Don’t Dump Inventory In An Exchange, Leverage It First

The Sell-SiderThe Sell-Sider” is a column written by the sell-side of the digital media community.

Today’s column is written by Al Silverstein is CEO of AudienceFuel, a publisher-to-publisher, house inventory trading platform.

Everyone knows that online publishers rely on ad sales to turn a profit, but very few understand how difficult it is to actually manage those sales — let alone how often publishers have to scramble to deliver on the guaranteed buys that bring in the most revenue.

Picture a publisher’s in-house sales team signing a deal with an advertiser, promising that a certain number of visitors will come to the site over the course of one month. About three-quarters of the way through the month, the sales team notices that the site has only attracted half of the traffic they expected.

Publishers can’t risk an unhappy client, because such a client may never make another direct buy on their site. Underdelivering often forces a publisher to run a makegood, under which the publisher gives away valuable inventory for free.

What’s a publisher to do?

The most common practice is to spend money to drive traffic back to the site. Sales sees the anemic site traffic, and tells the marketing department it needs to drive up interest in order to attract visitors. Marketing then buys ads on other sites, or ups its bid price on Google AdWords to create more audience. Publishers have been known to spend hundreds of thousands of dollars in an effort to save a $1 million ad sale.

While that spend might be called “good arbitrage” and good for the business as a whole, no one could call it efficient. The sales team met its goal, and probably got a nice bonus, but the marketing budget is in the hole with no reward. Conflicts develop between sales and marketing when one department is expected to exert time, effort and budget to cover for another.

Fortunately, there are other, more efficient ways to achieve traffic goals. Publishers can start by looking at their unsold inventory. All too often, such inventory goes to networks and exchanges — often, ironically, to the same networks the publishers are using to buy traffic — which make their profits from arbitrage. In those cases, the publisher is giving away inventory so that someone else can make a higher profit margin.

Rather than dump unsold inventory into an exchange, publishers should view unsold inventory as a marketing asset.

In the above example, what if the sales and marketing teams were both rewarded for revenue and traffic goals? What if the two teams worked together to bring in the audience necessary to fulfill a direct-sold contract — perhaps at the short-term expense of revenue generated from low-paying ad networks, but the long-term gain of reduced marketing expenses and higher-quality audiences and advertisers?

With the right relationships, a publisher can trade unsold inventory with another site – maybe one that attracts a similar audience – and bring in the audience necessary to fulfill the direct-sold contract. This is not and audience extension play, but a barter transaction with no cash cost to the marketing team. And it’s a more effective marketing strategy than buying $10,000 worth of Google keywords in a frantic scramble to hit a traffic goal month after month.

So why doesn’t this happen more often? Primarily because it requires three internal departments – sales, marketing, and ad operations – to cooperate in the interest of a greater goal. Existing incentive structures usually militate against that. The teams are compensated differently, and are not only not rewarded, but sometimes even penalized, for sacrificing their short-term gains in favor of the overall prosperity of the publisher.

The ad-trading strategy attracts revenue-generating audiences at little cost to the publisher. But it takes a strategic executive who sees the whole picture  to ensure that the prospect of greater business success trumps departmental rivalry.

Follow Audience Fuel (@audiencefuel) and AdExchanger (@adexchanger) on Twitter.

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1 Comment

  1. Jim Porcarelli

    Sometimes he most effective resolutions arent considered because independent agendas and workloads pre-empt it. By offering mutual rewards companies can facilitate efficiency and effectiveness. Here is an example where it takes the collective team to bring about a much greater value to everyone!