Adaptly's Sethi: Agencies Need Social Media, But It's Not Clear Social Media Needs Agencies

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nikThis summer has shown that social media is maturing as a marketing and advertising vehicle. We have seen the unveiling of the Facebook Exchange – while Twitter, LinkedIn and Tumblr have made steps to refine their revenue models. In addition, there have been two high profile acquisitions. And companies that help marketers navigate social media platforms have been receiving a lot more attention from advertisers, agencies and traditional publishers as well.

In April, Adaptly, a company that aims to assist brands in increasing and understanding their “engagement” across social media, was named to Time Inc.’s “10 startups to watch” just before it announced it had raised $10.5 million in a second round. With all the activity swirling around social these days, we checked in with Adaptly CEO Nikhil Sethi to hear what had to say about the value of social and how traditional media – and even Facebook – still don’t seem to get it.

AdExchanger: How do you look at reach  in an online and social media context? It’s not the same thing as when we talk about the “reach” of a hit TV show, is it?

Nikhil Sethi: The basic definition is the same. The difference is in the granularity of data. From a television perspective, you’re talking about broad audiences – there’re millions of people watching the Super Bowl, so we’ll place an ad during that broadcast and create broad appeal and awareness. In the social context, there’s a concept of first party data, so the granularity of information around your audience is extremely high. Let’s say I want to guarantee reach at the exact same broad level of the Super Bowl broadcast. But before, I can say I want granularity of reach at the level of the 90670 zip code. Or I want to guarantee reach against an audience of people who like HP printers.

The most common example we hear is "I just spent X million of dollars to acquire X million fans of something." How do I activate that audience to my message? Just because you have an audience and experience, it doesn’t automatically mean those two touch each other. The difference between traditional and digital is that you can set the meaningfulness of reach with social media and online.

And unlike the Super Bowl, where you can buy the inventory to reach millions, you can’t just buy your way into social. Meaningfulness is the attribute missing from traditional reach.

In terms of social networks, Facebook has tremendous reach. But many traditional advertisers still don’t know what to do with it. What’s your assessment of Facebook as an advertising vehicle?

What is Facebook? It’s not a consumer entity. It’s a better version of a cookie. It’s replacing the cookie because it’s a much, much more accurate version of identity. Cookies were not created for advertising. That was never the original goal. The purpose was to create better sessions for users – “I want this site to remember me, so I don't have to log in every time.”

People started to realize that you could add on or amend different types of data from consumers’ browsing history and use it to target and retarget advertising. But Facebook has emerged as a better way to really understand people’s behaviors and why they do what they do. And that’s because the information is all volunteered.

Strip away the Facebook newsfeed, the profile page, and all that other stuff, and Facebook would still be worth the same as it is today in the public markets, all because of that identity component. If you think about it, Facebook’s consumer products are always designed in a way to get more and more first-party data. That is the primary objective.

So how do think the possession of that data will relate to Facebook Exchange?

That data is not the problem we’re trying to solve. Before you can buy effectively, you have to understand how social works. If you think about most the tools and systems available for social today, from the Marins to the Kenshoos, almost 99 percent of them have approached Facebook from a bid management model. That is thinking about social as you would think about any other publisher.

Facebook Exchange, and a lot of the media and talk about it, is mostly focused on looking at Facebook as just another source of inventory and nothing more than that. There is no access to first-party data, it’s completely pass-through audience. There is nothing social about Facebook Exchange, except for the fact that it exists in the dotcom of Facebook.

The other way to think about Facebook Exchange is to consider the concept of the retained audience versus the pass-through audience. The retained audience is more like a Facebook page, which you can re-message to again and again and again at no additional cost. They’re now yours. With a pass-through audience in the Facebook Exchange, if they appear on an outside page, they can click on an ad or you can serve an ad to them at that time. But if they don’t appear, they’re lost, they’re gone.

Do you see any substantial value in any aspect of the Facebook Exchange? Who is it valuable to?

The value is for someone who is looking for more supply, more inventory, because there are trillions of impressions there. On top of that, the value from any publisher on the internet becomes binary – either it converts or it doesn’t. There is no in between.

Let’s say I’m an advertiser and I use Turn -- they’re plugged into the Facebook Exchange – and I have this cost-per-action target I want to reach. I can activate all my inventory and whichever one performs the best, that’s where my money is going to go. Facebook Exchange can be one piece of that. It makes no difference, because the qualifications are the same, the metrics are the same and it’s all pass-through audience anyway.

Why do you think Facebook is pursuing it?

We’ve watched pattern recognition from Facebook, for example, and it’s pretty clear that they like to experiment with things very quickly and fail fast and move on. It’s not out of this realm to play the scenario where Facebook Exchange is an experiment and marketplace can be removed from Facebook very shortly.

How long do you think it will take before we know whether Facebook Exchange is a failure or not?

Pre-IPO, I would have given it two quarters. Post-IPO, I think have to add a 10x multiplier to that.

What’s your take on the two big acquisitions in the social space -- Vitrue (by Oracle) and Buddy Media (by Salesforce.com)? There’s always been the argument about whether you can buy innovation. Did these software companies do that? Can media buying agencies do the same thing to acquire better social media know-how?

For social, it’s like we’re in 1995 – these acquisitions are among the first chess moves. We’re at the very beginning of this. That’s important. The deals by Salesforce and Oracle are attempts to ascribe value to social. It doesn’t mean those acquisitions have value in themselves in terms of the prices paid. It just means that this is what the value of the social media space potentially looks like. And it represents a major dent to the traditional agency model. What is Salesforce? What is Oracle? They are now competition to Publicis Groupe, WPP and the rest.

The reason is that they are entities that have direct relationships with the brands and are actually technology enabled. If you remember the Facebook Marketing Conference in February, [Facebook COO] Sheryl Sandberg showed a whole new bunch of products, like the mobile newsfeed. One of the heads of a major ad holding company gets on stage, and expresses amazement at how great it all sounds, but then says that he can’t do anything with it, because the agency model is not organized to take advantage of these offerings. So it was clear that agencies need to reinvent themselves to better align with social media. Right now, it’s not a question of whether agencies need social – they do, because that’s where the consumers and the marketers are – but whether social media needs agencies.

By David Kaplan

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