The Evolution Of A Native Ad Exchange

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

Today’s column is written by Danny Khatib, co-founder, president and chief operating officer at Livingly Media.

Publishers that surfed the recent wave of header bidding for display ads have had a nice ride.

That ride will continue, but publishers looking ahead have already seen signs of the next wave building around programmatic native. And we’re getting excited.

There is real potential for open and liquid native exchanges to help publishers level the playing field and regain some ground lost to the fast-growing Google/Facebook complex that was built on inherently native experiences. But these exchanges are still in their infancy, and publishers need to begin the collective work of bringing a large scale native offering to buyers as quickly as possible.


First, let’s get our own definitions out of the way.

Native ads are third-party ads that match the look, feel and visual context of the site on which they render. This includes ads on social networks, search engines or publisher sites. We’re ignoring branded content, which is in-house editorial designed to match the voice, along with the look and feel of a site.

A native creative is a collection of raw assets provided by the advertiser, including image, headline and click URL.

A native template is code that converts raw creative assets into an HTML-based ad that can be rendered on a web page. This code is not provided by the advertiser, and needs to be supplied by an intermediary, usually a supply-side platform (SSP), or a publisher.

This is a crucial component – we don’t have the template layer when dealing with display ads.

Long-Term Trends

Native ads work. The native model bolstered by Facebook and Google works much better than display, as measured by every performance metric that ever mattered.

Native supply is growing quickly. These two ad giants suck up most of the ad spend coming online, and they’re focused on growing native and video; display is a technology in their rear-view mirror.

Buyers will want a liquid native exchange. They’re orienting systems and budgets around a simplified matrix. They are allocating channels around social, search and everyone else, while allocating creative around native, video and display.

All publishers, along with mobile apps and commerce sites, get lumped into “everyone else,” so we all sink or swim together, and we must rely on a collective scale play offered by a native exchange to justify real budget allocation.

Publishers will want a native exchange, too. Many pubs have reaped the benefits of the display exchange model. Over time, it will be the smallest of exchanges. Video is on its way but publishers don’t have much inventory. Pubs will find that native and display ads are much more fungible within the user experience (UX) than video, especially in mobile.

State Of The Union

The current native ad ecosystem is as confusing and complicated as the display ecosystem was before getting flattened by header bidding. But we can expect this market to follow a similar pattern of simplification.

In the absence of a liquid market, a range of native networks and SSPs have cropped up with end-to-end solutions. These one-stop shops do a lot today: They have unique supply and demand pools, custom template technology and ad-serving tools for direct sales.

This chain will get disaggregated. Publishers will integrate native ad serving back into the display server. A couple of large demand players will graduate into real exchanges, but everyone else needs to start working on their bidder API and find a specialty.

Early content recommendation engines (CREs) also risk extinction if they don’t evolve. The current model is convoluted. Pubs will fork the approach between recirculation and ads and level the playing field with other native demand pools. To survive, CREs will have to offer a CPM-driven bidder to access any inventory that wasn’t locked up in an exclusive.

A set of native demand-side platforms (DSPs) have fostered initial direct-response demand, but on the heels of native ad standardization, the larger unified DSPs are coming on board and should be real buyers soon.

The traditional display exchanges are in various stages of getting their act together. Google is Google – it will be a massive player. Others will piggyback native bidding on top of the header bidding integrations they already have in place with publishers. This is a huge competitive advantage. They will also need to take a stance on to what extent they will provide or verify templates.

Near-Term Objectives

If we want to create a liquid native exchange, we’ve got some work to do.

We must standardize creatives. Through OpenRTB 2.4 and Native Ads 1.1, the IAB has standardized many aspects of the native ad offering, including assets, context (content vs. social) and placement (feed vs. content leaf page). The market will compress liquid buying around a subset of these combinations, similar to what leaderboards and MRECs did for display. One key question is how to generalize minimum-maximum creative size expectations by both parties.

We must simplify templates. Native ad networks meld demand pools with their custom templates. This makes it hard for publishers to iterate their own native UX across multiple sources of demand. Imagine trying to run an A/B test for different native styles across a demand stack of six partners. Painful.

We need to abstract the template layer away from the demand source, so projects designed to improve native UX can run separately from projects designed to generate more demand. Similar to how header bidding wrappers helped mitigate the burden for publishers, we will likely need a wrapper for managing templates. Exchanges will be receptive to this development, but networks will resist it.

We must unify demand pools. Publishers should stop hard-coding widgets onto their pages and begin integrating native ad delivery back into their primary ad server, so everyone dynamically competes in the waterfall for the same real estate. Vendor lock-in doesn’t scale.

Finally, we should pursue header bidding. Native demand should flow through the same pipes publishers have already learned to manage. Once demand delivery has been recentralized back in the ad server, publishers should continue to press networks and exchanges hard for bidder API access to native demand.

Yes, there is work to be done, but the promise of truly programmatic native represents the next big wave of innovation and growth for the market.

Follow Danny Khatib (@khatibda), Livingly (@Livingly) and AdExchanger (@adexchanger) on Twitter.

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