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The "Dynamic Allocation" Feature Within DFP / DART Is Not Yield Optimization

Google wrote a whitepaper a couple months ago called Profiting from Non-Guaranteed
Advertising: The Value of Dynamic Allocation & Auction Pricing for Online Publishers, which describes the benefits of the "Dynamic Allocation" feature built within DART/DFP. Dynamic Allocation is a mechanism for (a) opening a publisher's non-guaranteed ad inventory to the DoubleClick Ad Exchange (Ad Ex), and (b) giving Ad Ex the right of first refusal on that inventory.

I understand Dynamic Allocation works like this. When publishers book a non-guaranteed campaign into DFP (meaning they have not guaranteed a fixed number of impressions), they can check the Dynamic Allocation box. Then, any time that campaign is selected by DFP for display to an end-user, DFP will first check with Ad Ex to see if it can beat the CPM value entered for that campaign -- if Ad Ex can beat it, then the Ad Ex campaign will trump the campaign that the publisher booked.

The problem is that DFP uses a random selection algorithm. DFP, like all other ad servers, is designed to deliver guaranteed campaigns (meaning a fixed number of impressions to be delivered within a set timeframe, at a set CPM rate), not non-guaranteed campaigns. DFP's decision-making process with regard to which non-guaranteed campaign to serve, is random -- not based on yield (revenue to the publisher).

"Ad servers like DFP have some variability in how they meet impression delivery goals, rotating other ads sold by the direct sales force on a non-guaranteed basis into a particular ad slot in order to maintain a steady rate of delivery for the guaranteed ads. Instead of randomly rotating other ads into an ad slot, DoubleClick Ad Exchange uses Dynamic Allocation, rotating in higher-paying ads from ad networks and other third-party media buyers when the net CPM they provide to the publisher is higher than what has been booked directly into the ad server."

Why is this important? Because without yield optimization in the ad server itself, Ad Ex doesn't have to offer the most competitive price every time in order to win the impression. Which means that Dynamic Allocation often costs the publisher revenue instead of making it more.

I'll back this up with an example. Let's say Publisher.com has 4 non-guaranteed campaigns booked within their DFP ad server in the same tier, and the expected CPM rates for those campaigns are:

Campaign	Expected CPM
Campaign 1	$.50
Campaign 2	$.60
Campaign 3	$.85
Campaign 4	$1.20

In its effort to deliver guaranteed campaigns on an even basis, DFP will draw randomly from these 4 non-guaranteed campaigns. 25% of the time it will select Campaign 1, at which point Ad Ex only needs a $.51 bid to win the impression, even though Campaign 2, 3 or 4 would have made Publisher.com more money. If Publisher.com's ad server optimized for yield, then that would mean the highest paying campaign would serve every time. (For simplicity sake, I'm ignoring other campaign attributes that may limit delivery -- such as geo-targeting, frequency caps, etc.)

Google's whitepaper is clever and convincing, but don't be fooled. While Ad Ex (or any auction for that matter) allows the highest bidder to win, the fact that DFP isn't selecting the highest-paying campaign every time means that publishers utilizing Dynamic Allocation are leaving money on the table. They need true yield optimization instead.

(The above observations/opinions are my own, and do not necessarily reflect  those of my employer.)

How Effective are Groupon Promotions for Businesses?

Just read How Effective Are Groupon Promotions for Businesses, which was a survey-based study of 150 businesses that ran and completed Groupon promotions between June 2009 and August 2010. (If you don't know what Groupon is, skip to the end.) Below are my key takeaways:

1. The key factor contributing to whether Groupon worked for the small businesses (as measured by profitability of the promotion) was employee satisfaction within the small business. (Happy employees is good businesses ... whoda thunk?!)
2. Restaurants appear particularly susceptible to negative outcomes; spas appear particularly susceptible to positive outcomes.
3. 42% of the business would not run Groupon promotions again, even though 66% of them thought it to be a profitable promotion.  ("There is widespread recognition among many business owners that social promotion users are not the relational customers that they had hoped for or the ones that are necessary for their business’ long-term success.")
4. Groupon competition will be tough. "Based on our study’s responses, the news for Groupon’s competitors appears to be decidedly bleak ... few respondents had positive things to say about other social promotion sites."
5. Social couponing is in its early days yet, with innovation likely necessary. "Although the majority of Groupon users are satisfied and intend to run another Groupon promotion, an industry in which two in five customers are hesitant after a first purchase, and where the customer base is a relatively limited pool of small businesses with strongly interconnected social networks that could quickly spread news of dissatisfactory results, may need to modify its overall strategy."

For those unfamiliar with the Groupon model, the study describes it succinctly:

Marketing circles have been abuzz in recent months with the sky-rocketing popularity of social promotion sites. At present, Groupon is perhaps the best known and certainly the largest one of these sites. It features a daily deal for each city it operates in, offering consumers a significant discount for a local business or event, such as $40 worth of sushi for $20, or a $175 facial at a spa for $59. Consumers buying the Groupon must pay its price upfront, and then have a certain amount of time, up to a year, to redeem it at the business. Groupon promotions have a social aspect. Each promotion is valid only if a certain minimum number of consumers – pre-specified by the business – purchase the deal.

Google's 7 Predictions for Display Advertising Market by 2015

Google'sVP of Product Mgmt (Neal Mohan) and Managing Director of Media/Platforms (Barry Salzman) presented at IAB's MIXX conference in NY this week, laying out 7 of their predictions for how the display advertising market will look by 2015. I caught it all via Twitter in real-time but MediaPost summarizes it best:

Google's Seven Predictions By 2015:

1) 50% of online ads will have video in them and be bought on a cost-per-view basis. Today, 24 hours of video content are uploaded to YouTube each minute. Google Tuesday officially launched two YouTube video formats, TrueView, based on a cost-per-view advertising model after dabbling in it for nearly a year. This means advertisers only pay when consumers chose to watch the advertisement. TrueView will roll out later this year.

2) 50% of all display advertising targeted to a specific audience will rely on real-time bidding.

3) Mobile will become the No. 1 screen for advertising. The mobile screen will become the first screen that consumers go to on a variety of mobile devices.

4) Five new metrics will emerge to measure the success of ad campaigns. They will become more successful and important. Some exist already: engagement and interaction rates in rich media, video view, and impact on Web search results. Others might include sentiment analysis to measure the viral influence and the tone of consumer chatter about the brand across the Internet. Or, measure foot traffic into the store through geo-based technology.

5) 75% of ads will become socially enabled. In the long term, all ads will become social as the industry moves to an always-on communication.

6) 50% of brand campaigns will run rich media in the ads, up from 6% during the last year.

7) Display advertising will become a $50 billion industry. Google advertisers have increased the amount they spend annually with the technology company about 75% during the last year.

The anniversary of Jerry Garcia's death. RIP Jerry.

15 years ago today, August 9th, 1995 is when Jerry Garcia died. I still remember the day as if it were yesterday. An incredible musician, and an unparalleled guitar player. May he rest in peace!

Silversun Pickups Photos

Saw Silversun Pickups last Saturday at the Paramount in Seattle. Wasn't going to go actually, since there were no floor "general admission" tickets for sale and I hate being limited to a seat when listening to kick-ass live music, but Craigslist came thru and I scored front row on the first upper deck. Thought that'd be especially cool for taking some pics, and I was not mistaken! (My camera bad also served as a convenient "hide-a-water" since they didn't allow drinks in.) I didn't limit myself to the upper deck however ... midway through I sneaked onto the floor!

Click on any of the pics for a larger version ...

   

Some perspective on the CDD's recent complaint to the FTC

Yesterday I received a very interesting and amusing set of slides from Bennet Kelley, Internet Law Center, which he labeled as quick facts regarding the recent complaint sent to the Federal Trade Commission (FTC) from Jeff Chester and the Center for Digital Democracy (CDD), urging the FTC to investigate the threat to online consumer privacy within the real-time data-targeting auction and exchange marketplace.

Quick Facts Re: CDD's FTC Complaint

Video of me being interviewed by WebProNews on FTC regulation

Immediately following the panel I participated in at SXSW this year (titled "Smackdown: Consumer Privacy vs. Advertiser Revenue"), I was interviewed by WebProNews on the subject of FTC's consideration of regulating the online advertising industry. Here's the interview ...

NAI Research Study Validates Effectiveness of AudienceTargeted Advertising

The Network Advertising Initiative (NAI) released a study today called "The Value of Behavioral Targeting" -- derived from explicit data from 12 ad networks, including nine of the top 15 ad networks by total unique visitors according to comScore's December 2009 rankings. These ad networks shared their average CPM rates and conversion rates for run-of-network, behaviorally targeted and basic retargeted advertising. Click the image below to view a larger image ....

They reach 3 important conclusions:

• average CPM for behaviorally targeted advertising is just over twice the average CPM for run of network (RON) advertising.
• behaviorally targeted advertising converts better -- more than twice the rate for RON advertising.
• since ad networks get their inventory from Web content and services providers, this makes BT an important source of revenue for publishers as well as ad networks.

Not sure I'd fully agree with that last point -- it's depends entirely on how ad networks are working with publishers. Most of these ad networks are buying as cheaply as they can still, through auction-based ad exchanges and such where they benefit from the fact that supply is greater than demand. This results in an imbalance in the online advertising marketplace, where publishers are actually at a disadvantage. The publishers working with the Rubicon Project though are in fact seeing higher CPMs as a result of audience targeting.

See the full study here.

Restoring Balance to the Online Advertising Market

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.

How Search Engines Limit Ad Inventory to Optimize Revenues

In classic supply and demand analysis, increased supply will result in reduced prices and decreased supply in increased prices -- at any given level of demand. Similarly, at any given level of supply increased demand will result in higher prices and decreased demand in lower prices. This is why CPC rates for search campaigns have become so damn high -- demand is high, and supply is being limited.

The reasonable question is "if search engines want to make the most money, then why not always list 10 ads on every search engine results page?" I always knew that the search engines (well, Google anyway) used scarcity tactics to make the most money, but I'd never actually done the math. It seems Brad Libby at The Search Agents has. You should really check out his post for the details, but here's the punchline:

Note how in his model, search engines maximize clicks with 3 ads yet optimize revenues with only 2 ads.