Punching the Monkey

BannerAdI recently tried to explain what I do for a living to my 14-year-old son. I found myself telling him about ad tech.

“Basically, we make technology that helps marketers buy different kinds of banner ads,” I told him.

“You mean the kind of annoying pop-up ads that everyone hates?” he asked.

His look of profound disappointment said it all. I explained that the kind of work we do wasn’t just about populating the Internet with the “Lose five pounds with one stupid trick” type of banner. But even though we are getting a lot right, my explanations eventually started sounding pretty weak.

I have been working in this business since 1995. Aside from doing some ad implementation testing, I have probably clicked on about a dozen banner ads in as many years. Today’s robust, real-time ad tech “stack” has been purpose-built to optimize the delivery of the kind of banner ads most people already hate: standardized IAB units, retargeted ads, auto-play video pre-roll units and even the dreaded pop-up and pop-under.

Publishers without robust direct sales options depend on networks and exchanges to monetize the endless streams of traffic they create, and they happily collect their $1.10 eCPM (cost per mille) payments. Advertisers looking for cheap reach and performance plumb the depths of such inventory to find the rare conversion, and hope they are getting what they pay for rather than a shady “last view” attributed banner.

Today, the highest and best use of the standardized banner has enabled marketers to leverage their first-party data to bombard site visitors with retargeted ads – an effective tactic, since they are essentially paying to accelerate a conversion that has a great chance of happening on its own.

As an industry, it seems pretty clear that we will look back on this era in digital ad technology and see how primitive it was. Have we built a trillion-dollar real-time ad serving machine for punch-the-monkey ads, or have we really innovated and created disruption?

RTB Is Dead, Long Live RTB

The recent acquisition of [X+1] by Rocket Fuel is a great sign for our industry. It basically validates the idea that, for programmatic RTB to be effective, real data science must inform targeting. [X+1] is one of the best at cross-channel targeting, and they have already started to figure out the cross-channel attribution puzzle. An everlasting always-on stream of RTB banners for branding and retargeting might prove to be a hugely important part of unlocking a broader multi-channel strategy – if the data can dictate it. If data management platform technology can be leveraged to truly optimize addressable marketing, then RTB will survive and thrive. With consumers always on the move, and every form of media starting to be addressable, real-time programmatic will be something marketers have permanently switched on, and we’ll see the true value of the pipes we have created.

Programmatic Direct

How about inventory that is relatively standard, but a bit nicer than that found within the exchange environment? Transacting on this tier of inventory works quite nicely with all kinds of one-to-one connections within RTB, and buyers and sellers are quickly leveraging the pipes to make private marketplace deals.

If I am a quality financial publisher, why wouldn’t I sell within RTB for $8 CPMs, rather than pay a $200,000 salesperson to sell at $12 CPMs? The math just makes sense. Delivering higher tiers of inventory at scale to private buyers is a great use of RTB, but not a panacea for overall inefficiency in media procurement. But, we have seen those RTB pipes service entire new classes of inventory, and start to appeal to brand marketers.

Workflow Automation

The problem with getting really good inventory has always been the difficulty understanding rates and availability. That’s why the RFP exists today, and isn’t going away anytime soon. Publishers will always want full control over the really good stuff. Because they know their inventory better than any algorithm, there will always be a need for human control and creativity. Big, custom sponsorships and custom-curated native executions will only increase over time, as more television and print budgets shift into addressable digital. You just can’t automate those deals. Marketers and agencies will demand programmatic efficiency to compress an expensive, 42-step process for securing guaranteed inventory. This is one area that programmatic RTB has not been built to handle (these deals are neither “real time” nor “bidded”), but we are seeing real innovation from a number of companies trying to bring programmatic efficiency to guaranteed deals.

It’s hard to explain everything that we are getting right to a 14-year-old who spends more time on mobile apps than in an Internet browser. His assessment, in surfing the desktop Internet, is probably right – it looks like a lot of weight loss ads and sneaker retargeting. But, it’s still early days nearly 20 years after the first banner ad was served.

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Same Turkey, New Knife

The way the ad tech world looked pre-DSP...and pre-DMP

Technology may still capture the most advertising value, but what if publishers own it?

A few years ago, ad technology banker Terence Kawaja gave a groundbreaking IAB presentation entitled, “Parsing the Mayhem: Developments in the Advertising Technology Landscape.” Ever since then, his famed logo vomit slide featuring (then) 290 different tech companies has been passed around more than a Derek Jeter rookie card.

While the eye chart continues to change, the really important slide in that deck essentially remains the same. The “Carving up the stack” slide (see above), which depicts how little revenue publishers see at the end of the ad technology chain, has changed little since May 2010. In fact you could argue that it has gotten worse. The original slide described the path of an advertiser’s $5 as it made it’s way past the agency, through ad networks and exchanges, and finally into the publisher’s pocket.

The agency took about $0.50 (10%), the ad networks grabbed the biggest portion at $2.00 (40%), the data provider took two bits (5%), the ad exchange sucked out $0.35 (7%), and the ad server grabbed a small sliver worth $0.10 (2%), for a grand total of 64%. The publisher was left with a measly $1.80. The story hasn’t changed, and neither have the players, but the amounts have altered slightly.

While Kawaja correctly argued that DSPs provided some value back to both advertisers and publishers through efficiency, let’s look ahead through the lens of the original slide. Here’s what has happened to the players over the last 2 years:

  • Advertiser: The advertiser continues to be in the cat bird seat, enjoying the fact that more and more technology is coming to his aid to make buying directly a fact of life. Yes, the agency is still a necessary (and welcomed) evil, but with Facebook, Google, Pandora, and all of the big publishers willing to provide robust customer service for the biggest spenders, he’s not giving up much. Plus, agency margins continue to shrink, meaning more of their $5.00 ends up as display, video, and rich media units on popular sites.
  • Agency: It’s been a tough ride for agencies lately. Let’s face it: more and more spending is going to social networks, and you don’t need to pay 10%-15% to find audiences with Facebook. You simply plug in audience attributes and buy. With average CPMs in the $0.50 range (as opposed to $2.50 for the Web as a whole), advertisers have more and more reason to find targeted reach by themselves, or with Facebook’s help. Google nascent search-keyword powered display network isn’t exactly helping matters. Agencies are trying to adapt and become technology enablers, but that’s a long putt for an industry that has long depended on underpaying 22 year olds to manage multi-million dollar ad budgets, rather than overpaying 22 year old engineers to build products.
  • Networks: Everyone’s talking about the demise of the ad network, but they really haven’t disappeared. Yesterday’s ad networks (Turn, Lotame) are today’s “data management platforms.” Instead of packaging the inventory, they are letting publishers do it themselves. This is the right instinct, but legacy networks may well be overestimating the extent to which the bulk of publishers are willing (and able) to do this work. Networks (and especially vertical networks) thrived because they were convenient—and they worked. Horizontal networks are dying, and the money is simply leaking into the data-powered exchange space…
  • Data Providers: There’s data, and then there’s data. With ubiquitous access to Experian, IXI, and other popular data types through 3rd party providers, the value of 3rd party segments has declined dramatically. Great exchanges like eXelate give marketers a one-stop shop for almost every off-the-shelf segment worth purchasing, so you don’t need to strike 20 different license deals. Yet, data is still the lifeblood of the ecosystem. Unfortunately for pure-play segment providers, the real value is in helping advertisers unlock the value of their first party data. The value of 3rd party data will continue to decline, especially as more and more marketers use less of it to create “seeds” from which lookalike models are created.
  • Exchanges: Exchanges have been the biggest beneficiary of the move away from ad networks. Data + Exchange = Ad Network. Now that there are so many plug and play technologies giving advertisers access to the world of exchanges, the money had flowed away from the networks and into the pockets of Google AdX, Microsoft, Rubicon. PubMatic, and RMX.
  • Ad Serving: Ad serving will always be a tax on digital advertising but, as providers in the video and rich media space provide more value, their chunk of the advertiser pie has increased. Yes, serving is a $0.03 commodity, but there is still money to be made in dynamic allocation technology, reporting, and tag management. As an industry, we like to solve the problems we create, and make our solutions expensive. As the technology moves away from standardized display, new “ad enablement” technologies will add value, and be able to capture more share.
  • Publisher: Agencies, networks, and technologists have bamboozled big publishers for years, but now smart publishers are starting to strike back. With smart data management, they are now able to realize the value of their own audiences—without the networks and exchanges getting the lion’s share of the budget. This has everything to do with leveraging today’s new data management technology to unlock the value of first party data—and more quickly aggregate all available data types to do rapid audience discovery and segmentation.

 The slide we are going to be seeing in 2012, 2013 and beyond will show publishers with a much larger share, as they take control of their own data. Data management technology is not just the sole province of the “Big Five” publishers anymore. Now, even mid-sized publishers can leverage data management technology to discover their audiences, segment them, and create reach extension through lookalike modeling. Instead of going to a network and getting $0.65 for “in-market auto intenders” they are creating their own—and getting $15.00.

Now, that’s a much bigger slice of the advertising pie.

[This post originally appeared in ClickZ on 2/1/12]