Channel Partners And Managing The Exchange With Microsoft’s Buchheim And Dahlberg

Microsoft Advertising ExchangeIn a blog post yesterday, Microsoft publicly addressed its approach to channel partners (think demand-side platforms, ad networks, etc.), especially as it relates to the Microsoft Advertising Exchange. Eric Dahlberg, who is Director, US Network & Exchange Sales for Microsoft Advertising, emphasized the position that his company believed was the best choice among several options: maintaining “an open approach with a focus on decreasing the friction involved in working with multiple providers.” Read the entire post here.

Dahlberg and Dennis Buchheim, General Manager of Microsoft’s APS Scale Display group, discussed the announcement and its implications. I’m struck that your position around continuing to leverage and encourage innovation from your partners is very similar to the relationship that echoes with AppNexus.  Here is a company that, in theory, Microsoft could acquire.  What can you say about Microsoft’s strategic view on the ad technology business? You seem to be taking a hands‑off approach in some ways.  At the same time, you’re also bringing the ad spend and the demand that everybody needs. Thoughts?

DENNIS BUCHHEIM: I think hands‑off is a little strong. The AppNexus relationship is, to your point, a great example of where we’re a little bit arms-length, but definitely not hands‑off. We’re trying to identify those partners who we believe are adding true, differentiated value into the ecosystem. Those are the partners we’re going to work with more deeply. AppNexus is a case in point for that.

Loosely speaking, you could say Yahoo and AOL are examples of partners with whom we thought it made sense to work with because they bring differentiated demand and data into the ecosystem.

The folks we’ve chosen to work with more closely is where we think there is more value to be had. That’s where we’re going to focus our time and energy.

There are certainly a number of partners, or potential partners out there, providing demand for us today who are less differentiated. I would expect we’re completely hands‑off with them, to your point, and not really engaging deeply with them at all. Hopefully, they will evolve. They’ll create something that’s more differentiated and add more value to marketers as they evolve. Thinking about Microsoft owned and operated inventory, do you see a scarcity strategy making sense, if you will, similar to what Yahoo is doing, where – in order to drive the guaranteed business you need to actually cut off the non‑guaranteed business to a degree because it may cannibalize the guaranteed, higher CPM opportunity?

ERIC DALHBERG: Yes, we’ve heard that theory. I think we’ve got a little bit of a different approach, and we see it happening a little bit in reverse.

We think that in making our inventory available via the Exchange we’ve actually driven more scarcity. Ironically, in opening it up to more parties we’ve made it more scarce because of the bid density that’s been applied to that and the pricing increases that we’ve seen as a result of that inventory being bidded up. That manifests itself not only in the non‑guaranteed world of the Exchange, but that puts upward pressure on the guaranteed pricing as well. And so we’ve been really pleased with the way that the increasing amounts of demand that are being applied to our inventory via the Exchange increases our yield throughout the stack of offerings – including both guaranteed and non‑guaranteed.

DENNIS BUCHHEIM: I’d add that it ties back to your prior question ‑ we’re very hands‑on in how we manage the marketplace and that’s different from some of the other players out there. And so, if we just opened it up to all comers and they could buy whatever they wanted at whatever price happens to clear for a particular piece of inventory, that probably isn’t a healthy thing for the business overall. And so we’ve been aggressive in how we manage the marketplace to drive a healthy non‑guaranteed part of business and also make sure that the guaranteed piece is still healthy.

ERIC DAHLBERG:  On the sales side over the past year one of the most frequent and toughest set of conversations I’ve had to have is working with our account teams and advertisers who traditionally have had access to our guaranteed inventory at relatively cheap price points. Again, there’s a good side to this and a bad side to this, as we’ve – unfortunately from the account teams and the advertisers perspective – had to either walk away from some of that business or significantly increase the prices on the guaranteed side in large part due to what we’ve seen happening in the non‑guaranteed world.

So we see that phenomena. It’s not just theory. We see it playing out. We’re really pleased as a publisher with what that means for our yield, and there are many other real world examples of that having played out over the last 12 months. Can you talk a little bit about what it means to be more “hands on”?

DENNIS BUCHHEIM: One of the biggest is what we call “binning” – how we expose the inventory and get the right level of transparency. It’s critical. We’ve chosen to, generally speaking, not be very transparent with the inventory although we’re increasingly looking at piloting greater transparency in some areas so there’s a balance. It depends on which swaths of inventory you’re looking at across Windows Live and MSN and other properties that we’re exposing. So I think that’s one of the biggest areas of opportunity for us.

We generally don’t talk about this with customers, but with the nascent marketplace, in particular, there are price floors that are put in place to insure that there’s at least a base level clearing price that’s acceptable to us.

That becomes less relevant of course as you have greater bid density in a given market, but that’s another key point where we’ve been managing very actively using the data we have to more dynamically and granularly set those price floors. Any thoughts about bringing more publishers into the Microsoft Exchange and what the strategy might be there? – I’m talking outside of the AOL/Yahoo partnership.

DENNIS BUCHHEIM:  So, Yahoo will bring some additional publishers to that mix, and we’re certainly engaged in other discussions with large publishers in the U.S. and in other markets for that matter. Nothing to share in detail there yet, but we’re seeing some traction there. And we’re getting great feedback on the capabilities we have for managing the marketplace – particularly with publishers who have a premium, guaranteed business.

They look at us and they say, “Yes, you understand how to manage yield holistically,” if you will, and we’ve built the right capabilities in conjunction with AppNexus to be able to do that. So we’re getting some traction there. Hopefully, we’ll have some news before long on that. How does the deal come together technically between yourselves, Yahoo, and AOL.  Specifically I’m wondering about how you provide controls around data?

ERIC DAHLBERG:  So for the most part this deal that we’ve recently done with Yahoo and AOL, which affords each of us some sort of reciprocity in terms of access to inventory, it does not extend to data. And so the buying that each of us will be doing for our own networks on the other’s inventory will be based on our unique data. So you can imagine at Microsoft we have Microsoft Media Network, and a lot of our Microsoft Media Network offerings are based off of browsing history on MSN, and search history on Bing, and Windows Live ID data, and other third‑party data that we might acquire. We’ll be using all of that data to buy inventory, and some of that inventory will be sourced from AOL or from Yahoo – but it will be based on our data.

The other networks, and Yahoo Network Plus will be in a similar boat, but they’ll be using their data – so we’re not sharing each other’s data in that sense. We’re using all of our respective data to buy against a more common pool of inventory, but the data stays pretty siloed in that respect. So, following up, if you buy Yahoo inventory on behalf of a client and use your own Microsoft data, that’s great. But, with the rich datasets that Yahoo offers, it would make more sense for your client to potentially buy such that they could use Yahoo’s dataset for targeting [on Yahoo! inventory]. It would seem that if you could share each other’s datasets that that would be valuable, no?

DENNIS BUCHHEIM:  It’s an interesting point. The initial view is (…) clients will choose to work in whole or in part with Yahoo, AOL, or us based on the data and the offerings that each party can offer to the client. We have no plans at this point to evolve beyond that. We’re creating choice to a large degree here for the client, and we recognize that there’s differentiation across Microsoft, AOL, and Yahoo, and I personally think it’ll be interesting as different clients start to determine if they want to, in some sense, single out, if you will, a particular party in this arrangement.

Which party works best for different verticals or clients? And do clients actually single out or do they continue to channel large portions [of ad spend] that spans across each of the different parties? That’s how we are thinking but the relationship could go deeper over time to your point. No plans at this point. Are there any plans to bring Microsoft Exchange together with adCenter and bring search and display together in a more integrated way – or do you leave that up to the clients?

DENNIS BUCHHEIM: There’s a search re-messaging offering that we have in our display business and there’s a content ads offering on adCenter which is actually plugged into the Exchange – as well as for selected portions of our inventory at this point. So those are the two connections.  No specific plans to deepen that right now.

 By John Ebbert

Enjoying this content?

Sign up to be an AdExchanger Member today and get unlimited access to articles like this, plus proprietary data and research, conference discounts, on-demand access to event content, and more!

Join Today!

1 Comment

  1. Smart yield optimization strategy from MSFT – generate ‘scarcity’ by enabling access to specified buyers who will compete for inventory & drive supply side yield. Good for both sides of the ecosystem. Smart buyers should take note. Given the divergent publisher approaches to maximizing their yields, it’s critical for buyers to have more sophisticated algorithmic optimization to meet their goals most effectively. Buyers can no longer depend on ‘dumb’ bidders and cookie data to drive their buys. Dynamic decision-making, real-time data processing, algorithmic optimization, opportunity costing and yield management are the name of the game for 2012.