Point-Counterpoint: Why The Open Markets Are Closing

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Emily Del Greco, founder at Del Greco Solutions. This point-counterpoint between Emily and Adam Heimlich was written in response to the question: What is the future of the open exchange?

It is a fairly safe wager that 2018 will bring a continued “cleanup” of ad tech.

Regrettably, the invisible-hand theory does not seem to apply to the programmatic market. Self-interested bad actors in the ecosystem, including domain spoofers, fee hiders and attribution gamers, have hurt the entire enterprise and driven an overall distrust of the concept that a well-trained algorithm unleashed on an unlimited supply of inventory is the ultimate solution.

Just as the ad tech market is consolidating to fewer, larger (better?) players, the auction environment will see a larger-scale flight to safety this year in the form of consolidating spend in the private market versus the open exchange.

There are three reasons for this:

  1. The continuing supply-and-demand imbalance of video
  2. The disintegration of the “long-tail” myth
  3. The wholesale rupture of the connective tissue of audience targeting

A Video Shortage

First, the clearest reason the private sphere will dominate programmatic growth in the near term is the illiquidity of the online video market. Online video has become the largest growth factor in programmatic given that overall banner revenue has been in decline since 2016, and native programmatic remains small. By 2020, Magna predicts that video formats will account for 42% of all US programmatic buying.

Advertiser demand for online video in any form – mobile/desktop, pre-roll/mid-roll, native/outstream – has shown no signs of stopping. Yet, large publishers have struggled to develop a business model that supports the massive operating expenses of video production and traffic acquisition costs required to drive views. Add to this the fact that the large networks have barely tiptoed into programmatic TV and you have a shortage for video so pervasive it has created its own black market.

The impact of this on the open market programmatic is simple: There is very little chance of finding quality (read: fraud-free) video ad opportunities in the open exchange. Large publishers will routinely name their price for video inventory and are sold out months, if not quarters, in advance – all transacted privately.

Long-Tail Inventory

Second, the rise of programmatic was founded on the idea that valuable consumer audiences could be located outside of large publisher content. A true innovation after decades of targeting context as a proxy for audience, the open exchange would enable trading of seemingly endless audience targets at greater scale and lower cost than ever before. Underlying this foundation was the belief in a “long tail” of publishers, many formerly inaccessible without direct sales teams, that could provide additional liquidity and force true market rates to emerge for audience targeting.

Today, burned by failed blacklists or campaigns in which only 1% of sites are driving 100% of the impact, marketers are tiring of the long-tail experiment. Similarly, most large publishers consider open exchange inventory to be “backfill” – something to turn to only after every other option has been exhausted. The rates at which this inventory transacts are barely enough to cover the ad tech tax involved, so open-market stock is routinely subject to outsize levels of content recommendation, ad stacking and frequent ad refreshes.

Therefore, the open exchange has become shorthand for a maze of mostly long-tail inventory of increasingly questionable value. While there is no doubt the long-tail experiment has yielded some successes (see any AdSense success story), the tool set and service layer with which the open exchange is regulated by buyers has a long way to go before marketers regain faith that context can again take a back seat to audience.

The Demise Of The Cookie

Finally, the open exchange concept was designed to support audience targeting. Therefore, perhaps the biggest hit to the open exchange will come from the death of the cookie. Certainly, audience targeting can be applied in private environments, but any programmatic vet will tell you that pure audience targeting is best applied to a largely open marketplace.

Beginning with the advent of mobile, through the rise of consumer ad blockers and all the way up to Intelligent Tracking Prevention (ITP) and other enterprise-level blockers to come, the connective tissue of audience targeting is dissolving before our very eyes. And while cookieless targeting options exist, only the largest consumer-facing companies have any mastery of them.

The clearest evidence of the real impact of this came from arguably the strongest audience targeter on the planet: Criteo, which is forecasting more than $200 million in losses this year due to ITP alone. I can’t help but recall EA’s Belinda Smith at Programmatic I/O in October: “If you have an identity solution that is built on cookies, you don’t have an identity solution.”

I am reticent to announce the death of the open exchange, but I think eMarketer analyst Lauren Fischer sums it up: “The open markets? [They’re] still a wild card.” As someone who has been in ad tech since 2007, it is hard to conceive of a programmatic ecosystem without a healthy open market.

For the open market to again become the dominant means of transaction, both the technology and the service layers we use today will require a quantum leap in sophistication, some of which is already underway.

Follow Emily Del Greco (@emilydelgreco) and AdExchanger (@adexchanger) on Twitter.

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1 Comment

  1. Hi Emily, As expected, love your insights! Specific to mobile in-app & as a counterpoint, audience targeting & open exchange spending (in addition to private marketplaces) are really growing on the mobile in-app side – due to the strength of Device IDs since the in-app world was never a cookie world. We are seeing more advertisers building & using a device ID graph and executing mobile in-app retargeting campaigns.