Commentary
For Online Ad Industry, It's Time To Stop Being Nostalgic
- by Jeff Green , January 10, 2013
Time is flying. I’m sure you’ve already heard it at least a dozen times since you returned to your office last week: “It can’t be 2013 already, can it?” We seem to be living in an age of increasing -- and often overbearing -- nostalgia. I’d even argue that nostalgia can become debilitating. And in the case of the online advertising business, dangerous.
One of the biggest mistakes in business is the tendency for decision-makers to look back on the glory days of their respective industry and wonder: “How can we replicate that? How can we get back there?”
This is a question that wastes massive amounts of money. It can cost companies billions of dollars in lost opportunities, and ultimately, their ability to exist altogether. If you hear an executive say, “how can we get back to the time when things were better?” you know he/she is looking in the rearview mirror. It’s kind of like the way most of Congress longs for the U.S. economy before the 2008 recession. Or the way some baby boomers yearn for the perceived morality of 50 years ago. In these instances, their primary achievements seem to be wasting time and stalling progress.
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What we can never see in the rearview mirror, across all industries and examples like the aforementioned, is how much better the future can be than the past ever was. Let’s address something that seems to come up every day in the rapidly changing world of digital advertising: the fears of publishers about the threats to their sales forces.
Here’s what we (ad tech companies) often hear: “My CPMs used to be higher.” Or, “I made bigger margins back then than I do today.” Or, “I feel like my inventory isn’t being valued as the unique brand-enriching entity that it is.”
The next step in this routine is to blame exchanges for commoditizing everything and thus attacking the strength and power of publishers. Publishers want their sales staff to have the upper hand, and to be able to do all the schmoozing and wheeling and dealing that is within their authority. What they don’t realize now is that the best way to get more demand and to institute a fight over their inventory (and in turn, obtain higher CPMs), is to get more people bidding on their inventory.
If publishers make peace with the fact that exchanges are here to stay, then they can make peace with RTB as well. Once they do, they can see how their CPMs will remain competitive and even go higher. Trading on exchanges is a little bit like a stock going public. The whole purpose in going public is to get access to demand that you could never get otherwise. It’s the same in RTB.
Smaller advertisers in small U.S. cities know exactly who they want to target and will bid accordingly. There are millions of advertisers like this. And the sales forces at most premium publishers would never have called on them directly. Demand from exchanges represents the only path most publishers have to this demand.
Because a good market decreases the friction in transactions and increases demand, as the number of advertisers in RTB increases, a publisher is going to: 1) like the bid it sees; 2) like the fact that even a small advertiser is expressing this much tenacity in trying to obtain its inventory.
What’s the alternative for a publisher? If publishers try to dig in their heels and bypass the need to play on exchanges, don’t be surprised when you hear advertisers say: “That’s okay. We’ll try someone else. There’s almost no single publisher that’s a must have on my media plan.”
To answer the question “What’s the best way to monetize ad inventory?” -- let’s look in front of us, not in the rearview mirror.
If publishers aren't selling apples to apples units, how can that kind of comparison be made? While we definitely agree with programmatic buying, we have also introduced formats that can be sold by publishers for higher CPMs because they are high impact, not just display. These types of ads should continue to be sold by direct sales. So there's a place for more than one method at a time.
Jeff Green is one smart.cookie who tells the truth!
Jeff, agree with you that publishers need to embrace programmatic. I would add that it's not as simple as plug and play. Even if there are millions of advertisers buying on exchanges that a media sales force would otherwise not have access to, the fact is that the demand for these millions of advertisers is cached into a couple of dozen bidders and each auction will see only a handful of bids. While a publisher can definitely benefit from tapping into RTB demand, it needs to manage it carefully so that it complements and adds to the overall business.
I love the analogy of the IPO - the common analogy of "RTB is like HFT" is a pretty obvious one, but this is very poignant. Direct sales is like raising funding from VCs or angels where a manual process results in a lump of cash, but opening up to retail investors, or in the case of RTB as you mentioned the smaller demand sources results in better margins in much smaller chunks. I love it.
There is a strong element of throwing the baby away with the bathwater about this. There is absolutely nothing wrong with looking back, especially to success stories, rather than trying to destroy the evidence/sweep them under the carpet. Its a modern, foolish, and thoughtless trend to ignore the past, to assume everything about it must be wrong, old hat, old fashioned, you name it. Looking back often reminds us of what success looks like (as well as failure) - and a future strategised and formulated without recourse to the past is a strategy built on straw.
Its a typical article that might be written by a member of the new 'throwaway' society. Social in particular is struggling to be successful commercially, it won't make it better for social if we destroy past evidence so that it looks better.
Over the last 100 years, i wouldn't say social is the odds on favourite strategy to be top of the pops commercially. Many companies continue to do very well because they don't change for change's sake, and do all the things well that have always worked for them.
The reality is as a publisher you can have your cake and eat it to. The fear of sales disruption that holds impressions out of this channel quickly dissipates once testing starts. The biggest myth is that this channel disrupts direct sales. We've yet to see a publisher turn off new found demand because of this, yet it is the number one argument raised by those yet to consider it.
Hi Jeff, good article and certainly can't disagree with your core points here, though I think perhaps you've not given creedance to the concerns publishers have. The RTB marketplace is not yet operating as a truly efficient market with equal benefit to both sides. This is due to basic economics: Supply exceeds demand, and auction-based pricing combined with low bid density results in a market rife with arbitrage.
Buyers today are accustomed to drawing from a large commoditized pool of inventory, with the basis for valuation by the buy-side entirely opaque to the sell-side, broad demand truncated into singe bids by the DSP, and the majority of bids well below each bidder’s “true value.” As a result, publishers are reluctant to put premium inventory into the market without mechanisms to prevent auction prices from clearing at a fraction of the actual market value. In order for RTB to evolve, and be fully embraced by publishers, there must be balance in the market. We look forward to working with you in that effort!
Diego-
As an ecosystem, we need to move to a model that encourages DSP platforms to return more than a single advertiser in their bid response. This adds greater liquidity, ensures DSP bidders do not lose an impression opportunity to block lists, and most importantly, better informs the market value of a given opportunity.
-Doug
In RTB one buyer may be bidding on an impression because it is 'in market' and another is bidding on a completely different set of attributes. In reality, this means that each bidder, whose bid is driven by a different set of attributes than other bidders, is defining a unique demand curve. The auction collapses all of these demand curves into a single demand curve driven by the buyers informational advantage, thus enabling advertisers to bid down to the 'lowest common denominator' of price. When the buyer knows more than the seller, the seller always loses. In exchanges, information is power and power sets price. By moving premium inventory to a single-sided auction, publishers give up their informational advantage and pricing power.
The future is...near! The industry is progressing through the first phase of a 20-year transition-- first envisioned back in the 90s. The old/new models will co-exist for awhile, and fear will subside with experience and immense technology and data improvements when, around 2025+/-, virtually all media will be transacted electronically. In that environment, media buyers and ad reps can spend more time negotiating platform service packages (instead of space) over lunches, and expensed on generous T&E budgets freed-up by massive productivity gains. I think Steely Dan sums it up pretty well in I.G.Y. (Beautiful World) feel free to hum along: "A just machine to make big decisions; Programmed by fellows with compassion and vision; We'll be clean when their work is done; We'll be eternally free yes and eternally young." Ok, maybe that's a little too nostalgic.