MetaMuse

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.