Commentary

Verizon's Spending Spree Signals Death To The Ad Ecosystem

A lot has been said about the bloated nature of the ad-tech ecosystem, the vast number of middle-men that add questionable value, and the opaque nature of digital media buying.

However, the biggest problem is the way that digital advertising technology companies make their money. In our current phase of digital advertising, brands have allowed agencies to manage IT for them using their media budget, treating companies as diverse as video ad servers, viewability vendors and data management platforms as “inventory” providers.

Everyone involved uses volume-based pricing and has an incentive to spend the advertiser’s money inefficiently across many small players. Digital advertising today is lucrative for agencies and vendors, but costly and damaging for advertisers. This won’t last.

Verizon’s recent series of digital media acquisitions including AOL, Microsoft and now Millennial Media, sheds light onto the potential future of media buying. As technologies and publishers consolidate under a few large players, their business models will change to work objectively for advertisers and publishers using a much more transparent and profitable (for advertisers and publishers) model.

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In this future, giant publisher conglomerates will work directly with advertisers and agencies, which will no longer rely on a sea of overpriced opaque point solutions that profit from volume rather than value. Instead, they’ll select one or two key platforms that operate like any other SaaS market.

The Rise of the Uber Ad Platform

The brand and the publisher benefit when media transactions are consolidated, letting them optimize objectively and transparently. For example, MediaOcean is a platform that many brands and agencies rely on to process the lion’s share of their media planning and buying.

It’s easy to imagine a day when MediaOcean is also plugged directly into publisher conglomerates like Verizon to facilitate media buys across channels, having either absorbed or replaced DSPs.

While they recently announced a partnership with MOAT, a viewability vendor, it’s likely that viewability will be a built-in feature of such a platform. Similarly, there is no reason why a third-party vendor like Ad-Slot should manage, say, automated guaranteed media buying separately from direct buys or programmatic buys. This, too, could be facilitated by a platform like MediaOcean, which would be plugged directly into the big publisher systems.

Plus, if the technology companies charge brands a license fee instead of a volume-based tax, buyers no longer have an incentive to drive volume to low quality inventory across thousands of no-name websites and premium publishers no longer have an incentive to access that inventory to make an extra buck.

And as publisher tech and content consolidates, vendors that cater to the buy side have already started to change their business models. AudienceScience is a DSP/DMP that works like a traditional SaaS platform rather than sucking margin from media budgets. Similarly, AdYapper, a viewability solution, has removed itself from the ad-tech ecosystem and charges a flat fee direct to brands only.

Data Consolidation Benefits Advertisers and Publishers

Companies as diverse as Adobe, ComScore and Comcast have acquired DMPs and other data providers, preferring to work directly with brands and publishers to consolidate audience data at the source.

As TV, digital and mobile converge, there will be yet more consolidation of the data technology that brands use, for example with internal CRM systems. This is the ultimate status quo, where brands rely on only a few large external data technologies and preside over a huge database of first, second and third party data in-house.

When marketers are back to managing their own data with in-house technology, the currently corrupt pricing structure of that entire part of the industry will be changed for the better.

Consolidation is the Path to Convergence

In a recent panel about cross channel media, Irwin Gotleib, Global Chairman of Group M, said that “the next seven years is all about systems integration.” In other words, for advertisers to actually be able to reach the right audience on any screen, at any time with the right message, a lot of very disparate technologies need to work together.

By far the easiest way for this to happen is if several large players on both the buy and sell side consolidate the most valuable point solutions across display, video, mobile and TV. Just like with ERP and CRM before it, true Ad-Tech platforms will then offer comparable, comprehensive solutions that can be managed by traditional IT channels rather than stuffed wastefully into the media budget.

 

7 comments about "Verizon's Spending Spree Signals Death To The Ad Ecosystem".
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  1. Ed Papazian from Media Dynamics Inc, August 4, 2015 at 9:31 a.m.

    One question. If a number of large players consolidate the availability of media across all channels and platforms, this is going to benefit advertisers by enabling them to reach their audience targets at the right time, with the right message, etc. presumably at the lowest cost? But what happens if these emerging monopolies start to demand higher ad rates per user/viewer/reader/listener than would have been paid under the old, fragmented system? Or is it a given that this scenario just wont happen?

  2. James Smith from J. R. Smith Group, August 4, 2015 at 11:43 a.m.

    Ed, several questions related to this topic.  Isn't the fragmented system we now have costing buyers more time (with implication that time is worth money) than could be experienced in some form of oligarchy of platform players?  Wouldn't there be significant savings somewhere along the chain if there were more consolidation?  Certainly this makes ATT a very "large" player but there are a number of other congloms out there and a very large pie to slice.   Jim

  3. Paula Lynn from Who Else Unlimited, August 4, 2015 at 12:17 p.m.

    For sure, the present buying and selling of media system won't last a lifetime. But for humongeous conglomerates to take charge, it is sure as climate change, transparency will never be and whatever there is, it will get more like an impenatrible vault. They will have all of their (plus others) consumer information and they will be able to dictate what you see, hear, say and opine. What type of people do you want to have that power ? "We are begging to be controlled."

  4. Lorne Brown from Operative, August 4, 2015 at 1:01 p.m.

    My sense is there will always be enough new quality publishers to create competition (think BuzzFeed, Vox, Vice, etc), but that more money will flow directly to pubs and less to ad tech.  Consolidation is coming and companies like ATT/Direct, Comcast, Facebook & Verizon/AOL are now in the lead.  For media companies, working with these companies as partners is a good thing (or at least a better thing!).  Not unlike the cable / programmer relationships that kept the TV model successful all these years.  They have a vested interest in their partner's success in creating great content.  Data simply becomes a new currency in that relationship & I believe consumers will get more relevant advertising.

  5. Ed Papazian from Media Dynamics Inc, August 4, 2015 at 1:34 p.m.

    James, to your question about the buyers having to deal with many fewer sellers under the new system, let's take national TV as an example. At present, a buying group handling a corporate multi-brand upfront buy would have to negotiate with five broadcast networks, perhaps a dozen syndicators and upwards of 65-70 cable channels, however the latter are grouped under corporate umbrelleas like Disney, NBC, Turner and Discovery so, in reality the number of actual entities one deals with is much smaller than it  appears. The same is true of magazines, with major comglomerates like Hearst,  Meredith, Time Inc and Conde Nast all handling their sales via corporate staffs, across titles.

    So, to answer you question, no, I dont think that the number of national media options that buyers must deal with is so overwhelming that the buyers' efficiency is compromised, that really great buys are missed or that this hurts agency clients in a major way. What might really hurt---and this is merely speculation ----are the likely effects of virtual monopoly situations, with two or three major cross media giants to deal with, instead of the more fragmented marketplace we have today. I have always believed that competition between media creates a better situation for the client, because the buyer can walk away from unreasonable pricing and negotiate more aggressively for more perks, value added enhancements, etc. I doubt this would be the case in the scenario depicted in this piece.

  6. Chris Williams from self-employed, August 5, 2015 at 10:46 a.m.

    With a number of cross channel media congolmerates the media planning process may move into the publisher realm. If this is the case Publishers would be briefed on desired outcomes and left up to them to sort out which platforms/formats/vehicles work best within their ecosystem. This could cut off the data leakage to outside parties. Alternatively the advertisers data-set could become powerful enough that they decide not to share their data with anyone. Here the possibility is that advertisers buy what they buy but no one else knows what drives the buying decision nor what value it has to them. Data asymetry puts the publisher in tough situation. This is more likely since the advertiser owns the algorithm that attributes exposure and success. They can move agencies and publishers but the algorithm and the tech that delivers it stays with them.

  7. Ed Papazian from Media Dynamics Inc, August 5, 2015 at 12:59 p.m.

    Chris, assuming that the few giant cross media conglomerates have national TV, spot TV, radio, magazines out-of-home and newspapers as well as digital in their portfolios, are you seriously suggesting that the advertiser will turn over its media mix/selection process to the seller and let the latter decide what elements in its stable of media options best fulfill the advertiser's data-driven objectives? That's an incredible leap. Why not have the media conglomerate also decide what the advertiser's ads should say---based on "data", of course, and determine how effective the message will be in print, TV radio and/or digital media?

    All of this talk about "data" continues to fascinate me. Are we talking about the great pipe dream of merging "big data" TV set usage information with "third party" marketing data, them mashing the resulting product usage indices onto Nielsen's "small data" so that so-called "programmatic trading desks" can scan all possible TV options and deliver the most targeted impressions per dollar, etc. etc.? And, if all the advertiser wants is to generate targeted impressions at the most efficient rate---without regard to any other considerations, like reach, merchandiseability, editorial compatibility, etc. and the data tells us that out-of- home does this more efficiently than TV, which is what the advertiser has been using and feels comfortable with, can you imagine that any advertiser will slash its TV budget and go whole hog into out-of-home----just because the big media conglomerate decides that that's the way to go?

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