• by Manny Puentes , November 22, 2011

The debate among premium publishers and DSPs begs one simple question: “Will putting my inventory on an exchange cannibalize my direct sales efforts?”

Those who “own” inventory are concerned that through exchanges, advertisers and trading desks have access to the same premium placements at lower CPMs, thereby diluting direct sales opportunities.

As a premium publisher, you probably invest in a sales team to monetize your inventory. You sell a unique readership, social engagement capabilities, contextual relevance, and other site-specific aspects that help value premium inventory at premium prices. Your team works hard to close direct deals with high CPMs to make sure the value of the inventory is not diluted so they can keep cash in their pockets!

On the other side of the coin is the brand advertiser. Brand advertisers also have concerns about exchanges because they are hyper-sensitive to brand alignment. They work hard to protect their brand from the “Wild West” we call the Internet, and are über-sensitive to the variability of content across the Web.

Buying direct from premium publishers ensures contextual relevancy and protects against brand conflict.“Guaranteed inventory” means you can measure engagement and ROI. It’s the safe route that allows a brand advertiser to lock in contextually relevant real estate and track ROI.

Herein resides the real business challenge for publishers: “Will putting premium inventory on an exchange cannibalize the higher CPMs I can get through direct sales efforts?”

From a business standpoint, publishers are potentially leaving money on the table because they aren’t monetizing unsold inventory on an exchange. From a sales standpoint, putting inventory on an exchange can dilute the value proposition because the same advertisers can buy the same placement through an exchange… so why pay the premium price? How does the industry solve this conundrum without disrupting/diluting inventory value? The answer is the private exchange.

A “true" private exchange turns potential dilution of inventory, internal struggles with the sales team, and contextual awareness into a big-time publisher opportunity. In a true private exchange, the sales team continues to work with advertisers to sell premium inventory. Let’s not forget what’s important to advertisers: (1) contextual placement and (2) guaranteed inventory/unique(s).

Through the private exchange, a publisher negotiates a mid-tier CPM for unsold inventory on the private exchange and offers it to “select” brand advertisers (i.e., delivered through bidders/DSPs). From the advertiser’s vantage point, this provides a safe ecosystem to purchase non-guaranteed inventory, but still offers the luxury and security of contextual placement and easy management of brand conflict.  

A “true” private exchange gives priority bidding to the select advertisers that have negotiated a higher mid-tier CPM. The CPM is higher than on an open exchange because it’s backed by data, yet lower than a premium CPM because it’s not guaranteed.

The industry needs to embrace true private exchanges. A “true” private exchange solves a real business problem for both the publisher and advertiser:
(1) Publishers can place inventory on a private exchange at a $3-$10 CPMs and offer it to a “select” set of advertisers
(2) Publishers can use the private exchange to build a process and compensation plan for the sales team
3) Advertisers feel safe using a private exchange that guarantees contextual placement and protects against brand conflict.

The private exchange is a true private marketplace where the prioritized advertiser with the highest bid wins.