• by Rick Abell , July 31, 2014

There's no doubting the impact that open exchanges and programmatic buying have had on the advertising landscape. But while unlimited scale for cheap is compelling, it does have its downside. For GroupM agencies, that downside appears to have finally won out. In a strategic and well-defended move, GroupM has agreed to stop buying into open exchanges, illustrating that agencies and advertisers should be building direct publisher relationships or working with trusted partners that leverage O&O/direct publisher inventory. I couldn’t agree more -- for these primary reasons:

1) Quality transparency – The industry is demanding viewable and non-fraudulent impressions. It is more important than ever for brands to understand exactly what value publishers are providing.  Are the ad placements well-integrated within the publisher’s content, or are they stacked at the bottom of an article in a location most users won’t ever scroll down far enough to see?  How are publishers generating their traffic? Is it all organic, or are they using third parties to help generate traffic that may be of lesser (or fraudulent) quality?  These are all questions that can only be answered directly by the publisher.  Beyond their own direct buys, advertisers can achieve scale by finding partners who are already asking these important questions and are transparent about their publisher relationships and inventory mix.

-- The open exchange environment allows fraudsters that are generating massive amounts of fake traffic to be rewarded with ad dollars while operating [almost completely] unnoticed. With less ad dollars flowing into the exchanges, we can disincentivize the fraudsters from existing, even if only slightly.

2) Cost transparency – Exchanges can create a somewhat competitive relationship between advertisers and publishers. It goes something like this: Advertisers are looking to take the publishers’ best impressions while paying the least amount possible. Publishers may respond by implementing various price floors.  The advertiser side responds by decreasing bid density, creating information asymmetry. Publishers, as a result, often are not placing their best inventory on the exchanges.  So on and so forth in this game of cat and mouse. However, quality ad networks with direct publisher relationships have the ability to:

 -- Shine a light on where the money goes from advertiser to publisher. Though exchanges may claim transparency into the bidding process, the actual process is rather muddied. The advertiser pays the middle man (who takes an unknown amount for their own profit), the advertiser does not always know how much they’re actually paying to be placed on a site, and the publisher does not have a clear picture of what CPMs they could be getting.

-- Offer publishers a share of revenue. With revenue-share arrangements, there is more of a partnership between advertiser and publisher. Advertisers are chosen to fill the publishers’ best impressions, given that they pay the best rate to win them. The more the ad network earns on the publisher, the more the publisher earns by default. 

-- Provide key, and potentially hidden, audience segments for advertisers. Mid-tier passion sites offer core audiences of value to advertisers, though they often do not participate in private exchanges. Quality ad networks who work with high quality and mid-tier passion sites often get first look access, and consequently fill all of the high value impressions.  These high-value impressions will thus never become available via exchanges or other sources, meaning the advertiser may miss out on a key segment of their target audience since they do not have the time, nor the tools, to access these sites directly themselves.

GroupM’s decision to retract from open exchanges ultimately demonstrates a growing trend of buyers pulling out of open exchanges due to the risks and costs involved. This is a positive move for premium and mid-tier publishers who have worked tirelessly to provide quality inventory for advertisers, and for advertisers who are seeking viewable, non-fraudulent impressions from publishers -- all in all, a bold step in the name of transparency.