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Exchange v. Network, Part II: Which platform to adopt

So in part I of this series I talked about the differences between Exchanges and Ad-Networks. Now that we understand the differences — lets talk about exchange adoption.

Blue-Ray v. HD-DVD

An interesting analgoy can be drawn between the upcoming exchange battle and the fight between Blue-Ray and HD-DVD over the next DVD format. There are pros and cons between Blue-Ray and HD-DVD, one is more expensive to build hardware for but has more storage space on the actual disks. Similarly there are differences between the various exchanges. Right Media has better optimization and remnant inventory management tools whereas DoubleClick dominates the premium/guaranteed market.

The thing is, when it comes to platforms the true value is the level adoption. Blue-Ray could be a far superior standard to HD-DVD, but if every movie studio only publishes the latter, what type of player would you buy for your home entertainment center? Similarly, an ad platform with terrific technology is useless if there aren’t buyers and sellers there to support it.

The most frustrating outcome of this HD battle would be if neither party wins. Just like the good old “-R” vs “+R” days with burnable CDs, everyone will have to spend more to support both. Instead of making a million CD-R discs, manufacturers had to split their output between “-R” and “+R”, decreasing the economies of scale and again driving up costs. DVD player manufacturers will have to build extra-powerful players than can support both disc types. If only everyone could agree today to back one standard then everyone would be better off.

Back to online advertising — the chances that any of the coming platforms will “win” are pretty slim. Imagine for a second that it was just Yahoo & Google who had ad platforms. Both companies could dump 100% of their search inventory into their respective marketplaces and instantly have enough inventory there to attract a large number of advertisers. In other words, Google can launch an “ad-exchange” that only consists of Adsense and Adwords and it would be a perfectly viable and liquid platform.

Now What

Assuming that that’s not going to happen and we will have multiple ‘standards’ out there, which one if any does a publisher or advertiser choose? What about a network? Although everyone can work with multiple exchanges, you can only adopt one. The problem is, most of the benefits come from true adoption.

First off there’s the basic reinforcement effect that advertisers go where the inventory is, and publishers go where the dollars are. The more members of an exchange, the more likely it’s to grow. Second there are the technical benefits that come with a single platform. For all those benefits — check out this older post on exchanges.

Whether or not you should adopt one of the platforms depends greatly on your business. For some, the free adserving provided by direct media exchange might be enough and the addition of integrated exchange partners is a nice bonus. On the other hand if you’re selling 95% guaranteed and happy with DFP then you’re probably better off waiting until the different players truly start to differentiate themselves.

Next up: How publishers can prioritize groups of buyers (e.g. networks or exchanges).

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  • James

    Hello Mike,
    I seem to recall reading somewhere on your blog about how you feel ad serving functions will very soon be a commodity.
    My question is why do you think so being DoubleClick seems to have a strong patent approved on that technology.

  • Mike

    I take it you mean this patent

    Hadn’t seen this before, ad you’re right, it’s a _great_ patent. Claim #1 pretty much covers adserving:

    (a) receiving from an advertiser Web site feedback representing user transactions at the advertiser Web site, the user transactions resulting from user response to at least one of a plurality of direct advertisements;
    (b) receiving a request to display a direct advertisement to a user; and
    (c) selecting, in response to the request, one of the plurality of direct advertisements for display based at least in part upon the advertiser feedback.

    Then again, Overture used to have a rock solid patent for search advertising but that didn’t stop Google. Perhaps when the deal closes we’ll see another Yahoo v Google legal fight.

  • James

    Yes, that is the patent i was referring to. I’m starting to think that patent is one of the sole reasons why Google decided to acquire DoubleClick.
    They probably felt it was only a matter of time before DoubleClick starts feeling the effects of Google eating into their ad serving market share.
    It is somewhat ironic why the USPTO would grant a company such a broad patent because it basically alienates all companies from serving ads. More ironic is why DoubleClick never tried stopping companies like Google,Valueclick or Atlas from using this “Ad serving Intellectual Property”. My guess is DoubleClick (prior to Google’s acquisition) still believes their ad serving technology will continue to be a default alternative for major ad networks. An ideology i believe will fall apart in due time
    Finally, being you were a former employee of RightMedia, why do you suppose advertisers and publishers need to go through a network to trade ad spaces on the Direct Media Exchange? I also notice ADECN employed that same approach as well.

  • Mike

    I bet you’re right on the patent — what’s the point of sueing when you control the market, something that is bound to change.

    In terms of using ad-networks — I think small publishers will always have to use some type of consolidator. I imagine agencies will continue to use networks for a long time even it were solely for payment consolidation (e.g., no agency wants to write 1000 checks).

    Notice that for larger publishers or advertisers Right Media offers the PMX and AMX platforms to buy or sell directly on the exchange.

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