GM Burke Says FatTail Offering Supply-Side Platform Solution

Doug Burke is General Manager of FatTail, an online advertising technology company. How did FatTail begin?

DB: FatTail formed in 2001 to apply the tools and technologies of financial trading systems to the data rich world of online advertising. The founding team, which continues to lead the market’s innovations, had extensive experience in advanced trading systems of equity, bonds and derivatives and had built and sold companies to SunGard and Cantor Fitzgerald. The term FatTail, coined by Benoit Mandelbrot, IBM Fellow Emeritus and Sterling Professor of Mathematical Sciences, Emeritus at Yale University, describes how to understand and manage the real world risk that typical mathematical models fail to capture. We are helping our publisher clients manage their real world risks in revolutionary ways.

What problem is FatTail trying to solve?

There is a brand new universe of electronic buying for guaranteed inventory that can only be effectively serviced electronically. We are helping our clients tap into this demand at lower costs. Our solutions put publishers in full control of who they trade with, how they price and whether they want to accept or reject the orders.

What advertising trends are you seeing from your clients through Page Gage?

We have been watching the emergence of automated buying systems and Demand Side Platforms (”DSPs”), and we designed and started building PageGage to protect and automate our Publisher clients’ interests when transacting with these platforms.

We define demand side platforms as any buying system that wants to automate with our clients and they include 1) agency systems, 2) local buying systems, and 3) direct response buying systems. The agencies have augmented their buying expertise with DSPs and many have found their clients are NOT satisfied with the inventory available on exchanges and want to buy premium, guaranteed inventory. Local advertising has its own group of new buying systems.

PageGage is the premiere Supply Side Platform to provide automated connections to all these buying systems. PageGage is ad server and order management system agnostic so it sits on a publisher’s existing IT infrastructure with no ripping and replacing.

What’s your view on the supply-side platform? Is this a necessity for the supply or sell-side going forward?

Having a Supply Side Platform is an absolute necessity. Publishers’ who adopt one sooner will have advantages over their competitors by opening up new sales channels, having better run internal operations including more efficient direct sales forces and ad operations teams, and automating access to their data both internally and externally.

The publisher has been at great disadvantage as the investment in buying systems and demand side platforms has outpaced publisher innovation during the recession. We are helping publishers catch up quickly.

Generally speaking, what do publishers need to start thinking about that they haven’t been missing – particularly given evolution of technology on the demand-side?

The evolution of demand side and supply side platforms will facilitate the creation of the Scatter Market, or guaranteed, frequent small order near term buying. In traditional television media buying there is an Upfront, a Scatter and a Spot Market. In the online world there has really only been an Upfront, sold by the Direct Sales team of the publishers, and a Spot or remnant market served by Ad Networks and Exchanges. The evolution of electronic buying and selling will introduce a Scatter Market to the online universe for buyers who are willing to pay a premium over the Spot Market price.

Discuss the competitive set. Is it the yield optimizers? Is it ad networks?

The competitive set is Google. And Google is one of the industry’s biggest partners. However, publishers should be very concerned about giving their bidding strategies, their sales pipeline and their contract information to Google, one of their biggest competitors for ad dollars. It was one thing to let Doubleclick manage this data. It is very different when Google is the vendor. The publisher risk is that several years from now the online publisher may wake up and discover that their revenue and margins have fallen greatly while Google’s have expanded greatly.

Regarding yield optimizers, unfortunately Microsoft Rapt and SAS have not delivered the very desirable goal of yield optimization and have left customers fearful. Both products have led to high fixed cost, entrenched infrastructures that are expensive to operate and maintain and hard to adapt or change as market conditions evolve. Instead of automating their clients, these solutions clogged their data arteries. These are yesterday’s enterprise software solutions addressing today’s problems.

In our opinion, yield optimization needs to be achieved with affordable and variable cost solutions that deliver actionable data in real-time to salespeople and buyers. These solutions need to be delivered by Software As A Service (SAAS) vendors who can achieve the economies of scale and innovation by selling across the industry. The yield optimization functions need to be easily managed by internal ad operations teams without the need for large IT staffs to service them. The ad sales team and their customers need to see real-time actionable data. They need it anytime, anywhere. That is what PageGage is delivering to the market.

Ad networks in general are dealing with the remnant inventory that the direct sales efforts failed to sell. So while optimizing the results in selling to ad networks can have an impact, it pales in comparison to the results from optimizing the premium guaranteed sales process. Helping our customers sell more inventory directly at high CPMs on an automated basis will have a far greater impact than helping them increase the pennies that ad networks can produce.

How is transparency playing into FatTail’s product strategy, i.e. advertisers want more of it regarding the inventory they are buying?

PageGage is a fully transparent system for publishers to manage their sales channels. We put the publisher fully in control of where, how and when they expose their inventory and pricing to the market.

What’s your view on a futures exchange for digital advertising? Is a Wall Street-look possible for digital advertising?

The sale of premium, guaranteed inventory is inherently a “future” or “forward” sale. In order for an exchange to succeed, a significant group of buyers and sellers must agree to meet electronically and transact according to standardized terms. The process is not electronic and still very manual. It is non-standardized and, in spite of efforts by the IAB to create standards, the internet facilitates the continuous creation of new digital advertising formats. The contractual cancellation policies of the industry also prevent a viable futures exchange.

In spite of those barriers, we believe that a futures market for guaranteed inventory for standard ad products can and will evolve. A futures market is far more complex than the spot market exchanges because, among other factors, there are the extra dimensions of time and overlapping inventory. In our opinion, the futures market for display advertising inventory is going to resemble the transaction network buying experience of travel where you can visit online Travelocity, Orbitz, Expedia, Kayak, American Airlines, Southwest, Delta, United Airlines or even call up your travel agent if you value their help highly.

A year from now, what milestones would you like to have seen FatTail accomplish?

We would like PageGage to be the most widely used and most trusted Supply Side Platform for online publishers to manage guaranteed inventory. We are given enormous trust every day and every second by our clients, and we strive hard to earn that trust on an ongoing basis through innovation and careful consideration of our publisher clients’ goals and objectives.

Follow Doug Burke (@DougBurke) and (@adexchanger) on Twitter.

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  1. Doug, do you think that an automated futures exchange or a sales rep visiting in person would result in an advertiser paying higher CPMs for a premium publisher’s guaranteed inventory?

    • Roy: Your question is theoretical because a futures exchange does not exist today. Obviously striving for high CPMs by publishers is a desirable goal – but at what cost to profitability? Premium Publishers have proven that sales reps can lead to higher CPMs, however, the cost to create and support a direct sales team is very high. And it does not guarantee universal sales coverage. As Tolman Geffs of The Jordan, Edminston Group articulated at the IAB Leadership Summit, when all the elements of the value chain on this CPM extract their toll, there is not a lot of contribution margin left for the publisher to cover the cost of a direct sales team. (Page 19 of Tolman’s presentation).
      There is too much friction in the display selling ecosystem to service the diverse needs of buyers – including major brands, agencies, local advertisers, and direct response buyers. This is one reason that super-premium publishers have high minimum order sizes – driving a significant portion of the demand into ad networks and exchanges where there are low minimum order sizes. If the majority of the buyers for future inventory could be assembled in one place, in one moment in time, bidding simultaneously against each other, with no human intervention, bidding on the same, standardized inventory with non-cancellable contracts, an automated futures exchange is feasible. Our industry is a long way from that.
      The answer to increased publisher profitability is to automate the selling process by connecting the supply side to the demand side in a transaction network.