AppNexus wants to rethink the publisher ad server as a holistic platform for yield management, and it’s starting with a rather old piece of technology.
The company will acquire Open AdStream (OAS) from Xaxis as part of a major transaction with WPP Group that will also give the holding company a $25 million stake in the programmatic platform. After the transfer of OAS (valued at about $155 million) and the new stake, WPP will have a roughly 15% position in AppNexus, which is now valued at $1.2 billion.
The transaction is part of a round AppNexus first announced one month ago that also includes a $60 million investment from an unidentified Boston public equity and asset management firm.
“We live in a world where there’s only a handful of foundational technology platforms,” said AppNexus CEO Brian O’Kelley. “One of those foundational areas is the publisher ad server. For the last 20 years it’s been the most important technology for the publisher that wants to make money in the online advertising space. To this day it remains one of the most important and perhaps one of the least changed parts of the space.”
As AppNexus and WPP see it, a platform offering independent of major consumer media platforms Facebook and Google is needed in the ad-server category.
“As Google continues to use its overall heft to drive publishers to DoubleClick for Publishers (DFP), there’s a real risk that publishers are being left out of the programmatic revolution,” O’Kelley said. “It’s daunting. Google has a very strong position, but it’s time for a change.”
Xaxis CEO Brian Lesser sounded a similar note, noting hundreds of publishers license OAS, which is the No. 2 publisher ad server in the market (albeit a very distant No. 2) behind DFP and profitable on its own.
“If you look at the broader ecosystem there’s a trend toward media companies developing advertising technology,” he said. “That’s true of Google obviously, but also Facebook with their relaunch of Atlas. Yahoo has invested in their own ad tech stack including their own DSP. For the industry at large we’re making this investment so clients can continue to have access to an independent ad tech stack.”
Ad Server Possibilities
The fate of the ad server, AppNexus believes, is to merge with the sell-side platform to provide holistic decision-making about yield. Programmatic and direct sales will be one.
How could this play out in practice? A publisher may want to package all inventory on a page in a “roadblock” as part of a sponsorship deal, or it may want to suppress traditional banner placements if an interstitial unit is sold, or it may want to avoid serving an ad at all, if no bids emerge that suit the quality standards for that page impression. The point is to allow the technology to support the business rules the media seller has in place, which isn’t always possible today.
“When you’re a publisher today you choose your ad server, then you choose your SSP to manage your indirect sales channel,” O’Kelley said. “You have one tool for direct and another set for indirect. That’s very inefficient. The world is much more complicated than it used to be. You’ve got native, you’ve got social … you’ve got ad networks. If I were a publisher today I’d want a single platform that can look across all those ways to monetize that can leverage my data in a very powerful way.”
Xaxis Streamlines
From WPP and Xaxis’s standpoint, the deal’s value lies in finding a good home for OAS, picking up an investment in a fast-growing programmatic platform, and perhaps gaining a bit of influence over the direction of AppNexus.
By divesting itself of Open AdStream, Lesser said Xaxis will be able to focus more completely on its core business of creating data-driven media packages for advertisers. And that core business is driving a lot of business, despite some advertisers’ concerns with the lack of transparency in the trading desk model.
Xaxis revenue will generate just shy of $800 million this year and more than $1 billion next year, larger than its trading desk rivals or the publicly traded ad networks with whom it also competes. (Rocket Fuel, by contrast, projects 2014 revenues at about $400 million.)
To maintain and extend its advantage, Lesser said, the company must focus. That means no more publisher business.
“We can’t build every piece of the ad tech stack and compete with Google as the largest ad tech provider,” Lesser said. “We looked at OAS and said we can do what we do best and still maintain that direct connection to publisher inventory and publisher data through AppNexus. AppNexus gets the second-largest publisher-side advertising server. And we take our engineers and focus on building out media products and data and decisioning.”
WPP stands apart from its holding company rivals as the only major agency conglomerate to invest directly in technology. Lately those investments have tended to revolve around Xaxis, which in 2013 absorbed its ad tech sibling 24/7 Media and in 2014 acquired Netherlands-based ad net BannerConnect (a big AppNexus client) and launched its own data-management platform, Turbine, which it says cost $25 million to build.
“WPP and Xaxis are fundamentally different from how others approach programmatic in that we make consistent investments in technology development. A large part of our success and the reason we’re twice the size of any of our agency competitors and bigger than the biggest independent players in programmatic is that we have made that investment,” Lesser said.
