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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.)

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.

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

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.

Online Publishers: Fire Your Ad Sales Team, or Google – You Can’t Have Both

This is a wake-up call for online publishers – if you work with Google in any capacity, just go ahead and fire your ad sales team – your team is selling against Google and guess who’s winning? You might as well just bend over and give Google 100% control over your inventory and revenue generation. If however you want to support your ad sales team, and not put the fate of your business in Google’s hands, then fire Google … immediately and completely. You can’t have both.

I was just looking at Google's new DoubleClick Ad Planner – which provides end-to-end planning, buying, serving and measurement of display ads across the Web. The stated mission of DoubleClick Ad Planner is to provide the deepest, most accurate insight into online audiences possible, helping display advertisers select the best sites for their media plans, and buy those placements through the Google Content Network and Ad Exchange.

So here's the problem. If you’re a publisher with any ad inventory available to Google, then that advertiser or agency you’re trying to close now at a $10 CPM rate can access your inventory for less through Google – and you’ll get some unknown % of that (recall that Google does not disclose their take). Even if you’re working with Google on a “blind” basis, Google is helping advertisers and agencies reach your audience – all they need to do is type in your site and Google will provide them with a media plan to reach that same audience, based on a “Comp Index”. Google knows more about your audience than you do, and is using that knowledge to sell against you.

And the worst part is that it’s you the online publisher that continues to feed the Google beast, and put yourself at a disadvantage in the marketplace! You optimize your content for their index, place their numerous tracking tags (AdSense, Analytics, AdManager, DoubleClick, FriendConnect, YouTube, etc.) over 88.4% of the Web, and grant Google 100% of the information rights. This has allowed them to build a massive set of data on your site and your audience, and use it to fuel their direct sales efforts.  Not only are you NOT being remunerated for all this valuable audience data you're giving to them, NONE of it is available to you for your own direct sales efforts!

If you’re working with Google today, you’ve helped to improve their position in the market to the detriment of your own. So either fire your direct sales team and suckle at the teet of Google … or fire Google, join the REVVolution, and give your direct sales team the support they deserve. But you can't do both.

Power to the publishers.

Ad Exchanges are NOT Like Financial Exchanges

It seems everyone offering an ad exchange would have you believe that ad exchanges are like stock exchanges.  Right Media initiated the flawed comparison back in 2005, ContextWeb named their exchange ADSDAQ in 2007 (missing “NASDAQ” by one letter), and Google continues the comparison today. Certainly the comparison serves a marketing purpose – it conveys a proven model, market efficiency, standardization of the goods transacted, and fairness for all. But ad exchanges are NOT like stock exchanges.

Long before the concept of the “ad exchange” came around, there were other companies (ad networks, marketplaces, etc.) aggregating publisher inventory and advertiser demand. The biggest difference with exchanges though, hence the comparison to the stock exchange, was that their buy/sell model was based on an auction and a winning bidder – every buyer supposedly competes on the same basis for a given impression, just as buyers compete on the same basis for a given financial commodity. This model for buying and selling however is the only resemblance to a stock exchange – it ends there.

When you buy a share of stock on the NASDAQ or NYSE, you know exactly what you’re getting. You have access to the same standardized information about that share of stock as everyone else, upon which to form your own opinion or analysis, and the attributes of that stock are transparent and standardized. It’s on that basis of standardization that stock exchanges have become truly efficient market places. Any transactions based on non-public and privileged information are considered “insider trading”, illegal and economically detrimental.

In contrast, ad exchanges provide very little transparency or standardized information to what you’re actually buying – they simply offer ad inventory by the tonnage through an auction model and cookie retargeting. As a result, buyers are (by design) required to bring their own data to the table. This basically means ad exchanges as they exist today are built on “insider trading” principles and arbitrage – where the winning bids are by buyers who take advantage of market imbalances. These market imbalances allow them to buy the inventory at a price lower than what it’s truly worth. This of course works well for the buyers, but not so well for the sellers whose inventory is being undervalued. The greater the market imbalance, the greater the opportunity cost for the seller.

The imbalance revolves around DATA – all the attributes of the user and impression that increase market value. The more information available, the more potential value in the market place. As Rob Leathern from CPM Advisors points out in a recent AdExchanger blog post:

Despite people talking about how advertising online is data-driven, there is not a lot of good, clean data for buyers or sellers. Bits and pieces of data about a user and ad inventory are everywhere but publisher practices vary … Advertisers, agencies and buyers need to know more about inventory in a standardized, systematic, scalable way and for that to happen, this information needs to be created at the publisher end and retained throughout the buying process whether that is direct, via a marketplace or through an ad network … The more information that is available about an impression, the greater the chance I can make a good decision whether or not to buy it …”

Rob is speaking of course on behalf of buyers. The fragmentation of data, combined with a lack of standardization, makes his job harder. But data fragmentation also makes the seller’s job harder too, and with greater monetary consequences. Exchanges are in a position to level the informational playing field for all and become truly comparable to stock exchanges, yet they continue to separate information from media. Could it be because the exchanges are owned by the same companies that have the most data about each of us, the greatest number of advertisers, and therefore the most to gain from insider trading?

Until exchanges empower publishers with the tools, data and transparency they need to properly value and leverage their inventory in the market, they’re only encouraging the insider traders and arbitrageurs, further shifting the balance of power away from publishers. If exchanges continue to support the current one-sided model, their cost to publishers will exceed the benefit, and the comparison with stock exchanges will be but continued rhetoric.

How Data is Revolutionizing Advertising

I'm serving on an interesting panel October 29th in NY to discuss how targeting data is revolutionizing the concept of “audience buying” and fueling better performance for advertisers. Really good set of panelists with representatives from ad networks, exchanges, advertisers and optimizers! See below (click for larger version).

Sponsored by eXelate and moderated by Forrester Research.