant sales might negatively impact the value of their premium sales, and is one of the reasons why Rubicon has created its new management platform - to help publishers keep an eye on, and to influence how other third parties touch and value the balance of their inventory.
Like its original ad network optimization system, Rubicon charges a percentage fee on the inventory it facilitates through its new, enhanced systems. Those percentages are negotiated, and vary based on the mix of technologies, services, and platforms a given publisher is using, but in its most extreme, Rubicon executives said it could total as much as 25% of the revenues generated by a publisher utilizing Rubicon's systems.
Well, looking across this whole mess of ad network systems and solutions, one thing is clear - "Crossing The Rubicon" is the best named company in this space!
The problem/challenge with all of these ad "exchanges" and optimization companies, is that they are optimizing on the wrong numbers. They are looking at publisher side numbers, not the agency 3rd party numbers on which they get paid. When factoring the 3rd party data, a CPM of $.50 from campaign A might not pay as well as a CPM of $45 from campaingn B if Campaign A brings with it a 20% discrepancy from the 3rd party origin server. They all need to integrate with a tool such as Ad-Juster (www.ad-juster.com) so that they at least are optimizing on the correct numbers. The secondary problem of course, which I hear from many premium publishers, is that the publishers feel they are devaluing the publishers inventory. Not all impressions/audiences are valued the same.
So here's my question: exactly how big a lift can any ad optimization technology give a publisher? If none of the ad networks is offering anywhere near $10-$15CPM or higher, which is what the upfronts are on premium, then "optimizing" is just giving you pennies more on the dollar - not whole dollars more. Most ad networks are selling still in the sub-$5 range, and the bulk is priced at sub-$1.
Let's do some math on a typical situation, shall we?
A hypothetical average publisher has 12 million monetizable pageviews per month. Let's simplify and say they only have one ad per page. They sell the ad space at $10 CPM rate card, which gives a total possible revenue stream of $120k/mo. They are only able to sell 70% of their monthly inventory at premium ($84,000/mo), which gives them a revenue gap of $36k to make up.
Let's say that the 30% inventory gap gets fed to ad networks, who offer their usual avg $1CPM. That's only $3600, nowhere near $36k. Even if Rubicon or Pubmatic or whomever can get them a 20% lift on the $3600, it still doesn't get close.
There's a huge gap in the middle between what ad networks are offering and what publishers really need. Even having a system in the middle to sort out the highest bidder doesn't solve the problem that the landscape of bidders is offering too low a price. They know they can get away with it, and now they've trained advertisers to buy through them so they can get premium space dirt cheap. It's not a guaranteed placement or a guaranteed share of voice, but it seems a lot of advertisers don't really care that much if they're getting a steal.
Publishers need to be willing to set floors on their space, and not just "fill holes" at any price. Instead of running house ads or backfill ad network inventory, they should explore other uses for the space. Hell, they can even put in affiliate links and they'd probably make more money in the long run. Don't get me wrong - on the "buy" side when I'm wearing my advertiser hat, I totally love what ad networks offer in terms of pricing and targeting. But we talk to so many publishers and when you really start adding up the pageviews and multiplying what they're getting on avg CPM, it's astonishing that more of them aren't bankrupt. And no "auctioneer" or ad optimization platform can solve the fundamental issues underlying until the publishers take responsibility for their situation and start exploring more unique ideas for making money on their content.
Publishers also need to beef up the training for their direct sales forces and their product managers, just as the Yellow Pages/local directories industry has finally done over the last few years. YP companies lost a lot of ground because even though they had the customer relationships, they didn't have the digital knowhow at the product development level, nor at the "feet on the street" level to protect their turf and build the value proposition. As a result, print directory advertising dropped significantly and will probably never recover.
I personally remember talking to my YP rep a few years back and telling him that I didn't want the print, but was interested in their online offerings. He said that was a different department, and all he could do was send me a PDF about it - they didn't even have an electronic media kit or online signup. The "other sales team" never followed up. I never bought the ad. But that's a whole other rant...
Dana, you're right - Ad Network Optimization is not enough for premium publishers. That's why, with the launch of REVV for publishers(tm) we're moving into full Yield Management Optimization - to help publishers capture dollars all along the spectrum, not just at the bottom. I'd invite you to watch our REVVcast that accompanied Wednesday's announcement to get a more complete picture of our approach: http://bit.ly/2DO205
R.J., you're right, too. Discrepancies are a major issue for publishers. Part of the value of the Brand Protection layer of REVV is to protect publishers from this problem. We take on the issue of discrepancies with sales channel partners, and have more leverage due to our size than any single publisher could. As to your other point, the Data Intelligence layer of REVV is focused exclusively on adding value to publisher inventory by enabling the ability to truly sell by audience - we couldn't agree more with your statement that "not all impressions/audience are valued the same."
Mark - thanks! we like it too :)
I guess the question that arises in my mind, after reading this article is, they want to become 'The Google of Online Display'? Do they know Google owns DoubleClick, runs AdWords, etc..? No doubt they are honing their own effort here.
This firm needs to blaze their own trail here, and be 'The Rubicon of Online Display'. Positioning wins!
Although, I am sure the G- company doesn't mind a little 'free association' [in several ways] here...