Why publishers are afraid of real-time bidding

(Originally published in iMediaConnection, January 2011) by Eric Picard

Real-time bidding (RTB) is a hot topic in the online ad industry these days. (Personally I wish the industry would talk about real-time buying and real-time selling — because bidding is not really a requirement to get the benefits. But that’s perhaps the topic of another article.)

There are a lot of misunderstandings about the issues in the RTB space, particularly from publishers. Many publishers are jumping in with both feet, but a large number are still in wait-and-see mode, and have big concerns that they want addressed before they enter the fray. Some of these concerns are not areas that should cause concern, and there are other issues that they should probably care about — but that aren’t even on their radars.

Years ago, publishers were very concerned about sales channel conflict with ad networks. This concern ultimately was addressed by publishers only allowing resale of their inventory by networks if it was sold blind, meaning that the network could not identify the publisher as the inventory source. Over time, ad networks have become deeply ingrained in the industry ecosystem, and for the most part, the channel conflict issues have been addressed through this blind resale mechanism.

When RTB companies first entered the market, publishers treated them just as if they were ad networks (some of the RTB companies are ad networks, by the way), and they limited the inventory relationship to remnant inventory that was sold blind to match the way it had worked in the ad network case. Most publishers at this point are over focused on the issue of channel conflict here, because the drivers of RTB are different than many in the industry realize.

The RTB space has two faces — one that is focused on acquiring good inventory at a steep discount, and another that is focused on enabling programmatic media buying and selling. The latter focuses on removing the human negotiation process in order to increase efficiency in the purchase and sales processes. While the first group of buyers is discount focused, the second is focused on more efficient and effective media buying. And publishers should not only enable them — they should encourage them.

When publishers sell inventory using RTB, they not only reduce their cost of sales, but they also remove a huge amount of their ad operations costs. The buyer only picks up the inventory if it matches the buyer’s goals, and there is no guarantee involved. No manual hunting for placements that have enough traffic to cover the campaign goals. No fire drills to handle at the end of the month.

While publishers should be concerned about advertisers trying to get media discounts by playing the human and automated sales channels against each other, that’s easily overcome. Almost any mechanism publishers would use to expose their inventory to RTB — such as an exchange or a supply-side platform — would also enable them to set floor pricing. This means that the inventory would be protected from RTB prices undercutting their sales force.

I actually suggest that publishers expose their entire premium portfolio to RTB, and that they should not sell it blind. They should think of the RTB channel as part of their sales forces — a non-human sales team that lets the buyer achieve its goals more efficiently and reduces the costs of sales.

One issue that many publishers (rightfully) fear with RTB is data leakage. But this is an endemic problem that has been floating in the industry for years. Let me start with a more fundamental description of the issue:

Let’s say an advertiser makes a premium buy from a publisher for 50,000 impressions of a behavioral targeting segment called “auto shoppers,” starting on Jan. 1. The buy is frequency capped at a frequency of one, and the advertiser is paying a $45 CPM for the privilege. The ad is being served using third-party ad serving, and the advertiser also drops a tracking code from its demand-side platform into the creative — which they don’t to disclose to the publisher.

Now that the campaign has gone live, the advertiser is reaching an average of about 1,500 unique web browsers per day, setting a cookie on those browsers. Immediately, the advertiser pulls the trigger on a RTB campaign that looks for those same cookies on the various ad exchanges, and it pays a $1.50 CPM to reach them. To make matters worse (from the publisher’s perspective), if that publisher is exposing remnant to RTB in an exchange, the same advertiser might well deliver ads during the run of its $45 CPM campaign on that same publisher for $1.50 CPM to users it has already reached.

This is a real issue — something that happens every day. From the publishers’ perspective, these are data that they have worked hard to collect, and they believe they are their proprietary data. And they feel strongly that nobody should be able to steal those data from them.

The reality is that every ad network out there has been doing this since the beginning of the industry. If ad networks buy targeted inventory, they can cookie users quite easily, and then resell them as part of their targeted network sales.

But ultimately, there is a bigger conversation to have about the value of publisher targeting data:

  • Publishers only know what a specific browser is exposed to when on that publisher’s site, which can be a very slim aperture of activity viewing.
  • Most data that advertisers want access to are pretty much a commodity. How many times does an advertiser need to know what kind of car someone drives, and who has access to that data? A lot of parties know this information, and many have the right to sell it. Only data that are either fairly unique (people who follow their finances on Yahoo Finance probably aren’t going to MSN Money) or that are processed and matched with other activity data (search engine results or shopping activity) have proprietary value that a publisher should protect.
  • Given the industry discussions about privacy, it’s very possible that third-party tracking of data for targeting could run into some issues over the next few years. This will set publishers up with many more unique data opportunities than they currently have.

Ultimately publishers need to grapple with the issue of RTB through the lens of their own business challenges. However, the two biggest issues that I usually hear about from publishers — channel conflict and data leakage — are ones that shouldn’t stop a publisher from participating in RTB. In fact, these issues should probably bring a new view to the conversation.

RTB ultimately has an opportunity to change the game for the better for all ecosystem participants — but only if enough valuable inventory is made available to the channel.

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