The evolution of the online advertising ecosystem has put the publisher at a disadvantage, and unless they do something about it the balance in the marketplace will continue to strongly favor the buy-side (agencies, advertisers, DSPs, etc.), publishers’ inventory will continue to be commoditized, and their CPMs and revenues will increasingly erode.
There are a few key evolutionary components on the buy side contributing to all this:
- Increased focus on audience – inventory is now valued NOT on content/context alone. The value of each impression is now based on the audience value (what is known about each user) as well as the placement value (site, section, size, context, content, session queue, etc.).
- Increased use of auction-based pricing – the supply of online advertising inventory is greater than the demand for inventory, which means that an auction-based pricing mechanism (particularly 2nd price auctions) is certain to yield the lowest price. This makes auction-based ad exchanges more advantageous to buyers than sellers. Compounding this problem is the fact that every auction-based exchange enables buyers to bring their own data, and essentially bid for high-value users/impressions at commodity prices even further below market value. In financial exchanges this is called “insider trading” and there are laws against it!
- Heavy investment in data – agencies and ad networks have been investing heavily in audience data, being the largest customers/consumers of the 3rd party data provider market. They know more about publishers’ audiences than publishers. But it’s not only audience data they’re collecting, they are also harvesting click-stream data, conversion data, and pricing data which, combined with demand-side platforms (DSPs) and auction-based exchanges, allows them to leverage a virtuous cycle of improvement.
- Development of demand-side platforms and RTB – demand-side platforms (DSPs) allow agencies to leverage sophisticated algorithms and data to scale AND optimize their buys across exchanges and other marketplaces, essentially treating all inventory as one commoditized pool and allowing them to cherry-pick the impressions that work best for them while ensuring the lowest price. Real-time bidding adds real-time decision-making (theoretically) to the process, not only putting agencies in the position to optimize faster but also to collect valuable click-stream data and pricing intelligence on their users.
The net net is that the buy-side, over the last year and clearly in its current evolutionary path, is in a position to know exactly the audience they need to reach, then buy that audience at rates significantly below market, simultaneously selling at a higher price. This is arbitrage, and arbitrage is bad for publishers -- arbitrage protection should be an important component to every publisher’s online advertising strategy. But most importantly, this puts the buy-side at an advantage in the marketplace, to the detriment of publishers.
So how can balance be restored?
First of all, publishers need to keep their inventory out of the exchanges – the arbitrage marketplaces – until/unless they have the right tools to minimally help them:
- Manage their sales channels tightly, with effective controls to make sure their revenue sources aren’t cutting off their direct sales opportunities,
- Safeguard their audience data , preventing data leakage and not letting revenue sources build their data war chest without publisher approval and remuneration, and
- Protect against arbitrage, by not providing demand partners access to high-value users unless they pay accordingly.
Second of all, publishers need to reconsider their vendors and tools – they could start by making sure these people are focused on them and not the buy-side! When you really take a look at the online advertising tools publishers have available to them, those vendors are not helping the publishers combat these issues. Certainly not the content management systems. Nor the Web analytics companies. The logical choice is the ad server – but the ad servers of today have not evolved to keep pace with the evolution on the demand-side. That’s why my company recently made a bold statement that the “ad server is dead”. Perhaps it’s even more bold to say that by not evolving, the ad server is killing publishers, and even exacerbating the problems in the space (for instance, by making the ad exchange a feature of the ad server).
I’ve been asked “so what’s revolutionary about the Rubicon Project” (the company I work for). Well, we’re working hard to bring balance back to the market place, by restoring power to the publishers with tools that allow them to federate, sell more effectively and fight commoditization, arbitrage, malware, etc. That’s what makes this a revolution, not an evolution – the evolution is what’s causing publishers to suffer today. We are fundamentally changing the power of the publisher in the marketplace, by offering a publisher platform that helps them fight the current evolutionary direction of the market.