OpenX CEO Tim Cadogan Says Exchange Showing Traction; OpenX Market Doubles In 2 Months

OpenX CEO Tim CadoganTim Cadogan is CEO of OpenX, an online advertising technology company. When you say (MediaPost 6/29) OpenX Market is more like a search marketplace whereas Right Media is more like a financial market, what do you mean?

TC: Just to be clear, OpenX Market is an exchange for display advertising. Specifically, the Market is an easy to use, structured exchange in which publishers can maximize revenue for their ad space by selling their ad inventory to a wide array of competing advertisers and advertisers can access targeted, primary ad inventory across a broad array of publishers. The reference to a search marketplace comes from the fact that both sellers and buyers immediately participate in the entire market in a simple, easy way, thereby reducing friction. Buyers also benefit from a second-price auction like search. This means that advertisers can bid their true value, but only pay $0.01 more than the next highest bidder. This compares to a model like Right Media – which is more like a classic stock exchange – where participants first need an “exchange seat”, then need to link to the other players they want to trade with and is predominantly first-price, all of which is more work and friction.

Is there an auction with OpenX Market or is it first-come, first-serve where all the bidder needs to do is beat the publisher’s floor price?

Yes, there is an auction with OpenX Market. The auction model is designed to both optimize revenue and eliminate economic risk for publishers. The basic mechanics are pretty simple. When a publisher chooses to pass inventory into the Market, they set a floor price – this is usually the maximum price they can generate themselves. OpenX then runs a real-time auction to see if it can generate a higher-priced ad than the floor price set by the publisher. If the auction results in a higher-paying ad, the publisher runs the ad from the Market and makes more money. Only then does OpenX Market then take a transaction fee (15%) because it has created more economic value for the publisher. If the auction does not result in a higher-priced ad, the publisher runs their original ad and OpenX takes no fee. Publishers are in complete control of both what inventory they choose to put into OpenX Market and their floor price. The floor price is key to protecting publishers against any economic risk because the publisher determines at what price the auction “starts” (the floor price can also be thought of as a “reserve price”).

How would you characterize the competitive advantage of OpenX Market compared to other marketplaces and exchanges?

Five key things: simplicity, segment focus, primary inventory, price and independence.

  • Simplicity: With OpenX Market we make it very simple for sellers and buyers to participate. For example, for sellers we feature 1-click integration into the Market from the OpenX Ad Server and for buyers the second-price auction greatly simplifies bidding strategies.
  • Focus:  Unlike the other major exchanges, e.g. Right Media and DoubleClick, our focus is on the mid-market and upper tail, a traditionally underserved group of publishers.
  • Primary inventory: partly due to our focus on mid-market publishers, nearly all the inventory in OpenX Market is “primary”. This means it comes directly from publishers rather than “secondary” inventory which is passed-on by ad networks. We also believe that mid-market publishers often have very valuable audiences, even if they are somewhat smaller individually. By creating a market to pool these valuable but diffuse audiences – a process we call “de-fragmenting” – we are endeavoring to significantly increase revenue for publishers by making it easier for buyers to reach them.
  • Price: OpenX Market is free to use and OpenX only takes a transaction fee if we beat the publisher’s self-established floor price.
  • Independence: OpenX is the only major exchange operated by an independent player.

Can you discuss the adoption rate and scale of OpenX Market publishers?  It’s been in beta for a while, correct?

It’s definitely still very early days, but we’re been really pleased with the rate at which publishers have begun to participate in OpenX Market. In just a couple of months since the Market formally launched, it has already doubled in size as measured by the number of impressions that run through the exchange on a monthly basis.

What’s also very exciting is the immense potential. Approximately 300 billion ad impressions flow through OpenX ad serving products monthly, so the potential for growth is enormous. And that’s just for publishers who are already in the OpenX ecosystem – OpenX Market is in no way limited just to publishers who use OpenX Ad Server (our ad serving technology). Any publisher can participate in OpenX Market by the simple use of a third-party ad tag and many already are today.

How can buyers (advertisers and ad networks) participate?

Buyers can participate either through our web-based interface – called Ad Console – or through our Ad Console APIs. The Ad Console enables buyers to select their target audiences based on geo, page context, frequency, various technical parameters (browser type, OS, etc.) and ad size. We also support re-targeting. We’ll be adding more data dimensions (e.g. demo) over the next few weeks. In addition, we are piloting real-time bidding with a major buy-side partner.

From where does the demand or advertiser side of OpenX Market come?

The demand side for OpenX Market comes from a combination of ad networks, agencies and direct advertisers.

What is the revenue model for OpenX with OpenX Market? Transactional, rev share?

The revenue model for OpenX Market is transactional and completely linked to increasing economic value for ad inventory. When the OpenX Market’s auction process generates an ad that beats the floor price a publisher has set (i.e. drives more revenue), then the Market takes a transaction fee (15%). That’s it. There are no other fees for participating for sellers or buyers.

Do you have any plans for demand-side optimization and real-time bidding (RTB)? How far off?

Yes. In fact, we already have real-time bidding live with a major beta partner and are working on several more.

Generally speaking, when do you think publishers will be willing to start selling more premium in the exchange?

Because publishers have complete control over their participation they can already place premium ad inventory into the exchange. They simply protect the premium nature of this inventory by placing higher floor prices on this inventory. For OpenX ad serving users, we make it extremely easy to flow any class of inventory (contract/premium or remnant) into OpenX Market. We expect to see more premium inventory flowing into the Market as we further build our scale and attract a deeper and broader set of ad buyers. Thinking more broadly, the nice thing is that auctions have a well-documented history of maximizing value for high value items (think Sotheby’s for fine art or Google for high value search terms) so we draw on a strong tradition of using open auctions to maximize economic value. We think the next year or two is going to be very exciting.

Follow Tim Cadogan (@timcadogan), OpenX (@openx) and (@adexchanger) on Twitter.

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  1. I don’t agree that they are the only major exchange operated by an independent player. Adnexus, Adsdaq, Adbrite are all independent and as major as OpenX is. Plus Admeld & Pubmatic getting in the game.

    It was stated at the Google AdX event last week by an independent panelist that exchanges will need owned inventory to really scale and win. This sounds right but it will be interesting to see how it develops.

    Current sources of huge inventory with no exchange “owner” are Fox/Myspace, IAC/Ask, Facebook and then the old media networks (CBS, NBC, ABC). Another acquisition flurry in the making? Facebook and FIM seem to be doing their own thing, IAC breaking up, and media networks unfocused. Probably they will wait a year and see what shakes out with the exchanges.

  2. As a buyer on the OpenX exchange I am very much looking forward to getting access to their inventory with RTB, hurry up guys…