By Eric Picard (Originally published on AdExchanger Monday, December 1st, 2014)
For years, there has been a series of bad memes spreading throughout our industry. Some of the big ones have caused a huge amount of misunderstanding in our space.
Here’s my favorite: “There is infinite supply of ad inventory. With this overabundance of supply, the cost of inventory will be driven to zero.”
This way of thinking caused the publisher side of the industry to fear and block adoption of programmatic buying and selling until the last year or two, when it was proved to be false.
A simple truth: All ad impressions (in a nonfraudulent world) are created by a person seeing an ad. I estimate that there are 5 trillion monthly digital ad impressions in North America. If we divide this against roughly 300 million active Internet users in North America, assuming they spend on average five hours a day consuming content on the Internet, that breaks down to approximately 100 ads per hour.
So we as an industry have 100 chances an hour, or about 500 chances per day, to reach each person in North America with a digital ad. Of the 300 million people we can reach, advertisers only care about a sliver of the total audience.
Once you break down the audience to the desired number of people to reach, with the relevant targeting, the question becomes: Of the 500 daily opportunities, how many times do you want to reach that group of people? It comes down to several factors: what mechanisms you, as a buyer, can use to identify them and deliver an ad to them, the format of the ad and how effective you believe your opportunity to reach them will be.
So, no – the number of impressions is not infinite. And if we believe that some percentage of the ads in that 5 trillion monthly statistic are fake, meaning fraudulent or simply not viewable, then the number of chances to reach consumers could be much smaller, from 100 to as low as 50 ad opportunities per hour.
Suddenly the lie is turned on its head and it becomes more about maximizing the opportunity with your target audience. And for those opportunities, the cost is definitely not heading toward zero.
Not True: Ad Inventory Can Be Defined By The Publisher And Divided Into Pools Of Undifferentiated Impressions
Ad inventory is made up of a group of individual, unique ad impressions. Every impression has hundreds of points of data surrounding it. The problem with this belief is that it assumes limitations that don’t exist. Publishers define inventory in broad, relatively undifferentiated buckets, which are the lowest common denominator from a complex media plan sent with a fairly detailed RFP by the buyer.
For instance, buying a million impressions of “soccer moms” from a publisher creates a very limited view of that inventory. The range of income, interests, product ownership or geography is broad for the individuals behind those impressions. And some “soccer moms” may be worth more than others depending on an advertiser’s campaign goals.
In a world where inventory is publisher-defined, this lowest common denominator approach was the only way to operate a scale media business. But that’s no longer the case. Buy-side decisioning allows the buyer to define the inventory – and that inventory definition by nature can be more complex than ever.
So what is an impression? Ultimately an impression is a human being engaging in a monetizable experience via a computer or digital device, in a certain modality. By modality, we mean that they’re either passively consuming content (such as watching a video), actively consuming content (reading an article or email), actively participating in an interruptible interactive experience (playing a game with breaks between levels) or actively participating in a non-interruptible interactive experience (writing an email or engaged in a video chat).
All the data about the person behind the impression is captured in first-party (buy side and sell side) and third-party data platforms. And all the data about the content being consumed, and the user’s modality, belongs to the publisher. It is by matching both types of data that we can truly unlock the value of inventory. The more open and transparent we make things, the more value we unlock. By giving buyers access to the unfettered truth of inventory and the ability to peruse and pay for their desired inventory, price ultimately tends to go up, not down. The old world of limited, siloed and blocked data is responsible for this lie.
As we’ve opened up inventory sources and unlocked access to audience and modality data, the market responded by equalizing prices. As a result, publishers can make just as much money from programmatic channels as direct sales. Publishers that are allowing demand from programmatic sources to compete directly with guaranteed inventory are becoming pleasantly surprised with the results. Publishers that started early on this path are gaining some significant advantages that could be sustainable over the long haul.
Not True: Publishers Don’t Let Buy-Side Systems Access Inventory Because Of Potential Data Leakage
This is an old misconception. Back around 2005, some publishers invested in technology to enable creation of “publisher first-party” audience targeting data. They tracked individual audience members’ activity on the publishers’ sites and put these content consumption behaviors into behavioral targeting segments. They could then sell these segments as inventory definitions, rather than just selling locations.
This was very useful when publishers had small pools of valuable inventory that would sell out, such as auto-related inventory that would sell out months in advance. So publishers tracked users who read articles in the “auto content” bucket and created a segment called “auto intenders” so they could sell ads targeted to those users when they were browsing other pages of the publisher’s content. If they charged $15 CPMs for auto content ads, they would sell behaviorally targeted “auto intenders” for $10. They’d deliver those ads on pages that were probably selling for $5 CPMs, more than doubling the yield on those impressions.
The problem is that only the largest publishers with big user bases that consumed lots of their content could assemble enough valuable behavioral data. The small window into a person’s web-surfing behavior that any one publisher had access to was not enough to really create sustainable value. However, that data was created, sold and valued by the market, although it was less valuable to buyers because it originated from user activity on just one publisher, rather than data pooled across publishers.
Right around that time, the first behavioral ad networks, typified by Blue Lithium, figured out that they could supercharge their behavioral targeting segmentation by buying guaranteed targeted buys from publishers and stealing segmentation data from the publishers. They maximized reach by keeping the frequency cap as low as the publisher would allow, then dropped their own cookies on those users and added the publisher’s targeting definition to their own.
For instance, say a buy of “auto intenders” from Yahoo had a frequency cap that was set to one. If the ad network bought 1 million impressions for a $10 CPM, they would add 1 million unique users to their own cookie pool of “auto intenders” for just $10,000. They could then find those same users on cheaper sites, and eventually buy the inventory over ad exchanges for less than $1 but sell it for $8, allowing them to arbitrage the market. Since these networks could turn small expensive direct buys into feeders of their behavioral targeting pools, and then extend those buys to cheap inventory sources, publishers obviously became very concerned about this “data leakage.”
Most publishers, other than the very largest, stopped investing in their own first-party behavioral data technologies, leading to the creation of the lie that publishers are deathly afraid of data leakage. But what people missed is that most publishers simply gave up fighting this battle. Instead they partnered with third-party data providers that paid publishers for the rights to collect behavioral data.
They would then push the behavioral segments back into the publisher’s ad server so they could sell the data as part of their direct buys. The data leakage problem led to the creation of the third-party data marketplace and the tracking of users across publishers, which marketers find more valuable.
The real value that publishers can provide is not in turning the behavior of their audiences into targeting data. Instead publishers can give buy-side decisioning systems access to data about the content being consumed (category-level data) and what users are doing on those pages (modality data). They can also enable the buyer to bring their own first-party data, which is far more valuable for buyers than anything the publisher could assemble.
Everybody wins when publishers open up competition between decisions made by a demand-side or buy-side ad platform and direct buys booked through their sales force. When given the opportunity, buyers are willing to pay similar or higher rates for access to this inventory, compared to what they’d pay for publisher-packaged inventory that only offers publisher-based ad decisions. The two methods competing with one another increases the value of the inventory and maximizes the yield for each impression. It’s a “win-win” or a non-zero-sum game – a good thing for everyone.