The Race-To-Balance: Can SSPs Make Demand Flow Up A Waterfall?

The term waterfall has many connotations, but in the ad technology business, it is usually used to describe how people and technology are used to manage the flow of demand from advertisers.

The problem is that up until now, it’s been a little bit like the way water flows in the physical world -- always downhill. Now, a new generation of so-called SSPs -- or supply-side platforms -- is seeking to defy the natural effects of gravity and get demand to flow upstream.

But first, for those unfamiliar with the ad tech waterfall, here’s how it works.

At the top of the waterfall, a publisher’s own sales organization sells what it considers to be its most valuable inventory -- its guaranteed, direct inventory -- to advertisers and agencies either the old fashioned way (person-to-person) or via a private, programmatic exchange (machine-to-machine).

Whatever’s left over starts cascading down the waterfall into various pools of demand. Historically, this meant ad networks were next, because they were considered to generate the next most premium value for the publisher’s unsold inventory. And whatever was left over from that, trickled down into exchanges for bidding on the open RTB marketplace.

At the very bottom of the waterfall, are what people in the ad tech biz affectionately refer to as “mops.” No it’s not a new acronym, they literally mean ad networks that “mop” up the remnant inventory of unsold impressions and sell them for fractions of their original value.

“It’s where unsold impressions go to die,” Jason Fairchild, a co-founder and Chief Revenue Officer of OpenX quipped last week, while briefing me on what it believes will be a solution to the problem publishers have with managing the upside of their demand through exchanges.

That solution, which was announced Monday, is a new SSP product OpenX created called Demand Fusion, and like its name implies, it literally fuses all of the pools of demand into a single framework so a publisher can see how pockets higher and lower on the waterfall might generate a higher yield than gravity might otherwise indicate.

It works by creating a bidding-like function within the Demand Fusion framework that simultaneously computers whether a bid from one or more ad networks will yield higher or lower revenue for a publisher’s impression than it would in an open exchange.

Until now, Fairchild said the process as basically a “daisy chain” system that passed an unsold impression down the waterfall with deteriorating value as it worked its way down. With Demand Fusion, he says, an open RTB bid might actually yield more than an ad network offer higher up the waterfall and so on.

Fairchild says OpenX has already built the system to also begin optimizing a publisher’s guaranteed direct sales in the mix, and predicts some will begin using it for that within a year, once they get used to optimizing their secondary sales channels through the system. He believes that, because ultimately he says, the system works and rationally allocates a publisher’s inventory to the source willing to pay the most money for it, even if it’s lower down the waterfall.

I consider OpenX’s new Demand Fusion platform to be part of a new generation of SSPs that are trying to correct a marketplace imbalance that has given most of the initial leverage in the programmatic marketplace to the demand-side. It makes sense that it started out that way, because the market first needed advertisers, agencies and trading desks on board to create demand for their inventory in the first place. But now that the market is a little more mature, it actually needs more balance on the other side of the table -- market mechanisms that demonstrate some upside for publishers to put more of their highest-demand inventory into the programmatic marketplace -- otherwise it will never grow.

I plan to write about other SSP solutions soon, but in the meantime, I’d like you to think about a new variation for RTB. Instead of “race-to-bottom,” as some publishers deride it, it could become known as “race-to-balance,” because the next wave will be all about market equilibrium. In theory, that should be healthier for participants on both sides -- supply and demand -- of a marketplace.