The $4 billion figure is the value WPP puts on Xaxis, which was created by assembling components of 24/7 Real Media (acquired by WPP in 2007), WPP’s Media Innovation Group (founded by Lesser in 2008), various other assets built and acquired along the way, including a proprietary stake in AppNexus.
It is also derived from the fact that Xaxis currently generates nearly $1 billion in revenue and is growing fast.
In the following Q&A, Lesser explains the trajectory -- Xaxis' strategy for remaining differentiated and on top, and why it is focusing on the creme de la creme of the programmatic media marketplace. The interview begins with me spreading a series of collateral pieces pitching a multitude of Xaxis products and services that I picked up in the company’s lobby, and Lesser responding to my question: “How real and differentiated are they?”
Brian Lesser: [Pointing to the brochures.] Well, nobody has been at this longer than we have. We’ve got people here within Xaxis that literally invented different parts of these technologies along the way. We were the first company to develop a DMP, certainly on the agency side, which we launched in 2008. And that was the formation of the Media Innovation Group.
We are one of the biggest -- if not the biggest -- buyers in the marketplace. We will be close to $1 billion in spending this year.
MediaPost Weekend: And what do you estimate the entire marketplace is?
Lesser: Maybe $10 billion.
MW: So you’re one-tenth of the entire marketplace. Is that enough to have true visibility in the Wall Street sense of the word?
Lesser: The trick is that we don’t necessarily need visibility over the entire marketplace. We want visibility over the highest-quality inventory that exists within the marketplace.
Most of our throughput is on inventory that is not available in the open marketplace. I’ve said this many times, Xaxis is not a trading desk. If you were to compare us to Wall Street, we are more like a market-maker in that we understand the value of high quality inventory and because of our scale, on behalf of our clients, we are able to make bets on the highest-quality inventory, which drives performance.
MW: And you do it through open and closed marketplaces, where you can optimize your performance. Your goal is to deliver the best audience, in the best environments for your clients, for the most efficient price. So how do you define premium? Is it the environment of the publisher you are delivering an audience on? Is it the quality of the data you have about the user?
Lesser: It’s changed quite a bit with video. Within the display environment, the inventory itself still matters, and the placement of the ad still matters. But display is very quickly moving to be almost exclusively a direct-response channel, whereas awareness-driven advertising or brand advertising is migrating very quickly to video.
MW: So we have a lot of proxies for premium engagement now. The format of a digital ad -- video and very rich media experiences -- are a premium. A publisher's environment can be a premium? Data about the user can be a premium?
Lesser: Yes, but you can also argue that the creative itself is a proxy for premium engagement. But I think that’s right. The format is important, the environment is important, the audience you are directing the ad to is important. All of that has improved since the original auction.
MW: How much of the premium value of a format is novelty? That users simply have not seen before and there is an engagement factor because it’s new and it stands out. And do you worry that over time, there will be wear out with some of that?
Lesser: I don’t think it’s novelty so much as what is welcome by the consumer. We have purpose statement at Xaxis which is “making advertising welcome.” That’s why we come to work everyday. Sure there is some novelty. If you haven’t seen a format before it will draw your attention. But if you look at things like the rise of ad blocking, clearly the consumer is voicing an opinion, which is that much of advertising is clutter to them. It’s not targeted. It’s not relevant. And it’s getting in the way of content. We think we can improve upon that experience. Outstream is one example of that, because it is slightly less interruptive. It’s easy to avoid if the user doesn’t want to view the ad. Yes, it’s novel, but it’s more welcome to the consumer because it is just a more integral part of the content.
MW: So the main things are still relevance, clutter, not being annoying, and the quality of the ad experience? So how did you get to be the $4 billion man?
Lesser: We talk a lot about entrepreneurs in the ad tech space and how difficult it is to build a successful startup using venture capital in a very cluttered environment. What we don’t talk a lot about is how difficult it is to build a new programmatic business within a corporate environment like WPP. And I would argue that there has been more innovation that has come out of a company like Xaxis, and the agencies in general, than what has happened in very small segments of the venture-funded ad tech ecosystem.
Building a business from zero to $1 billion in revenue takes the power of the network -- the power of our colleagues in WPP and GroupM -- but you’re starting to see a separation between our principles and what we’ve accomplished at Xaxis and the programmatic alternatives at the other major agency holding companies.
They clearly took, in most cases, a trade desk approach, which was, “Let’s use third-party technology and build a discipline around how to use those tools.” Whereas, because we came out of ad tech, we always had the opinion that we need to build proprietary technology so that we’re not simply operating third-party tools, that we’re actually adding value around inventory trading, around data management, around technology.
MW: But you build, lease and buy to do that, right? You invested in AppNexus. You’ve made some other acquisitions. But if your client tells you they want you to use another third-party’s data platform, you’re going to use that platform, right?
Lesser: Yes, in most cases. But we have strong opinions when it comes to technology. At the GroupM level, GroupM is technology agnostic. Xaxis is not technology agnostic. We are oriented in a different way than an agency is. We are a programmatic media company. We are not a trade desk. We are not an agency. And our orientation toward the market is, how do we create media products that can be sold to advertisers that have unique formats, and unique data and unique inventory. So in a sense that we’re not trying to be an agency and we’re not trying to be a trade desk, we can have strong opinions on technology and we can not only take positions in media, but we can take positions companies. And we think that AppNexus is the best independent, end-to-end, ad tech stack. But they are not our only partner.
MW: But if a client wants you to partner with another DSP, you’ll do that, right?
Lesser: We will, but it would have to be for a good reason, because we are not an agency. If a client came to us and said, “Hey, you must use XYZ,” first we’d have to understand why. And unlike an agency that would say, “Okay, great, we’ll do it,” we would have to really understand what the value was.
MW: In order to live up to your ethos of making advertising welcome, you have to use technology the way you think it should be used?
Lesser: Obviously, our biggest responsibility is to our advertisers. But we also fundamentally think we also have a responsibility to the consumer. If we’re irresponsible in how we use these technologies, the consumer will rebel and it becomes an untenable situation where content becomes at risk.
MW: [WPP Chairman-CEO] Sir Martin Sorrell gave an interview recently where he talked about your agnosticism vs. Facebook and Google. But he was talking about WPP, not Xaxis per se, because you are not agnostic.
Lesser: It’s interesting, because we’re almost in a situation where we are back to the future with respect to walled gardens. The promise of programmatic advertising was to break down the walled gardens. Programmatic advertising -- DSPs, exchanges, etc. -- enabled an advertiser to access all inventory with all data through whatever platform they chose. And that has led to the growth of programmatic over the last 10 years.
Now we’re faced with a situation where, because mobile has become such a significant part of the market, and cookies are not nearly as effective in mobile inventory as they are within desktop inventory, that we’re starting to see Google and Facebook associating their user identities with their own inventory and with their own technology. That’s led to a walled garden environment in which advertisers are now faced with the prospect of having to use multiple technologies to access different sources of inventory. And we think that’s ultimately very bad for advertisers and goes against the principles of programmatic in the first place.
MW: Aren’t Google and Facebook really associating their IDs with their own inventory and using it to extend their reach with other people’s inventory? When Facebook builds a mobile ad network, it’s because they have that ID and they can create value by associating it with unsold impressions of app marketers. So how do you do it? And why is it better?
Lesser: Well, the position we take at Xaxis is that we have our own technology partners and we want to access inventory from all sources, but we package that into Xaxis-branded products.
So we’re not a walled garden in that we can access any and all inventory. We can also access any and all data. But we are different than an agency in that we are taking positions on inventory and we are using our own data and judgement to create what are more valuable products than what would be available just through a DSP or a trading desk.
MW: What proportion of your business is based on you taking that position? Of that $1 billion you buy, what percentage is your revenue?
Lesser: It’s the same thing. This year, we will do about $950 million in revenue. And because we are not an agency, for the purposes of our income statement, our revenue is our billings. That’s not WPP-wide, that’s specific to Xaxis. So what proportion of traded in that manner? About 60% is traded that way.
MW: So 60% of your revenue comes from taking a position in the market? Wow. Has that been growing over time, about the same or is it trending downward?
Lesser: I would say it’s been growing. It’s different by region. Europe has a slightly different profile than North America, which has a slightly different profile than Asia-Pacific. But generally speaking, in more advanced and sophisticated markets, we’re more likely to be taking positions on inventory. And in newer and more emerging markets, we’re more likely to be buying on open exchanges.
MW: So it’s an indication that you must be smarter than the rest of the market if you are making more of your business that way?
Lesser: Yes, but ultimately, we are based on performance. The great thing about Xaxis from a performance standpoint is that advertisers are not obligated to use us whatsoever. We go on a media plan alongside lots of competitors and if we perform, we stay there or grow. And if we don’t we go off. We have to perform, which means if we’re going to take a forward position on inventory it has to be with the express purpose of delivering a better audience and better performance for everyone involved. And that’s very measurable.
MW: Has there ever been an independent audit to show how different trading desks or firms like Xaxis perform. Do media auditors go into that?
Lesser: I think media auditors are starting to delve into programmatic. I would say there has been a lot of focus on the price that advertisers pay and the price the publishers eventually yield, which is a worthwhile cause, but what advertisers are really concerned about is, what is the KPI, and is the partner delivering against that KPI.
We would welcome an audit on that, but it’s really audited with the agencies that work with us.
MW: I didn’t mean that from a trust point-of-view, so much as a benchmark. How do we back up your claims that Xaxis performs better. Obviously, if your business is growing and more clients are working with you, it must be working for them.
But speaking of trust, a lot of clients are looking at that. They have begun to take programmatic in-house too. What’s your view on that and what’s your argument against clients bringing it in-house?
Lesser: In pockets it makes sense for clients to manage this. But I think there’s a difference between clients owning their technology relationship and owning their data, and actually running these businesses in-house.
I don’t think we’re ever going to see a time when a major consumer products manufacturer is expert in every aspect of programmatic media -- from display to video to social and mobile to, eventually, TV. I know it’s a trend, but I think there’s always a temptation whenever a new medium or channel is invented for a client to try and bring it in-house to not only save money, but to gain intelligence. But I think in this case it is going to be a very short-lived trend, because programmatic is such a small part of the overall market right now. If you include TV, it’s well under 5% of what’s available from an impression standpoint. But very rapidly it’s going to be the majority of the market. And the complications that exist within display advertising will be magnified by every other channel that comes in: social, mobile, video, etc. And once an advertiser wants to manage that across multiple markets and regions, it gets magnified again. The world’s largest advertisers are going to need partners in this, but I do think some aspects of it can be in-sourced. But as all media becomes digital and as all digital becomes programmatic, they are going to need partners to help manage it.
MW: All media?
Lesser: I think it is only a matter of time before all media is traded programmatically. If we trade display and mobile this way, why wouldn’t we trade everything this way?
MW: The other part of what you’re alluding to is that while clients may not need or want to become expert on all the technology involved, they definitely want to become experts on the audiences they are trading through it. What many of them fear, whether it is reasonable or not, is that there will be data leakage, that their insights won’t be protected, and that other people will be able to leverage their data.
Lesser: I think there’s a difference between owning your own data and managing your media buys. I think advertisers would be crazy not to own their own data, build a DMP and understand their interaction between their first-party data and their media data, their Salesforce data, their CRM data. Those are all very healthy and good trends, it’s just that when you ingest all that data, obviously it needs to be normalized against an audience and you want to magnify that audience and then you want to go into the marketplace and try to find that audience. I think that activation of the data can be simple. For example, if it’s first-party data activated against exchange-traded media. That’s relatively simple to do. But when it comes to more sophisticated markets like video or TV, you need an expert to activate it.
MW: Why do you do that better than anyone else?
Lesser: In an environment where there’s scarcity of quality inventory, it helps to be an aggregator of demand. It means that we can take forward positions on inventory and reserve quality inventory for our clients. The second thing is that because it’s not just the impression itself, but the environment it’s in, the format and the creative, it can be very complicated to put those things together in a way that performs for the advertiser but also is engaging for the user. There’s a trading aspect to this, but there’s also a technical implementation aspect to it. Analytics is also extremely important us. We have a full data science and analytics team that can glean insights from the data and feed it back to the advertiser so they can expand their audience. And we also have a much more global view of things. Everything we’ve just talked about is different in every part of the world. Having that global perspective really helps global advertisers.
The one thing everyone likes to talk about right now is “quality” and “transparency.” Because we have that scale, we can ensure that the inventory is high quality and we can be transparent about where the inventory is coming from. We have the highest standard in the world around viewability. And we have the highest standard in the world around non-human traffic. It’s those complications that make us very good at what we do. Our business will continue to grow, because things aren’t likely to get less complicated. They will only get more complicated, especially as we move aggressively into TV.
MW: My favorite industry buzzword is “premium,” because it’s the one that can differ the most depending on whether you are speaking to a buyer or a seller of media. It means different things to different people. I love that you have a taxonomy for what constitutes “premium.” But the truth is it will always be a moving target depending on what the advertiser wants to achieve. How do you codify that? And to the extent you can, aren’t you codifying it around the things Xaxis can do best?
Lesser: There are limits. Somebody asked me recently if Xaxis was going to make an acquisition in the viewability space, and the answer is no, because we don’t want to be in a position of grading our own homework. In viewability, there already are standards -- there’s AIS, there’s Moat and there’s DoubleVerify. You can argue whether those are good standards or bad standards based on your point of view. I think those standards are going to improve dramatically and we’re held to those standards.But if the question is whether we are going to coalesce around the things we are good at, the answer is yes.