Mike On Ads

One of the things that boggles my mind is how massively fragmented and confusing the display world still is. It’s been over three years since the first ad-exchange launched yet the world hasn’t significantly changed. What makes matters more confusing is that there is no consistent terminology to describe what a company does. It seems everybody describes themselves as either a platform, marketplace or exchange — so what’s the difference?

A company can call itself a publisher, an agency, a network, a broker, a marketplace, an exchange, an optimizer — what does it all mean? What’s the difference between Right Media and Contextweb? Admeld and Rubicon? That’s really the problem — today’s commonly used labels are useless.

Instead of evaluating a company based on labels, evaluate it based on the services it provides, technology it has, the partners it works with, the revenue model and the media revenue it facilitates. Note — below I focus entirely on companies that in some shape or form touch an *impression* — either as a technology provider, buyer or seller. There are peripheral companies that provide a whole world of supporting services, but I’m leaving those out for now to avoid confusion.

Services

Each company provides certain core services to partners, customers and vendors. These primarily center around the relationship the company has with the media that flows through it.

Technologies

There are certain core technologies that define what a company does. Note that you will find technologies such as dynamic creative optimization, behavioral classification and contextualization missing from the below list as they are differentiators — they don’t define what a company does but provide a competitive advantage over the competition.

Size Matters

Last but not least, the size and the partnerships of a company matters. I’ve written before about the perils of building technology in a void. You can have the most amazing platform that provides great services, but if you’re only running a few thousand dollars a month it’s all moot in the grand scheme of things.

Size can be measured either in impressions or revenue, the latter being far more telling. Getting a billion impressions of traffic a day isn’t hard these days — between Facebook and Myspace alone you probably have close to fifteen billion impressions of traffic running daily.

There’s a huge difference between a partnership and a media relationship. If you’re willing to foot the minimum monthly bill, anybody can buy Yahoo’s inventory through the Right Media platform. That doesn’t say much about who you are as a company. A partnership is different — it might be deep API integrations tying two platforms together or co-selling and marketing a joint solution.

What does it all mean?

Phew… that was a long list, so what does it all mean? Well, the above provides a slightly less fuzzy framework than the classical “ad-network”, “marketplace” or “exchange” commonly used labels to describe a company. Let’s look at a few examples:

Rubicon Project provides publisher representation services through it’s network optimization platform, arbitrages inventory through it’s internal sales team has both an internal and has an externally available adserver (one for the sales team and one for publishers) and is rumored to be working on real time buying APIs. That’s a hell of a lot more descriptive than “publisher aggregator” or “network optimizer”. The one thing I always find confusing about rubicon is that it their incentives seem to be fundamentally misaligned. How can you both arbitrage inventory and serve as a publisher representative? Updated (5/3/09 @ 8pm EST) — I seem to be misinformed. Per comments, Rubicon does not sell inventory directly to agencies.

Compare this to AdMeld which provides publisher representation services through it’s network optimization platform — an externally available adserver — and provides buying APIs (currently via passback). So what’s the difference with Rubicon? Well, one has an internal ad-network and the other doesn’t — different incentives. Publishers are starting to treat Rubicon as another ad-network in the daisy chain whereas AdMeld sells all remnant inventory as a trusted partner.

ContextWeb has an internal adserver (with a self-service interface… I don’t count that as external), they arbitrage inventory, and provide buying APIs. Compare this to Right Media which has an externally available adserver, buying and selling APIs, internal trading, data aggregation and arbitrages media (through BlueLithium/Yahoo Network). Both are “exchanges”, but clearly there is a pretty big difference between the two!

Of course if you get to Google your mind starts to explode just a little bit — as they do everything. Seriously. They buy & sell, have multiple adservers, provide buying APIs, internal trading, data aggregation…

Final Thoughts

I hope this post has given you some ways to start thinking about companies in the online ad space. I’d love to hear your feedback in the comments — what core services & technologies am I missing?

Now — next time someone says — “I’m an exchange”, why not ask — “Ok, that’s great, but what do you really do.”

Yahoo Research via Geeking with Greg:

In Web advertising it is acceptable, and occasionally even desirable, not to show any [ads] if no “good” [ads] are available. If no ads are relevant to the user’s interests, then showing irrelevant ads should be avoided since they impair the user experience [and] … may drive users away or “train” them to ignore ads.

What a crazy idea — what if one were to actually make more money by not advertising. It makes total sense. We’re inundated with media. Our eyes have been trained to ignore those lovely 160×600 and 300×250 size objects that we see all over our web pages — especially on social networking sites where our users spend so much time.

This fascinating paper on negative externalities further reinforces this idea:

Most models for online advertising assume that an advertiser’s value from winning an ad auction [...] is independent of other advertisements served alongside it in the same session. This ignores an important externality effect: as the advertising audience has a limited attention span, a high-quality ad on a page can detract attention from other ads on the same page.

I’m sure everyone by now is familiar with Pareto’s law — otherwise known as the 80/20 rule. Applied to advertising Pareto’s law states that 20% of impressions generate 80% of the revenue — and yes this is true for most web 2.0 properties that I have worked with. So what if we stopped showing ads on the 80% that were only generating 20% of the revenue?

Instead of showing crappy CPA offers the publisher should show either nothing at all, or some relevant site content. Show a snippet of the friend-feed, or maybe a list of ‘online friends’. Show “interesting related links”, or “new photos posted”… it doesn’t really matter. Show something that is of interest to the user. The point of the exercise is to train the user to start looking at this specific space again.

In the short term this may very well sacrifice 20% of revenue, as users who were previously inundated with ads are learning to trust those slots again. Longer term we get more user engagement which means higher rates on the other 80% of revenue. I wouldn’t be surprised if you saw a 50% increase in engagement just by showing 80% fewer ads — and that increase in engagement translates directly to higher rates and a fatter bottom line.

There are a world of other benefits too. First of all — fewer ads means happier users. It also means fewer creative issues (whether content or malvertising). The publisher can also use this as an opportunity to drive traffic from lower to higher monetized sections of the site. Eg, Myspace could drive users from the low $0.15 CPM User-Generated Content pages over to the very brandable ‘Movies’ section. And last but not least — showing fewer ads will create a sense of scarcity around what today is most certainly considered “bulk” inventory. This scarcity will help justify higher rates on the premium guaranteed buys — further helping to fatten up that bottom line.

If this is obviously so good, why is nobody doing it? Well there’s only one small insignificant problem… Publishers have no way of identifying the top 20% of impressions. You see, especially on social networking sites a huge portion of that 20% are impressions that are sold behaviorally via ad-networks and exchanges. Those ad-networks and exchanges need to see the full 100% to be able to cherry-pick the 10% that are valuable to them thereby making it quite difficult for the publisher to “not show ads” on worthless impressions. In fact, since all reporting is aggregated, most publishers don’t even realize that the majority of their revenue comes from a relatively small # of impressions.

How do we get around this? Well… that’s another blog post =).

In my last post I said that the traditional ad network model was dying — what I didn’t talk about is how I think the network model will evolve over the coming years.

The fundamental flaw with the traditional network model is that the network is incentivized to optimize it’s own revenue — not maximize value for the advertiser. As long as you keep the advertiser happy that he’s getting a great ROI, and the publisher gets his paycheck — the network can keep the rest. The less demanding the advertiser, the less intelligent the advertiser — the better for the network!

Let’s take a simple example — A classic agency IO line item has a size, cpm, budget and some basic targeting parameters and goals. For example, one agency may buy $10,000 worth of US based inventory at a $0.50 CPM for 728×90s with a target CTR of 0.5%. Another way to think about this is that $10,000 @ $0.50 is 20M impressions, and at a 0.5% CTR means the agency is expecting to receive 100,000 clicks.

Now the smart network will go out and see how cheap he can go and acquire 100k clicks on news inventory. Why? Well, assuming he can deliver the volume his revenue has already been fixed — it’s $10,000 no matter what he does. The only thing on the line is whether or not this IO will be renewed or expanded next quarter. Since cost is the only variable the network can manipulate to increase profit he will go out and find the cheapest possible inventory that at least a 0.5% click through rate. The chart below demonstrates this with fictitious data. Buying cheaper inventory results in a lower CTR, but also significantly higher profits. All the network has to do is figure out how happy he wants to make the advertiser — just happy enough to renew (and maybe increase) next quarter’s IO, but not quite enough to cut into his healthy profit margin.

Network Profit & Cost w/ Campaign Performance

Now you might think that this only works if advertisers are buying on a CPM, but sadly that is not the case. Whether it’s on a CPC, or even a CPA — it’s all about finding the cheapest way to fill the requirements. You see, there is actually a strong difference in lead-value depending on the source of the inventory. A click from Yahoo’s homepage is actually worth significantly more than a click from a social networking site such as Myspace or Facebook. Similarly, a lead or conversion from the New York Times (one of the most affluent properties on the web) is worth more than a conversion from helpforhomeowners.org. The majority of buyers out there today do not have the necessary lead tracking tools to accurately identify who is sending them good or bad leads.

I think that it’s this fact alone that justifies the need for central exchanges — which charge transparent fees to connect buyers and sellers. The problem with exchanges is that most agencies lack the deep buying knowledge that the ad-networks have. Just because there direct access to billions of impressions per day doesn’t mean that anybody *can* just buy them effectively. It takes serious skill and agencies still need help finding the inventory that will work best for their campaigns.

It is here that we are starting to see a new breed of ‘network’ — 100% advertiser focused buying networks that put their interest squarely with the actual agency. By charging transparent fees (say 10-20%) and being open about the inventory they buy — the agency can trust that efforts are spent optimizing and acquiring the best possible inventory for each campaign — not the cheapest that will fulfill the actual requirements.

Yet there is also a longevity question. Although agencies lack the skills to buy effectively today, this is something that they are all working on — at what point does the agency become a competitor of the “buy side” network — and visa versa? Logically these business don’t need to be separate, but practically I wouldn’t be surprised if they remain that way. Agencies are naturally filled with “right brain” people — they are creative, imaginative. Networks are naturally “left brain” focused — analytical.

Next post — we’ll take a look at the publisher rep firms and their growing role over the coming years.

Unless you’ve been living under a rock somewhere you’ve probably heard that the whole world is crumbling around us. We’re entering the great depression, guard your cash, no more VC, we’re all POOR.

Well, first let me reassure you — so far the nuclear winter hasn’t started yet. The data that exists so far has been fairly sparse and inconclusive — Google is up, AOL is down… Rubicon claims the sky isn’t falling whereas PubMatic claims prices are steadily falling. I’ve had quite a few in depth discussions over the past few weeks on exactly this topic — where is the industry headed? How is the economic downturn affecting online advertising? What are the big boys doing? What’s new exciting?

Last week’s AdECN announcement and a short stroll through the booths at AdTech finally motivated me to get up and write another blog post! (sorry for my absence, life is pretty hectic these days). So here goes in no particular order my views of exciting things in the market today and what’s coming next.

The traditional “marketplace” network model is dead

By traditional networks I mean the models that ValueClick, Casale and Ad.com were founded on — networks that were primarily built by matching large amounts of supply and demand. The name of the game was to get as many advertisers and publishers together as possible to build the largest marketplace. Once the network was large enough, ad dollars naturally flowed to these players as they were a “one stop shop” for thousands of publishers. Large margins are made by buying low and selling inventory to advertisers at a higher price.

This model was used by many companies to build incredibly successful networks — and in fact — most of these networks are *still* very successful. The problem is, the world is changing. Namely:

First, access to inventory is no longer a competitive advantage. Between Exchanges, publisher aggregators and a mass influx of social networking inventory — everybody has access to billions of impressions.

Second, agencies want to cut out the middle man. Agencies have started to realize that networks are taking massive cuts out of their media buys while in many cases simply serving as an aggregator. And indeed, with supply easier and easier to get access to, many agencies are launching initiatives to cut out the middle man. Whether it’s the new Havas Artemis system, the Publicis Vivaki network or the WPP 24/7 acquisition — they’re all moving in the same direction.

Essentially — networks are getting pressure from both sides. On the supply side they are getting commoditized by aggregators and network optimizers and on the demand side a new crop of technology companies is attempting to empower agencies to buy directly — cutting off the ‘marketplace’ networks.

The rise of the pubgregatimizer

Publishers have finally realized that they might not be the best ones to sell their non-guaranteed inventory. Three well funded companies have emerged that are looking to help publishers navigate the sea of ad-networks and best monetize — PubMatic, Rubicon and AdMeld. I think the value prop is obvious — only the largest of publishers can afford the staff to fully manage the distribution of remnant inventory across various networks. At the moment it looks like the three are neck & neck in terms of unique visitors:

Decreased growth rate will force more accountability for agencies

Although the sky isn’t falling, money is getting scarcer. This scarcity will force everyone along the entire value-chain to be more competitive. This will start with the agencies and go all the way to the publisher — everyone will have to prove both effectiveness and figure out new ways to differentiate themselves from others. Scarcity of dollars will also put pressure on agency margins forcing them to look elsewhere on ways to increase their revenues.

Some initiatives have already started here — Publicis has launched Vivaki, WPP bought 24/7 and Havas has Artemis. Although the exact strategies are vague, one thing is clear — Agencies are going to start getting more involved in the buying process as they see their margins drop to 10% or below whereas our traditional networks (dying per the above) are still pulling in 30-50% margins on their media.

The challenge here is that most agencies aren’t setup to buy effectively online. Buying online is much more about technology, analytics & strategy than it is about creativity, ingenuity and imagination. To buy effectively online an agency needs to start working on it’s brain — which of course is currently largely dominated by “right brain” creative folks and lacking in “left brain” analytics. One of the things we see here as an increase in popularity of the ‘media trading experts’ — networks that focus exclusively on helping agencies buy the best possible media for their clients. Leveraging exchanges & aggregators instead of traditional ties to publishers these networks can serve as an unbiased agent of the agency.

Exchanges will move to real-time integration

Even though only one has made it public — AOL, Yahoo, Microsoft & Google are all working on real-time integrations. Why? Any central trading platform for media needs to support different engines & algorithms. If nobody can differentiate themselves on a platform, then nobody will want to use said platform! Although Right Media was a terrific step forward as the first central trading platform, it’s major flaw is that it took the technology out of the network. Real time bidding platforms solve that by allowing smart advertisers & networks to run their own engines. With the big 4 all working on something… it’s going to be interesting to watch what happens!

This combined with all of the above show a great picture for technology focused ad networks. As I wrote about earlier here and here — it is the difficulty of integration that has limited many an online ad technology startup from succeeding. With supply becoming more and more available in more and more programmatic manners — a time is coming when the guy with the best algorithm will actually stand a chance competing against the guy with the best relationships at WPP.

Final Thoughts

This is an incredibly exciting time in the industry — the whole industry is fragmented, there is little standardization and there is a massive amount of pain. I think big changes are coming. I’ll try my best to be a little more prompt about blogging about it while it happens

Also — if anybody is going to be at Adrevenue 08 and wants to meet up, shoot me a note.

In my last post I talked about redirects and the limitations they posed for online advertising. In this post I’m going to discuss the various workarounds that people have put in place to address the problem. I’m primarily going to focus on serving speed & the “one-way” challenges of redirects as there isn’t much that can be done to address the fact that redirects are inherently insecure.

Fundamentally when you are talking about “integrating” two different serving systems there are two key driving factors: tracking information and influencing the decision. In most cases tracking information is for either transparency or behavioral information. Influencing the decision is also often related to behavior as it’s close to impossible to transplant data from one cookie domain to another. So let’s look at three little ‘hacks’ that people do to make systems play nice.

Replacing a redirect with a tracking pixels

One of the primary reasons why agencies operate their own adservers is to be able to track the # of impressions that their publishing partners are serving. Yet a much simpler method of counting ads that doesn’t involve an entire redirect is to place an “impression tracking pixel” that the publisher (or network) shows on every ad call.

Let’s compare how an impression-tracking pixel impacts the serving speed compared to a more traditional redirect If both a publisher and an advertiser are using a serving system and are using standard redirects (or ad tags) to integrate, each ad call will result in three consecutive requests:

Call 1, Publisher’s Adserver. The first call obviously goes over to the publisher’s serving system. When the publisher’s adserver chooses an adserver he returns to the page either a 302 redirect or some javascript from the advertiser’s serving system. Effectively redirecting the user.

Call 2, Advertiser’s Adserver. In this call the advertiser receives the request, logs an impression and then spits back some HTML (or javascript) that tells the browser to download the ad, generally from a content delivery network (CDN).

Call 3, Creative Content. In the third call the browser requests the actual GIF/JPG/SWF file from a content delivery network and displays the ad.

If each call takes 250ms the total time to serve this ad will be 750ms as no call can occur until the prior one has fully completed. The browser doesn’t know where which advertiser adserver to request content from until he has fully received the publisher’s redirect and then the actual SWF file can’t be downloaded until the advertiser’s adserver has responded with the appropriate HTML.

When an advertiser passes the actual creative over to the publisher and includes an impression tracking pixel the ad-call sequence changes a bit.

Call 1, Publisher’s Adserver. The first call is still to the publisher’s serving system, except rather than returning the actual ad-tag (or redirect) to the advertiser the publisher’s system returns two things. One a call to the actual creative (SWF/GIF/JPG) hosted on his CDN and then a second pixel call to the advertiser’s impression tracking pixel.

Calls 2&3, Creative & Tracking Pixel. Because the user’s browser received both instructions it can now proceed to download both the creative and the tracking pixel in parallel.

If each call takes 250ms then the total time to serve this ad will be 500ms, 250 for the first publisher call and then another 250 for the creative & tracking pixel in parallel.

Benefits: The biggest benefit of the impression tracking pixel approach is that it decreases the time to serve an individual ad — something that will reduce discrepancies and increase the quality of the end user’s experience.

Drawbacks: Of course there are drawbacks with this approach. Trafficking both a creative and it’s associated impression tracking pixel is more work than a simple ad-tag. It also requires more coordination between the advertiser and the publisher

“Forking” an ad-call with an impression pixel

Impression pixels do not have to solely exist instead of a redirect. In fact, they can also be used to supplement existing ad-calls and let third parties “listen in” on an impression stream without giving them the power to manipulate an ad. For example, let’s say that a network uses the Right Media ‘NMX’ platform for their network adserving but is unhappy with the amount of information that he receives from the reporting systems. Said network’s advertisers demand more information from their media-buys — what can he do?

Obviously one answer is to add a redirect to every ad call — this quickly becomes complicated though as the network will have to host the actual gif & flash files, somewhat defeating the purpose of using a 3rd party network adserver. Also, many publishers won’t accept third party served ads from unknown adservers, posing an additional challenge when trying to buy tier-1 inventory.

Another way to address the issue is to insert a tracking pixel into every creative. On every ad-call the network fires off a pixel to his own tracking server which contains the key information that he is interested in — say — creative ID, publisher ID and referring URL. He can then log this information and provide the advertiser with the detailed reports showing exactly where his ads appeared without having to reinvent an adserver!

Using AJAX to load 3rd party content

AJAX has gained a lot of popularity recently. One way that people can integrate two serving systems is by inserting a small bit of javascript that loads the 3rd party content required to either track information or make a decision directly into the browser. For example, let’s say a network wants to know whether a behavioral data provider has valuable data on a user. If the behavioral partner he receives the impression and if not the publisher sends the impression over to one of his regular networks. He could insert a small bit of javascript that sends a request browser-side and loads the behavioral advertiser’s cookie data from the third party domain.

There are some benefits to this approach — timeouts could be set on the actual request limiting the potential slow-down. Also, since the third party isn’t in the redirect stream he doesn’t get full control over the entire impression. The downside is that the decision is made on the client side. This introduces a whole new set of challenges around tracking & writing cross-browser compatible JS.

All these methods are hacks

You’ve probably realized by now that most of the workarounds involve tricking the browser to load some content from different serving systems. Some schemes that I’ve seen get incredibly complex. I remember a customer who wanted to use Right Media’s serving system as the source of inventory but then inject behavioral information from his own cookie domain. The end result was that impressions came into the RM adserver, were redirected to his adserver and then were immediately redirected back to the RM serving system. That’s three ad-calls before an advertiser had even been selected!

That’s about it for now … Stay tuned for part III….

Many publishers either don’t have a strategy for maximizing network revenue or use aging technies such as daisy-chaining to

Out of all the publishers that I’ve talked to many don’t have a solid strategy for maximizing revenue from ad-networks. Many simply don’t understand how networks price, since most are black-boxes that don’t publish how they optimize and choose which ads to display. Yet, there are a couple factors that I find can be large drivers of revenue.

The more times an individual user sees an ad, the less likely he is to respond to it. Ok, seems obvious right? What you may not realize is exactly how quickly user response to an individual ad drops. The following graph is fictitious but representative of the normal response curve of a user on a single site to repeatedly seeing the same ad.

What the above shows is that if you are to maximize revenue you need to start thinking about users and not impressions. A user that’s been on your site for hours and has seen a hundred ads is far less valuable than someone who just logged-on.

Of course every ad-network will tell you that they have a large # of advertisers and deals and that you shouldn’t worry about such things — but lets not forget the Pareto Principle, also known as the 80/20 rule. A small percentage of top advertisers will generate the majority of revenue (and hence higher rates). What that means is that each ad-network will only have one or a couple high CPM ads.

Hence the effective CPM that you receive per user from a network declines as that network continues to see him over and over again. The larger the network the slower the decline, but each will look similar — here’s a rather rough sketch of what various network payout look like (again, numbers are hypothetical, but shape of graph will generally be correct).

Obviously daisy-chaining will not work in this situation as both the medium and large networks have paying ads for each individual ad-view. In the hypothetical example above, you would want an individual user to see the following sequence of ads to maximize revenue:

1. Small
2. Medium
3. Large
4. Medium
5. Large
6. Large
7. Medium
8. Small

Comparing the effective CPM of each network individually versus optimized together:

What you see is that you can vastly increase your CPMs by distributing your networks. Now — although these are fictional numbers — the concepts are real and they work. So how do you do it? Rather simple!

It’s impossible to allocate impressions on a per view basis as I did above so we must rely on a little bit of approximation. The way to do this is to setup multiple placements or zones with your ad-network and then to frequency cap them individually within your own adserver. The above could look something like this:

The key here is not to over-complicate. Sure, a Myspace, Facebook or Bebo may create hundreds of different placements each with different caps and priorities, but there are two reasons you shouldn’t

1. It’s incredibly resource intensive to manage
2. You don’t have enough inventory

Each placement needs to run a minimum amount of volume otherwise pulling out the effective CPM will be nearly impossible. A lot of pricing is based around user response to ads — eg CPC or CPA based pricing. Since clicks and conversions are rare events you need to have enough volume in each placement to get a predictable effective CPM. On CPC networks you can probably get away with a couple thousand impressions per placement per day but on CPA you’ll want to go closer to ten to twenty thousand.

There is some art here as you will have to update both the frequency caps and the pricing on your placements regularly. The first couple times chances are you’ll see your network cpms fluctuate as you play with the caps & inventory allocations but as you get a hang of it you should gain some serious lift.

Enough for today — next, how to effectively target network placements to maximize revenue.

The “Exchange” Buzz!!

Back in May I started a three part series on “The Ad Exchange Model” where I focused primarily on the technical benefits that exchanges bring to the online advertising industry. Since then exchanges have received quite a bit of press with all the recent acquisitions and the word exchange has reached buzz-word status, without much understanding of what it actually means. Perhaps most confusing is that many don’t seem to be able to differentiate between an Exchange and an Ad-Network. For example, compare these two quotes from iMedia and Ad.com, can you tell what the difference is?

“An ad exchange is a company that brokers online advertising by bringing publishers and advertisers together on a website where they can participate in auctions for ad space.” iMedia Connections — Ad Exchanges At a Glance

“Websites have ad space. Advertisers have ads. We’re the middle man – using our phenomenal technology to match ads to space.” Advertising.com Homepage

The ‘Nasdaq’ Analogy

One of the most common explanations I have heard goes something like this — “An ad-exchange functions just like the Nasdaq.” (this is in no way a jab at ContextWeb’s Adsdaq, this analogy is regularly used on all ad-exchanges). You like the Nasdaq right? Good, the Nasdaq is efficient has some fancy electronic trading and does lots of good things, which is why you should buy this ad-exchange. Oh, well of course! Ad exchanges bring efficiency just like the Nasdaq does, that makes absolute perfect sense! Try explaining an ad-exchange like this, it’s actually quite amusing. Generally what happens is the other person’s eyes glaze over slightly and he starts nodding as if everything has been made extremely clear even though he still has no clue what the ad-exchange actually does. You see, the Nasdaq analogy really doesn’t make sense but nobody wants to sound stupid and say “I don’t get it”, so they let it slide and remain confused.

So why doesn’t it make sense? Well, we could argue semantics of stock markets versus commodity and future exchanges — but who cares. The real problem is that the Nasdaq analogy works just as well for Advertising.com as it does for Right Media, adECN or AdsDaq. The Nasdaq is a mechanism which enables people to buy and sell stocks. Ad-networks are mechanisms by which people buy and sell ad-inventory. If this is surprising, it shouldn’t be — an ad-network is a mini-marketplace, very similar to an exchange or stock-market. The whole reason we have them to begin with is to enable thousands of sites to work with thousands of buyers. Can you imagine Netflix writing individual checks to the thousands of different sites where their ads are displayed?

So what’s the difference

Even though an ad-network may perform many of the same functions as an exchange there is a subtle difference. The network operates and controls all aspects of the mini-marketplace whereas the exchange is an “agnostic” platform that many buyers and sellers use to run their own businesses. In most ad-network limits each transaction (or ad-impression) to three parties: a buyer, the network and a seller. The exceptions to this would be networks such as Tacoda where a fourth data-provider might receive a cut of the transaction based on information about the user that the network provided. Of course in reality online advertising is far more complex than that and a single online ad impression can involve far more parties.

That’s where the exchange model shines — instead of one party “operating” the exchange on behalf of a number of buyers and sellers, the exchange provides a single technology platform upon which many companies — advertisers, publishers and networks — can buy and sell ads. Each impression can have anywhere from zero to many middlemen.

Who cares?

First off, the exchange is many companies versus one in the case of the ad-network. The platform is an ecosystem that supports a large variety of business models which results in more innovation and competition. Then there are certain basic technical benefits from having multiple participants in a transaction use the same platform, something that isn’t possible with an ad-network. For example, a proper exchange removes the operational barriers that have limited access to inventory in the past are eliminated in an ad-exchange. This enhanced the liquidity of the marketplace, which results in higher and more stable rates for publishers. I’ve covered most of these benefits in detail in my ad-exchange series.

Of course some of the above is still somewhat theoretical as we are just now starting to see the exchange model mature. As the model grows, most standalone networks will find life difficult without some level of integration with one or more of the coming exchanges.

In Parts II & III of this series I’ll talk about some tactical steps Publishers and Advertisers can take to leverage exchanges as either sources of inventory or pools of advertisers to maximize ROI and revenue and perhaps some bits on how Networks can different themselves in the coming landscape.

Not too long ago I wrote a post One buyer, many cookies, now what?. In that post I promised that I would write about how buyers can best operate in the coming market with multiple platforms — and hence multiple cookies & adservers.

A quick refresher

In prior posts I have stressed the following:

1. An exchange or ad platform, fundamentally an adserver
2. Adserving is still tied to one cookie.
3. Behavioral targeting is tied to knowledge about a user
4. Knowledge about a user is stored in the cookie (whether as a unique user id or the actual data)

If that didn’t make sense — go read some of my older posts first.

Behavior is the future!

A single exchange with a single cookie space would have enabled true global internet wide behavioral targeting. Lets imagine I wanted to remarket to mikeonads.com users. All I would have had to do in a single platform market is add my visitors to one behavioral segment on one exchange and then place buys on that segment. Sadly this is not likely to happen since the three major internet giants swooped in and acquired practically every adserving/exchange/marketplace up for grabs. So what would I do in a world with three platforms? Lets talk about some options.

Option #1: A global user-id

Imagine this — an independent entity that offers a global user-id database. Every marketplace, ad-network or exchange subscribes to this UID service and syncs their user-ids with the global user-id. So even though Google might think that you are user #12345 and Yahoo might think you are user 54321, I can use global UID database to map your mikeonads UserID of #164 to Yahoo’s 54321 and Google’s 12345. I then simply signal to Yahoo that user 54321 is a mikeonads.com user and similarly to Google. Now each exchange knows who my users are and theoretically I can then target campaigns to my users.

Chances of this happening? Pretty close to nill. First off you’d need an independent company to provide the global UID space because none of the giants would want to give up control to another on this front. Then this conglomerate would have to get past scrutiny from the FTC, FCC, FBI, CIA and who knows who else before being able to launch, and then finally somehow convince end users, who would have probably gotten wind of this from all the press coverage, that this wouldn’t be an invasion of privacy.

Option #2: Massive user-segment mapping

In theory this solution isn’t too different from the above except that it requires browser-side communication of segments. Instead of having a global user database which allows companies to merge and map their data you simply signal each individual piece of information to each platform. If I were Revenue Science, Exelate or Tacoda I could sign up with Google, Yahoo & any other source of supply and set up my user category mapping in each system. Then, when I decide whether to add a user to a segment I fire off pixels (or whatever method to add a user to a segment) for each system.

Lets go back to remarketing to mikeonads.com users. Some people might find this a little confusing, so I made a little diagram:

Lets walk through the steps (btw, this is hypothetical, I’m not actually tracking you like this!)

1. You come to mikeonads.com
2. The html for the site contains three img tags that point to various platforms
3. Your browser loads the Google pixel
4. Google updates it’s user database and adds info to your cookie
5. Your browser loads the Yahoo pixel
6. Yahoo updates it’s user database and adds info to your cookie
7. etc.

Why does this have to work this way? Cookies! Each company has a different UID and each UID is stored in a cookie. For Yahoo or Google to store data on this user they must know who the user is, for which they need access to the cookie, which means the user’s browser has to request content from their servers.

The above is actually a perfectly feasible model and practiced a fair amount today. The problem is that it’s difficult to scale — sure if all I want to do is tell each platform that you visit my site it’s pretty easy. But what if I have thousands of different user segments and then have weights and scores on each?

Option #3:Tagging users based on value

Instead of building a mapping of a thousand different categories across five different platforms there is another solution — flagging users based on value. Lets say I rank my behavioral segments into ten different buckets, from very low to very high value — for example, users interested in credit-cards are far more valuable than users interested in harry potter. After having assigned a value priority I can then create ten different segments in each supply platform that I want to work with. Each time I have access to a user’s browser I fire off one of the ten segments to each of the supply platforms to signal the value I place on this user, much like option #2 above. Note that I still place the exact category in my own user database.

Once I have flagged users based on value I can then place a media-buy with each platform at different price points based on the ten user segments. For example, I can have one $5.00 CPM campaign for all the high value users, credit-card and auto buyers, and a $0.50 campaign for the less interesting behaviors — low-income family, under 18, etc.. Each time I win a campaign I have the platform redirect the user to my adserver where I pick my own ad to serve based on the exact categories that the user in. The major draw-back of this approach is that it forces third party adservers. To some extent this is inevitable but this is non-ideal from a creative review, discrepancy and user experience perspectives.

Final Thoughts

Even though the industry won’t be standardizing behind one platform there are several methods of enabling cross-marketplace behaviors. Obviously there are some privacy concerns that will have to be ironed out, but those are independent of the platform being used. Also, if you own a site and are interested in remarketing to your users in ways I describe above you should check out Advertising.com’s LeadBack service which allows you to do just that!

Microsoft has bought adECN. Still sitting in your chair? Yup, the ‘exchange’, which in reality is just the network ExperClick, was acquired by Microsoft today. I’m really at a loss as to what to say. AdECN isn’t really an exchange, more a loose consortium of ad-networks, and loose in the sense that they’re primarily based around one single ad-network. Why buy a crappy exchange instead of building on top of DrivePM, one of the top ad networks in the US?

I’d like to continue my series. If you haven’t already, be sure to read Part I and Part II first.

After my first two points I received multiple questions around the lines of “Who will make money off of this?”, and “Who benefits most?”, “How will ad-networks survive in this environment?”. Well, I thought we’d take a look at the various types of players in the market today and discuss how they will thrive/survive/die in the exchange environment. When discussing each of these I imagine a world in which there are two or three major ad-exchanges. Say, Googleclick, Righthoo & Micro7 … Any business that wants to play has to in involved with one or more of the exchanges as in this new world, 95% of all inventory gets sold on the exchange.

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