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Publishers And The Hidden Costs Of Data Leakage

Tom ChavezTom Chavez is an entrepreneur, technologist, musician, and family man residing in San Francisco.  He was the founder and CEO of Rapt Inc., and following the acquisition of Rapt by Microsoft, he served as General Manager of Microsoft Advertising’s Online Publisher Business Group.

I have received an overwhelming amount of feedback from my last missive.  I heard from friends and colleagues in the publisher space, DSPs, agencies, and technology and service providers.   There were hugs, high fives, bricks, and a few rotten tomatoes – all of it instructive.  Ultimately I’m just glad to see some really smart people thinking about the challenges publishers face in an increasingly buyer-centric industry.

In my last note, I asserted that:

With the right data infrastructure in place, publishers can open up regulation-proof revenue streams worth hundreds of millions of dollars.  It would be a shame if some new channel master strip-mined their audience of its emerging data value without giving them their due.

Before publishers can start claiming value from data, they need to get a handle on what they’re losing.  Revenue Exposure is a metric that I have been exploring with my friend and colleague Vivek Vaidya, formerly CTO at Rapt, and Andy Skrzypacz, Professor of Economics at Stanford.  Our goal in this exercise is about more than intellectual stimulation; we’re dead-set on measuring the potential costs to digital media publishers of data collection across their websites.

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Data: Deja Vu All Over Again?

Tom ChavezTom Chavez is an entrepreneur, technologist, musician, and family man residing in San Francisco.  He was the founder and CEO of Rapt Inc., and following the acquisition of Rapt by Microsoft, he served as General Manager of Microsoft Advertising’s Online Publisher Business Group.

I’d like to take a moment to respond to Tolman Geffs recent query, “Are Publishers &@%$#ed?” (PDF)

The short answer is:  Yes, unless they rise up and re-assert control of their data.

These days data seems to be on the lips of every player, principal, enabler, provider, intermediary, and hustler in digital media. There’s no question that the decoupling of media from data is a dislocation that creates opportunity or disaster for publishers.  Advertisers and agencies can now purchase tonnage inventory from a social media or portal provider for dimes and nickels and transform it into $5-$8 inventory by meshing it with their own or third-party data.   The net effects from the publisher perspective:  (1) downward pressure on media prices; (2) new revenue opportunity from data.

In my last company, which I think of as a Round 1 digital media concern, we were fortunate to work with a number of savvy publishers who successfully monetized premium guaranteed inventory at scale, kept their reliance on ad networks in check, and emerged with limbs intact from the worst economic downturn in decades.  It was tough, though, to watch poor channel/reseller management degrade eCPM’s across the industry.  This was particularly true  outside a narrow band of best-practice publishers who, through smart people and smart tools, kept the media middlemen in check.  If physical goods followed the same practices as digital media between 2000 and 2007, Intel would sell its newest, hottest chips for $100 to Dell and HP and simultaneously put them on barges to Asia for resale at $1.

We’re in Round 2 now, and from my perch, it would be a shame to watch publishers repeat with data the mistake made with media in Round 1: namely, middlemen who got too much for too little.

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Thinking About The Marketing Services Company Of The Future

Michael WalrathMichael Walrath is the former CEO of Yahoo!'s Right Media.

I recently argued that the dramatic rise in demand side services is a step toward a next generation marketing services model. Or said another way, the agency of the future is going to look very different than today’s version. If this is the case, it would seem logical that today’s agency holding company powerhouses will evolve to own this space. With due respect to Publicis, WPP, Omnicom et al., I just don't think that’s the way it’s going to happen. Of course, this is colored by my opinion of what it’s going to take to win and build the marketing services company of the future:

  1. A truly and completely integrated approach to solving advertiser’s marketing challenges.
  2. Technical excellence and an unstoppable drive to innovate.
  3. Efficient use of advertisers marketing budgets.

An Integrated Approach

Holding companies are able to offer major advertisers a set of broad services today. That is one of their greatest assets. Less impressive today is the level of integration of those services. The holding company structure creates silos, political agendas and internal disruption. Despite some significant efforts in these areas I haven’t seen enough evidence that the holding companies are committed to breaking down these silos to bring a truly integrated perspective to clients. Sure the integrated perspective exists at the highest level of the holding companies, but it’s not trickling nearly deep enough into the organizations today.

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Rise of the Demand-Side Service Layer

Michael WalrathMichael Walrath is the former CEO of Yahoo!'s Right Media.

As eBay became pervasive, a slew of companies appeared with the sole purpose of helping people buy and sell goods on the giant auction site more effectively. These service businesses earned a slice of the transaction value for their efforts. Others took a different approach. Consignment shops and antiques dealers would buy goods on eBay and resell them at a markup in their stores, effectively arbitraging information (many sellers don't know the value of their goods) and expertise (goods can be perceived as more valuable when purchased from a specialist).

Years ago at Right Media, we used to talk about the need for liquid marketplaces for digital advertising. Soon, a common theme emerged: "You'll know we've been successful creating liquidity when the service layer materializes." What we meant by this was simple. When businesses develop with the primary purpose of helping buyers and sellers of advertising make the most of marketplace opportunities, then we can begin to talk about successfully building a truly liquid marketplace and unlocking the efficiencies it offers.

Much as 2003 - 2007 saw the rise of the ad network, 2007 - 2010 has been characterized by the rise of the demand service layer. With exchanges and networks, we achieved a critical mass of inventory available in a competitive marketplace. In turn, we saw a dramatic increase in the *complexity* of that marketplace. It is ultimately this complexity (the number of buyers and sellers and differing methodologies for valuing ad space) that creates opportunity for service businesses geared toward reducing that complexity, and unlocking new value in the marketplace.

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The Cycle of Innovation for Digital Advertising

Michael WalrathMichael Walrath is the former CEO of Yahoo!'s Right Media.

I believe that there is a cycle of innovation at work in digital advertising.  Where we are in the cycle at any given time depends on many factors, including the economy, availability of capital, supply and demand imbalances, M&A appetite, etc.

Let’s take a look at the cycle.  We’ve got to start somewhere, so let’s start with an ad recession.

Recessions and Innovation

I think we can mostly agree that recessions suck, yet they also set the stage for periods of great innovation.  How?

Recessions cause growth to slow, revenues to suffer and some really lackluster financial performance.  This is especially difficult for the large public companies that have to talk about how badly things are going…all the time. 

During downturns, these companies naturally reduce their investments and ambitions to bolster financial performance, creating a vacuum of unmet market needs.   Entrepreneurs see an opportunity to serve these needs and talented people shake loose from established players.  Capital is harder to come by, so only the best ideas and teams tend to get funding during these times.  It’s counter-intuitive, but I believe that history shows that the best companies often start during difficult markets.  These companies are forced to show more focus, discipline and flexibility than over-capitalized companies founded during strong markets.  The business models of recession vintages are often built on worst-case scenario assumptions.  Once the recovery starts, their fundamentals can and do improve.

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