Joe Doran is a board member at Legolas Media. He was previously founding CEO of Media6Degrees and GM for Microsoft Digital Advertising Solutions.
A few years ago, online publishers were told that salvation was just around the corner if only they’d sell their inventory on ad exchanges. Buyers would bid—in real-time no less—on available inventory & audiences that the publisher hadn’t sold. Selling the unsold inventory the expensive salesforce didn’t move and at near premium pricing due to a competitive liquid market. Enabling the publisher to maximize yield and rolling in cash. Unfortunately, ad exchanges haven’t always worked as advertised.
Even when put to good use, inventory sold through exchanges doesn’t represent the bulk of a publisher’s revenue. While some in the exchange business believe this is because they haven’t yet convinced publishers that ad exchanges produce value on several key fronts…
First, ad exchanges continue to face a crisis of transparency and control. Yes, transparency is getting better, and increasingly publishers have the ability to control which advertisers buy their inventory (on some exchanges). But there’s still a strong perception among publishers that ad exchanges are beyond their control. It is a terrifying proposition for a publisher to have their audience & data to be sold (or worse yet – stolen) without their input. It means they have no real control over their business and their future. As long as that perception continues, fearful publishers won’t anchor the bulk of their business around ad exchanges, and I don’t blame them.
Second, the lack of liquidity in exchanges presents problems for publishers who must balance guaranteed deals (with pre-determined price and volume) against the highly volatile market for their inventory from an exchange. Without a methodology for balancing these two concerns—and eliminating potential conflicts—ad exchanges will remain ancillary to a publisher’s revenue model. After all, predictability is the lifeblood of a media company, and so far exchanges haven’t allowed publishers to bank on their CPMs.
Third, a key drawback to exchanges is that they really don’t support rich media ads. Part of the blame for this can be put on the liquid nature of trade, and part can be put on number of platforms needed to enable an exchange. But putting the issue of blame aside, the reality is this: exchanges have become known for dealing mostly in what I call the lowest common denominator ad formats (think about the last mortgage ad you saw, and you’ll have an idea of what I’m talking about). While those cheap formats serve a purpose, they don’t generate much revenue for the publisher, and they don’t impart a premium experience to the user, either. The result is that neither buyers nor sellers turn to ad exchanges to tackle large-scale, rich media buys.
Finally, in theory, an ad exchange should be able to discover the real price of the inventory. This is what markets are supposed to be good at, after all. Unfortunately, much of what goes on in an exchange is driven by complex algorithms that factor in two concerns: the value of the eyeballs behind the impression as predetermined by past behavior and the overall ROI status of the activity. While there’s tremendous value to that kind of decision-making, it tends to leave out key factors such as the quality of the content (in terms of its historical performance), the social affinity of the user and the content, and the uniqueness of the audience.
When robust technology platforms and markets are working to their potential, publishers should be able to bring forward other attributes of their inventory and have it priced accordingly. Eventually, that process will empower sellers and buyers to develop a more diversified set of methodologies for valuation.
If a solution can’t address all of these challenges directly and simultaneously, then it simply isn’t a solution that will move ad exchanges forward into the future and allow publishers to capitalize on the opportunities that are now within reach. And ad exchanges and auction based display inventory will be left to the bottom of the inventory allocation barrel and the scraps from the big media buyer’s budget.
