Economics | springload

Jan 10 2023

Ad Ecosystem, Economics, Online Media, Predictions, Uncategorized

5 Year Predictions – January 2023

Once every few years I like to write an article predicting what will happen in the future. Over the years I’ve had a pretty good track record of getting things right. The world is shifting and moving a lot right now, but I believe that the future is bright. Here’s how I think about the next five years, and beyond, through the lens of Ad Tech, Consumer Technologies, Media and Advertising.

3rd Party Cookies won’t go away, but they will slowly be rendered non-usable as persistent IDs

3rd party cookies, which have been a commonly used tool in the ad tech industry, will not completely disappear but will instead become increasingly less useful as persistent IDs. Google, for example, will not shut off 3rd party cookies in Chrome, but will instead make them less usable for persistent IDs over time. This gradual decline in functionality is expected to take place over a period of five to ten years, and by the end of this time frame, we will likely see the value of 3rd party cookies in the ad tech space significantly decrease. In five years, we will already be on this trajectory towards the obsolescence of 3rd party cookies as persistent IDs.

New approaches to targeting inventory that are privacy-centric will arrive at scale

As the ad tech industry shifts away from 3rd party cookies as persistent IDs, new approaches to targeting inventory that prioritize privacy will become increasingly prevalent. These new methods will be built on technologies such as cohorts and will make use of panels of users that are statistically relevant. This will allow advertisers to not only target the audiences they care about but also more effectively attribute their advertising spend to various outcomes.

The approaches currently being developed, including techniques such as embeddings and deep learning, will greatly surpass the current “brute force” methods used in ad tech and will lead to a move away from surveillance-based approaches towards those that prioritize privacy. Additionally, publisher and advertiser first-party data will be used to feed these privacy-centric models. The technology and techniques to match supply-side and demand-side data already exist, and this process will become increasingly easy, privacy-conscious, and available at scale.

This will lead to a more equitable understanding of customer behavior and reduce the information imbalance that has favored the buy side in recent years. The seed audiences that act as panels for ML models will lead to more equilibrium of understanding customer behavior and reduce the information imbalance that has grown over the last decade in favor of the buy side.

The lines between Buy and Sell Side ad technologies will blur

The lines between buy-side and sell-side ad technologies are becoming increasingly blurred. Companies like The Trade Desk are beginning to integrate directly with publishers, bypassing the SSP and exchange infrastructure. In response, SSPs and exchanges are starting to offer buying platforms, allowing buyers to bypass DSPs. This trend will continue for a few years, reach a peak, and then ultimately collapse in on itself.

This is because DSPs are designed to lower competition over inventory and keep prices as low as possible, which is in line with their role as representatives of the buy-side. However, their algorithms are designed from a buyer’s perspective, and publishers will be wary of these direct paths, resulting in a decrease in yield.

Exchanges and SSPs have mostly focused on liquidity and passing inventory through to DSPs at the lowest cost possible, while publishers have continued to lose power in the struggle between the buy-side and sell-side of the market. However, the pendulum will ultimately swing back towards equilibrium, and publishers will regain more control over data and measurement. Companies will invest heavily in ways to increase publisher yield and the market will balance out again.

Web 3 Technology will iterate beyond just Cryptocurrency

Web 3 technology is evolving and shifting beyond cryptocurrency, towards solutions that support distributed identity and group collaboration. This will have a significant impact on advertising in several ways. Imagine a world where users have full control over their identity and data, and only share relevant information with the companies they choose to interact with, through mechanisms that obscure unnecessary information. Healthcare and finance industries already use some techniques for doing this at scale, and combining these techniques with approaches used in the Web3/crypto space can open up new possibilities. For example, a digital wallet that contains all the important information about an individual’s life, such as healthcare, financial, education, employment, real estate, municipal and government information and automatically shares only relevant information with companies and organizations.

Users could easily opt-in to being part of a brand’s community, which would merge CRM, CDP, Ad Serving, and Social Media. This would mean that users get special perks from that brand, including the ability to get special offers, customized products, early access, etc. Brands could reach out to users and ask for their opinions on products and reward them for their participation. Users could “stake” their interest in a new product or feature and in return get early access, similar to an Indiegogo campaign, but for major brand interactions. Users could also vote on product changes or feature prioritization based on their staking, and the staking could be based on a points system based on their loyalty.

For example, if you have owned five BMWs over the last 20 years, and you are a known high-value customer, you could participate in a user group of other high-value customers and apply your influence to get special options for your next car, or maybe even for mainstream features in all models. Maybe BMW would offer a limited-edition model just for that group of customers, or a special badge. Or maybe you and others have strong opinions about the placement of cup holders, and could influence a change in future models. The “staking” in this case could be the fact that you have already bought several BMWs, and you currently own one or more.

These concepts like Staking are common in the Web3 and Crypto space but haven’t yet gone mainstream. But in the next five years, we are likely to see more and more of these concepts being integrated in the mainstream industry, even if the behind-the-scenes mechanism is obscured from the customers.

Retail Media Marketplaces will grow and expand.

Retail media marketplaces are expected to grow and expand in the coming years. For big retailers like Amazon, Walmart, and Target, this represents an opportunity for additional revenue at higher margins. These networks have already expanded into grocery chains, and even to boutique e-commerce and retailers. They could expand even further beyond the virtual world and into the physical space between bricks-and-mortar stores.

The growth of these retail media marketplaces is due in part to the evolution of the old “coop-dollar” systems that have been in place for decades into something much more advanced. Brands can now pay for product placement in the search results for similar products. When combined with e-commerce experiences, this leads to better outcomes for all parties involved – brands, consumers, and e-commerce retailers. The margins on these media businesses are significantly higher compared to other parts of retailers’ businesses, which is why it is expected to proliferate.

Retailers have a direct consumer relationship, pure first-party data about the customer, and the positioning of these media units is almost perfectly located between the moment of purchase consideration and the purchase itself. This means brands will be willing to spend money on this “must-buy” piece of media. Additionally, bundling of virtual shelf placement with in-store environments will make this buy even stickier over time. If brands want to get good shelf positions, end-caps, and other in-store benefits for their products, they will need to also pay for placement in the virtual space. Ultimately, these will blur and blend and package together, but it is likely further out than five years.

Social Networking will evolve to something else altogether.

Social networking is expected to evolve into something else altogether, with everything tied back through the social graph. This includes commerce, communications, education, search, and more. The social graph maps the connections between people and their interests, and platforms like Facebook understand who you know and the flow of information between you and your connections, as well as their interests and sentiments on various topics.

If the social graph were to become open, meaning it is no longer a walled garden, and your identity and the social graph extends beyond people to companies, products, brands, media, music, film, etc., and where you, the human, are in control, and it’s easy to manage, there would be significant opportunities for growth and change. Social graphs would connect everything, and the consumer would be in charge. Applications built on top of these open social graphs would be different from anything we have seen so far.

Facebook has already become Meta, and they’re trying to own the metaverse. But even without virtual reality, the social graph overlaid across everything would be transformative. It could lead to collaboration between ephemeral and permanent groups of people to do things together. For example, it would be easy to organize a friend group to buy out a restaurant for an evening party, find 800 people in the greater Boston area who also love the New England Patriots and want to have a meet and greet with the team, or have dinner at a local restaurant with a special menu with ten of your closest friends.

But this is just the tip of the iceberg. Connecting the social graph to everything else will change the world. And if identity is solved, so we know you’re not a Russian Bot, things will only get better.

Artificial Intelligence will change everything.

Artificial Intelligence (AI) is expected to change everything in the coming years. We are already familiar with AI-powered solutions such as filters in Instagram or “lenses” in Snapchat, and predictive text to help with text messaging and correcting grammatical errors in documents. But these are just the beginning of a trend that is now starting to take off.

One example of this is ChatGPT, a new chatbot by OpenAI that complements their DallE offerings. ChatGPT enables the creation of very complex written content that can be indistinguishable from content created by humans. Some software developers are even using it to both bug-check and write code from scratch.

Similarly, AI image and video generators are on the cusp of making significant strides. MidJourney, Dall-E 2, and numerous other solutions can generate images in almost any style just by describing what one would like to see. The results are getting exponentially better on an ever-shortening curve.

While it’s important to note that this technology also brings ethical concerns such as copyright and originality, which need to be addressed, the gains will outweigh these concerns. Over the next few years, the art of combining human input with computer-generated output will be refined, and every single software tool used for writing, office work, finance, design, etc., will be transformed. Corporate users will have AIs trained just with their own datasets, such that trade secrets and non-public information can be incorporated into the AI engines. For creators, the initial concerns about artists having their work stolen by these AI engines will be replaced by new understandings of how artists can have their own AI, trained on their behalf, to supercharge and speed up the creation and generation of work.

For production artists and graphic designers, these AI tools will become a seamless and integral part of their workflow, allowing them to create and generate content faster and more efficiently. Musicians will also have access to similar tools that will allow them to compose, produce, and record music in new and innovative ways. The impact of AI in these fields will not only change the way we create and consume art, but it will also open up new possibilities for expression and creativity.

The long game: What big technology will sneak up on us and change all aspects of society?

I’m going to say something that will sound boring: Electricity.

When I do these predictions, I like to pick one long term trend and extrapolate even further out than 5 years. The biggest trending technology I can think of is Electricity.

Solar technology will continue to improve on a scale increase similar to Moore’s Law, which it has been meeting or beating for more than twenty years. Today the cost of solar power is about $0.08 per Kilowatt. If the costs keep dropping and the output keeps increasing on the same scale it has, electricity will become extremely cheap.

You may recall how 20 years ago you paid a long distance fee for all phone calls except for local calls (just the town you lived in). Electricity will never be totally free, but similarly to how we now basically have free calling to anyone, anywhere, even video calling, we’re approaching a world where the cost of electricity is going to be so low, and the ability to create a distributed electrical grid and expand it everywhere will be so low, that the long term prediction should be for a very low cost and low or even zero emissions. Solar everywhere and incredibly cheap electricity will transform the way the world works eventually.

Over the next five years, you should expect to see a lot more solar power implemented, on houses, on buildings, and even the beginnings of solar panels placed under fixed infrastructure like streets and parking lots. https://solarroadways.com/

Once that transition happens at scale, with free electricity nearly everywhere, you’ll see big shifts. There will be a convergence with other lower cost technologies like LEDs (Light Emitting Diodes) hitting their next generation, where laser diodes will become cheap enough to replace LEDs. Lasers put out 1,000 times as much light as an LED, for only two-thirds as much energy. When the laser diodes become cheap enough, and the power is almost free, we’ll see a revolution in lighting and therefore in video. Effectively this means video everywhere, all the time. Streets made up of solar cells that have laser diodes mounted into the transparent high-strength glass surfaces so that the roads light up and animate. Buildings covered in solar cells with laser diodes embedded in them, instant christmas lights, video on the side of buildings everywhere, and the ability to put lighted animated signage anywhere for nearly no cost. Streetscapes and cities will radically transform when this happens.

And I’m bullish about carbon emissions because solar will be so cheap and the innovations on top of a newly formed, completely distributed solar grid are massive.

And as always, my final prediction:

Sometime in the next five years, some new technology nobody has even thought about, or a simple reinvention of an existing widely used technology, will come into existence and totally scramble things. Just like the iPhone was unexpected, just like the success of Social Media was unexpected, something new will appear. And once again it will change everything.

Apr 03 2017

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Ad Ecosystem, Ad Technology, Economics, Marketers, Media Agencies, Online Media, Predictions, Publishers

The Fifth Wave Of Ad Tech: Privileged Programmatic

By Eric Picard (originally published on Adexchanger.com Friday, March 10th, 2017)

The first seven years of the programmatic revolution were driven by three major efforts.

It began with the creation and propagation of the massive new infrastructure needed to support real-time bidding. That was followed by the connection of all demand to all supply in the programmatic infrastructure. New ad products, formats and platforms then emerged, built on top of this new infrastructure.

This was a significant revolution – what I’ve called the third and fourth waves of ad technology. We’re now entering a fifth wave: privileged programmatic.

As the programmatic ecosystem matures, we’re seeing massive adoption of these new tools and technologies by the largest advertisers and media agencies now spending at scale. During the first seven years or so, many ad networks procured and resold media and some large marketer early adopters broke ground – many of which are now reaping the dividends.

But the very largest budgets are now coming into programmatic, and the game is changing. To illustrate the change, let’s talk about the historical evolution that the financial markets went through as they hit their maturity threshold during the rise of electronic trading.

Lessons From High-Speed Traders

In the highly recommended book “Dark Pools: The Rise of the Machine Traders and the Rigging of the US Stock Market,” by Scott Patterson, there is a clear narrative that will start to feel familiar to those working in programmatic media.

When the electronic markets were created, the early winners were typically hedge funds established and managed by the same humans who built the electronic market infrastructure. They knew that traders that responded the fastest to auctions could get significant advantage over other participants. Thus began the high-speed trading (HST) revolution. High-speed traders made millions of dollars a day on high-volume trades at very high speeds.

As the market matured, large traditional stock market players entered the electronic trading business and had their lunch eaten by the upstart high-speed traders. They found this to be unacceptable. The basic logic was, “If I’m spending billions of dollars a year on your electronic exchange, I need some privilege that gets me ahead of these little upstarts who have ‘know-how’ but are tiny players compared to me.”

The biggest players went to the exchanges and demanded privileged bidding mechanisms to allow them to win in the auction even if another player bid higher or bid first. They removed the advantage built in by the high-speed traders.

Nobody warned the HST companies. Within weeks in some cases, many simply went out of business. They had no idea what happened, but knew they suddenly weren’t winning in the auction. Eventually a few found out that the unpublished bid mechanisms that allowed them and the large brokerages to win in the auction had been uncovered and made available more broadly. But most of the damage was already done.

Privileged Programmatic

Privilege in an auction environment is not necessarily a bad thing. Much like the RTB exchanges in advertising, the electronic markets were seen as the great equalizers – fair unbiased auctions – but the reality is that the HST companies had their own type of advantage based on infrastructure knowledge. A real business argument can be made that buyers spending vast amounts of money should be able to negotiate for privilege with the sellers. That’s exactly what is happening in programmatic advertising.

Have you noticed that many of the biggest early players in programmatic have come upon hard times? Suddenly algorithms that were designed to provide advertisers with performance while still stripping off big dollars via an arbitrage model stopped working. Why?

Over the last few years we’ve seen the massive adoption of new privileged mechanisms in programmatic. Whether we discuss private marketplaces (PMPs), header bidding, first-look or programmatic guaranteed, they are predictable artifacts of the maturation of the programmatic marketplace. And don’t let any early knowledge you’ve gathered on these mechanisms create a false sense of comfort – PMPs from three years ago often look nothing like the configuration seen today. These mechanisms are not created equally.

For publishers, this maturation is very good news. Many large publishers viewed programmatic as a “rush to the bottom” in the early days and now see programmatic mechanisms bringing balance back to the marketplace.

Many publishers expressed frustration as programmatic created for the first time in digital media an information asymmetry that favored advertisers. Publishers had no idea why advertisers bought media from them over the open exchange, and now with these privileged mechanisms, the conversation has moved back to media buying and sales teams are empowered to negotiate and structure deals that drive customer value.

The hallmark of the first seven years of programmatic was a bottoms-up reinvention of buying based on data-driven decisioning and performance – and the biggest lever on performance was price of inventory. Early adopters were astounded to find their desired audiences for a low cost on the exchanges, even at the same publisher sites where they were simultaneously executing direct buys at much higher prices.

But those same savvy early adopters who realized huge discounts by buying the same users on the same publishers over the open exchange saw the writing on the wall. They recognized that prices were rising on the best users as the competition in the auction rose – since unsurprisingly, the same users seemed to be of interest to all advertisers in the same sector.

The savviest advertisers went directly to publishers and made PMP deals to access inventory with mechanisms that gave them advantage over their competition – which is also known as privilege. By putting their PMPs in increasingly higher priority within the ad server, setting up fixed-rate, variable and hybrid-rate deals and using new tools like header bidding, the most knowledgeable buyers stayed ahead of the competition. Publishers saw that these new mechanisms drove much higher CPMs, in many cases higher than direct buys, and importantly gave them insight into why advertisers bought from them. Eventually, the very most desirable audiences on the largest and best publishers evaporated out of the open auction.

The market is tipping over on itself – with open auctions being relegated more and more to purely direct-response advertisers that are not selective about which publishers their advertising runs on. For large brands, especially those spending large budgets, which also tend to be those that care deeply about running ads on high-quality publishers, things have gotten a lot more sophisticated.

Programmatic is no longer about low-cost inventory; it is now the infrastructure for transaction where the buyer and seller are handshaking and establishing connections to the consumers that brands need to reach. Programmatic is the mechanism to bind together the new tools that empower the advertiser to take control of their audiences and apply real science to the art of advertising. Publishers now can gain insight from working through these mechanisms rather than being left in the dark.

Sophisticated publishers already know this – and are driving programmatic elements or line items in their core I/Os as part of their direct business. On the buy side, the trend is for agencies to blow up their trading desks and embed programmatic buyers into direct buying teams.

This is a clear wake-up call for publishers that are still not treating programmatic as part of their direct sales or which haven’t changed sales compensation to remove channel conflict. Same for advertisers and media agencies who are segregating their programmatic buyers from their direct buyers.

Deal design has gotten extremely sophisticated, and the trend is toward increased sophistication, not simplification. If you are driving programmatic sales at a publisher and your deals are very one-dimensional, you’re probably missing something.

If you’re buying programmatically today and haven’t analyzed the core audiences you’re reaching over the open exchange, broken out by publishers that you’re also buying directly from, you’re behind your competitors.

And if you’re a marketer, question your media partners about all of these things. You have time, but not very much.

4 Comments

Gerard March 10, 2017

In effect, were seeing “networks” appear that advertisers use. Yes! ad networks are back but the publishers are acting like their own middleman. The buyers can now group together publisher networks and create their own ecosystem of their own choosing. Tis a fun time to see the same philosophy repeat itself
- Eric Picard March 13, 2017
  
  Gerard, it’s not quite the same thing, neither philosophically nor structurally. Ad networks were arbitrage mechanisms designed to extract money from the ecosystem. This is a direct relationship between buyer and seller. The seller and buyer pay only technology fees and deal with the negotiation costs.
R.J. Lewis March 15, 2017

Eric,Great piece. We definitely live in interesting times. The pace of change is such that the costs of both technology, talent, and training to keep up, may out weigh the benefits gained. Are we as an industry encouraging brands to sit on the sideline and wait for the dust to settle? Also, and most importantly, what do you see as wave six?

Reply
- Eric Picard March 20, 2017
  
  Hey R.J. This is a trend that is finally culminating after a long incubation. I don’t see it as a time for anyone to sit on the sidelines – this is the holy grail we’ve all been waiting for: Publishers are empowered to sell and build value-based relationships with buyers. Advertisers get value from their customer data investments and the ability to intelligently decide who to reach, at what frequency, and how much to pay for that exposure. Wave six? I just got Wave five out to you – let’s start there.

Jun 03 2015

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Ad Ecosystem, Ad Technology, Economics, Predictions

Why Programmatic Budgets Will See Massive Growth

By Eric Picard (Originally Published on AdExchanger.com – Wednesday, June 3rd, 2015)

There was a time when advertising was a game of statistical assumptions about the types of people who were consuming media. Television had four networks and there were only dozens of mainstream magazines, typically one local newspaper read by a large percentage of adults and various radio stations in each market.

In what is possibly the most basic truth of the media industry, the fragmentation trend has continued with a constantly growing number of media vehicles against which smaller slices of people’s time are applied.

Even when media-buying teams were specialized by media type, such as TV buyers and magazine buyers, the fragmentation problem still faced an unmanageable outcome. But digital media has blurred the lines between channels. Digital media buyers are now responsible for buying display ads on PC web, mobile web, digital video on both and, increasingly, audio ads. Channels, like in-game ads, and format variances, such as native ads, increase the complexity.

Billions of dollars have been invested in the next generation of media-buying technology over the past 10 years. As expected by those investors, the digital media space has grown incredibly.

The amount of money spent on digital on PCs has almost caught up to the amount of time spent by people consuming digital media – which means that spending “growth” is slowing on a year-over-year percentage basis. But spending is still growing at incredible rates. Mobile still has a massive growth opportunity that looks much like the “Internet” looked 10 years ago, as you can see below in Mary Meeker’s most recently updated “% of Time Spent” chart.

The New Planning And Buying

When planning and buying was tied to a small number of media channels and publishers per channel, it was reasonable for planning and buying group of 100 people to execute large budgets against a relatively small number of publishers. With fragmentation, the complexity of executing in any one channel makes this approach untenable.

And yet, the vast majority of ad dollars spent today are still spent against media that is bought the same way it was 10 years ago. Meanwhile, programmatic media-buying platforms have exploded on the scene and made it possible for one buyer to effectively input buying rules that allow for hundreds of billions of buying decisions per day. Each impression is evaluated in real time, valued against the campaign goals and only purchased if the value of the impression is higher than its price. This revolution puts the advertiser/buyer in control of defining, evaluating and valuing the ad inventory – a highly desirable transition to advertisers.

Although this is a technological miracle, these programmatic buying platforms have been relegated to only a small percentage of overall digital media budgets. Yes, programmatic is a rapidly growing percentage, but still has been largely limited to direct-response budgets until relatively recently.

It makes sense that direct-response budgets are directed toward the programmatic channel – buying platforms can evaluate audiences and apply explicitly identified audiences to a specific set of criteria, measured against explicit ROI goals. For direct-response campaigns, it’s easy to justify spending more than 20% of the media budget on programmatic because first-party data is such an obvious leap for marketers.

However, we have these amazing platforms with immense capabilities for evaluating enormous numbers of impressions per second and making intelligent decisions about which impressions to buy. And we have all sorts of bridging technologies and measurement models, such as Nielsen’s OCR and comScore’s VCE, to help drag budgets that need to move evolutionarily from the panel-based model approach to TV buying to more automated buying models. But there’s a chicken-and-egg problem that hasn’t been resolved.

While programmatic buying platforms are orders of magnitude more advanced than the old ways of buying media, planning methodologies for allocating budget ahead of the buying process simply haven’t kept up with the buying revolution. Under the current model, planners divvy up the budget to different buying teams, sending large chunks to “traditional” digital media buyers (an oxymoron if ever there was one) and smaller chunks to the programmatic buying team.

This is despite the fact that programmatic buying methodologies can execute both budgets equally efficiently and effectively. Buyers can just as effectively execute their budget for direct buys programmatically. The difference when a programmatic buying platform is used is that every impression can be evaluated against the campaign goals expressed by the planner, and either be bought or rejected. This “outcomes-based” buying actually puts the planner’s objectives right at the center of the buy – and pushes the media toward an even playing field between brand and direct response.

To execute a media plan using only direct buys today means that the old-world scale issues apply: A media-buying team of 100 people typically buys from between 50 to 60 publishers. This ratio means that in a world with millions of websites, a tiny fraction of available inventory is considered. And buying teams that only buy direct are unlikely to evaluate publishers outside of their personal experience, as is human nature. This is not to say that there is no place for direct media buys – they absolutely serve a purpose. But there are many other ways to run after any campaign objective, whether the desired outcome or goal is to drive an immediate sale or to reach a specific audience, or to reach a more general audience.

The Role Of Direct Buys In A Programmatic World

Programmatic buying teams now use mechanisms like private marketplace deals to execute direct buys with publishers, which enables buyers to establish more controls over how impressions will be selected or rejected than a direct buy. In a standard direct buy, every impression must be consumed. In a programmatic-first world, only impressions that match the campaign goals are purchased. And the role of a direct buy has more to do with ensuring that an advertiser can purchase inventory from a specific publisher that may otherwise be unavailable or in short supply over the open RTB inventory channel.

In a programmatic-first world, campaigns are begun over just open RTB. Using white lists and evaluating which publishers saw impression volume periodically can show how much inventory is available on that publisher over the exchanges. A private marketplace should be considered if a publisher is determined to be valuable and inventory volumes do not respond to increasing the bids on a CPM basis for available impressions. One way that programmatic-first buyers will make evaluations regarding private marketplace buys or even direct buys is to test on the exchange first to see if the inventory can be bought there. If standard bids aren’t finding the inventory desired on a publisher, and raising the bids doesn’t open up inventory, a private marketplace buy or direct buy is the answer. But there is a lot of value in finding that inventory on the exchange if possible.

It is sometimes the case that various business rules will render a publisher or set of desirable inventory inaccessible to a specific advertiser over the exchanges. In those cases, the issue isn’t bid price – the inventory is simply not accessible to the advertiser over the exchange without a private marketplace buy in place. These private marketplace deals will eventually replace direct buys. But in some cases, publishers may simply require a direct buy because their operations teams haven’t sorted out how to support private marketplaces or for philosophical reasons.

This last scenario is quickly evaporating from the market – buyers are increasingly demanding and receiving support for private marketplace deals across most publishers. It is not unusual for these to be part of a standard IO. For those publishers that require vendor support, the options that support programmatic sales are rapidly increasing. Publisher programmatic vendors, including Pubmatic, Casale and Rubicon, offer support for standard private marketplace buys. Google, as always, is innovating like crazy in this space. And upstarts, such as Sonobi and C1 Exchange, are examples of a new type of publisher-facing programmatic vendor that supports more flexible inventory guarantees, using programmatic pipes by integrating directly into the publisher ad server.

We’re on the cusp of a massive revolution in media planning and buying – with new tools and methodologies. There are significant advertiser and publisher benefits to sorting these issues out. But this innovation comes at a cost. Evaluating hundreds of billions of daily impressions across all these platforms, publishers, advertisers, campaigns, insertion orders, line items, placements and creatives is technologically intensive.

And while automation is often touted as a way to increase efficiency, that doesn’t mean it reduces labor costs. The number of people needed to execute this way stays static, but the salary costs go up because team members have more technical skills and are in high demand. But over time they scale exponentially better than traditional media buys. This will ultimately lead to some interesting conversations between agencies and advertisers. The procurement-driven cost-plus model is not leaving agencies room to support these newer and better ways of servicing their clients.

Feb 05 2015

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Ad Ecosystem, Economics, Marketers, Media Agencies, Online Media

The New Premium: How Programmatic Changes The Way Advertisers Value Inventory

By Eric Picard (Originally Published on AdExchanger.com Thursday, February 5th, 2015)

Five years ago, if I told anyone in our industry that I wanted to buy or sell “premium” inventory, we’d all picture the same thing: inventory that was bought or sold directly between a media buyer and publisher’s salesperson. Maybe it would be home page inventory or a section front, a page takeover or rich unit. Or perhaps it would just involve a specific publisher that we agreed equated to “premium.”

New programmatic technologies are radically changing how we think of inventory overall, especially the term “premium.” Inventory is no longer one- or two-dimensional – the definition has become much more complex. It is a multidimensionally defined set of attributes that includes traditionally “publisher-controlled” inputs, such as page location, dimensions of the creative, category and content adjacencies. But today there are additional overlaid attributes that flesh out the definition.

Advertisers can bring their own data to the dance, which we’ll hesitantly call “first party,” and overlay additional data sources, which we’ll hesitantly call “third party.” And beneath the surface level attributes are underlying components that can be much more dynamic. These components can help predict how effectively an impression can drive a campaign’s goals or outcomes.

Programmatic buying platforms historically were tied to open exchange inventory, but increasingly, they are used as primary buying platforms across open RTB, private marketplaces, direct publisher integrations and even to support direct buys. This more holistic approach ultimately leads to a “programmatic first” point of view, as the new inventory definitions being rightly demanded by advertisers become their starting point on media buys. While RTB “only” represents 20% to 40% of budgets today, it’s clear that the rapid growth of programmatic will drive these broader inventory definitions across the buyer-seller boundary.

Achieving Symmetry

Publishers are embracing the newly empowered media buyers, allowing them to bring their own data for direct buys. They are also allowing buyers to connect directly to their ad servers for programmatically enabled direct buys and buy-side inventory decisioning in real time. For the past few years, the asymmetry of information in programmatic – publishers had no idea why advertisers bought their inventory on the exchange – has been a sore point.

Publishers point out that if buyers work with them, they can open paths to the inventory, inclusive of audiences, that buyers are looking for on the exchange. As we see more collaboration between buyers and sellers on these points, pockets of highly valuable inventory that were lying dormant inside the publisher’s ad server (dare we say “premium”) will suddenly open up.

To use a mining analogy, publishers previously sold unrefined chunks of ore to media buyers, who found a variety of metals inside, but only some of it was valuable to them. So buyers started buying inventory through other marketplaces that allowed them to use their own tools and data to locate the chunks of ore that contained the metals they cared about. Now publishers are saying, “If you’re willing to pay us what you think that metal is worth, we can find more of it than you’re getting on those secondary marketplaces. But you have to work with us to get access to it.”

This new approach is both exciting and refreshing. The industry is getting over old suspicions and reluctance to share information. The asymmetry is becoming more symmetrical, and everyone involved gets more value. Days are still early, and only the most advanced players are figuring out how to make this work, but it won’t be long before this new way of defining “premium” is the standard.

Evolving Definition

How do we define “premium” in this new programmatically enabled world? Premium inventory matches the advertiser’s holistic goals, inclusive of where the ad will run – publisher, category, page location or format – and the multidimensional profiles of anonymous users behind the impressions, including first- and third-party audience data definitions, as well as geographic, demographic and other data elements provided by publishers and other parties. The advertiser believes the premium inventory will help fulfill their goals and drive outcomes that they desire.

That’s a mouthful, eh? How about this: Premium inventory matches the goals of the advertiser well enough that they’re willing to pay a premium for access.

Dec 01 2014

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Ad Ecosystem, Economics, Online Media

Don’t Believe The Lies About Digital Media

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.

Nov 04 2014

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Ad Ecosystem, Ad Technology, Economics, Marketers, Media Agencies, Online Media, Predictions, Publishers, Startups

The Digital Advertising Industry Needs An Open Ecosystem

By Eric Picard (Originally published on AdExchanger Tuesday, November 4th, 2014)

Thanks to amazing new offerings from Facebook, Google, Amazon and others on deeply connected identity and tracking solutions, we are seeing two major developments. For the first time, connected identities across entire populations are available for targeting, tracking, reporting and analytics. But these identity pools exist within walled gardens, siloed to just one provider.

From a tactical and strategic point of view, I completely understand why companies create these walled-garden identity solutions. And to some extent, they will open their walls – metaphorically allowing outside vendors and partners to enter through checkpoints, accompanied by security and wearing clearly labeled badges. Nobody can fault a company like Facebook or Google for being careful about allowing entrée to their walled gardens. The potential for a PR backlash is significant, and that could cause the overall value of their offering to decline. So yes – it’s good to be cautious.

But it does create a significant issue for every publisher outside the top five or so because their first-party data pool is limited to the activity on their own site or apps. They don’t get access to cross-site activity, nor do they have a way to compete with the efforts of the biggest players on their own. It will be hard for publishers – even the large ones – to resist the momentum that will build to plug into these walled gardens, forcing publishers to effectively commoditize themselves in exchange for access to identity, targeting and analytics data.

I’ve long been a proponent of open approaches in the ad-tech space, including open source, open architecture or open APIs. I also am a big fan of well-considered and coordinated industry or consortium efforts. I believe that efforts like OpenRTB, which is pushing for an open API standard for real-time bidding, will be key to helping the industry grow.

Open efforts like this help ensure that the biggest players don’t create huge competitive moats like we saw with paid search, where Google AdWords’ creative, functionality and APIs became the effective industry standard. As a result, any time Google makes any change, all other paid search players must immediately copy Google because of its massive dominance in this area.

Even the biggest players should support these open initiatives because regardless of any disproportionate boost one or two players may get, we’re in a massive growth phase and an open approach has proven a better way to expand industries and sectors. Building significant traction is easier with scale – and by pooling scale, the whole space has the opportunity to accelerate growth.

That said, it’s highly unlikely that Google and Facebook will take a completely open approach on their key initiatives. For one, they have enough scale to catalyze efforts and markets on their own. But more importantly, it’s not in their self-interest to be open. Remaining closed gives them opportunity to maintain control and position in the market while marginalizing smaller players in the ecosystem.

I predict that we will see more industry consortiums created around areas like identity, directly in response to the very large walled gardens that are being built now. It’s really the only way that everyone else in the industry can protect against commodification and ensure a level playing field.

Apr 01 2014

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Ad Ecosystem, Ad Technology, Economics, Predictions

Programmatic: A Rising Tide

By Eric Picard (Originally published in AdExchanger October 1, 2014)

While we’ve been sitting in the progressively warmer water of the “programmatic kettle” without noticing the heat, the world has changed. The incremental changes have been small, but they have been happening constantly and quickly. Taken together, these changes are significant.

The term programmatic has gone mainstream in the last year – at least in the ad industry. Chances are, if you mention to anyone in our space that you work in programmatic, you won’t have to explain what that means anymore. This is true even if you’re talking to a typically “out of touch” executive, because every major company in our space is not only engaging in programmatic, it’s a significant portion of their spending or revenue. They’re likely either hiring or have just hired an executive to manage it, and may have already had turnover in their executive roles in programmatic.

Publishers are finally facing the reality that this isn’t a fad and they’re not treating it like a bad thing anymore. They’re not only selling “just some” of their inventory on programmatic and they don’t just see it as a source of revenue from remnant inventory.

Most major publishers have moved toward selling premium inventory over a programmatic channel. They’ve either sold inventory over a private exchange, adopted a programmatic direct vendor to offer premium inventory over an API, adopted a vendor to help with yield that incorporates programmatic (like Maxifier or YieldEx) or they’ve just rolled the dice and allowed Google’s Dynamic Allocation algorithms to let the exchange compete with sales on premium inventory – and from what I’m hearing, they probably had great success with it.

I’m hearing people talk about programmatic in ways that are very mature. There’s discussion of programmatic channels instead of channel, and there’s discussion of programmatic outside of the context of the concept of “channel.” There’s an understanding blooming among both buyers and sellers that taking a view of their media processes through a programmatic lens opens up bold new opportunities.

Publishers are investing in programmatic heavily – and it is getting deeply ingrained in their business processes. Previously publishers thought of their inventory in a pretty simple way: sponsorships, tonnage and remnant. Today they think about inventory and channel relationships very differently:

Direct relationship: old-fashioned sales
Programmatic direct: publisher-packaged inventory offered over API or through a self-service tool
Private exchange: DSP buyers can buy inventory with a “first look” ahead of it getting passed to the open exchange – and possibly ahead of other partner relationships
Vertical network: direct relationship with a vertical network that either buys direct or through a private exchange
SSP: Some publishers have a partnership with an SSP that divvies up inventory between ad networks and various ad exchanges
Open exchange: Some publishers skip the SSP and remnant wholesale deals to old-school ad networks, and drop it directly into the exchange

Agencies are moving programmatic into the mainstream. The trading desks started out as small dedicated businesses, and are either growing radically and becoming more than just centers of excellence, or they’re being primed for integration across the whole agency model. Expect to see very significant changes in every major media agency over the next few years – this is coming, and fast. Expect the changes to be about efficiency and driven as much by their client’s requests as finally accepting that the trading desk model, where the agency arbitrages their own clients, is nearing the end of its life span.

Agencies are investing in technology, not just to “bid on the exchanges” but to (finally) automate media buying. And the programmatic umbrella is being used as a catch-all for these conversations – whether it means investing in buying infrastructure that automates the RFP process or automates bidding. And the vendors servicing agencies are bridging from the guaranteed space into the programmatic space, and the programmatic vendors are bridging into the guaranteed space. This might be the most fun I’ve had in a decade when it comes to ad tech.

Marketers are eyeing the programmatic world as they put digital marketing through the same process we saw every other major business initiative go through: the “IT-ification” of marketing. CTOs and CMOs are actually deeply collaborating. They sense an opportunity to get investment in marketing infrastructure and bring their first-party data to bear on the marketing business at large.

Ad tech vendors clearly sense this opportunity. Every vendor I’ve talked with in the last six months is gearing up for a major initiative focused on the marketer directly. Not that they are trying to bypass the agency just to “go around them” – which was the old-school unhealthy dynamic many ad tech vendors have attempted since digital marketing started. Rather, they are hearing from the marketers directly – and often are being brought into the conversation by the media agencies, which are acting as agents of the marketer at their client’s request.

This trend deserves another paragraph. Marketers are looking to integrate ad technology into their enterprise IT technologies. They want to unlock the power of their first-party data, but can’t let it outside the firewall (more metaphorically than in reality). They won’t allow the raw data to sit in the hands of their agency partners, but this isn’t about “marketers taking digital marketing in-house.” They aren’t disintermediating the media agencies – they’re just pulling the technology relationships in-house and then providing their media agencies with access to the integrated tools from outside.

The significance of this is lost on many in the market – many analysts think it means bad things for the holding companies – but clearly that isn’t the case. This may be the best news in years for the holding companies. Their clients are making significant and permanent investments in digital marketing. And their need for assistance is going up – not down.

Here’s the biggest insight I’ve had in the last six months: Programmatic media is just as labor-intensive as direct media. The work is different and much more technical (and also more insightful, honestly, as there’s a lot more data generated), but there’s more of it – all the time. And it’s growing. Media agencies aren’t going anywhere; they’re busier than ever. Marketers need the help. Publishers have whole new ways to increase yield and revenue over these channels. And ad tech vendors are consolidating and investing significantly in their technology.

Programmatic is a rising tide lifting all boats in our space.

Nov 05 2013

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Ad Ecosystem, Ad Technology, Economics, Marketers, Online Media, Predictions, Publishers

Enterprise Adoption Of Ad Tech Will Supercharge The Market

By Eric Picard (Originally published on AdExchanger 11/5/2013)

The appetite for ad technology is just beginning to appeal to new markets in new ways. Expect to see significant growth in the sector over the next five years as marketers and large publishers invest significantly in technology at a scale we’ve never seen.

The context for this shift: Ad technology is moving from a marketing or sales and operations expense to an enterprise-level IT investment. We’re now seeing very significant interest in this space by CIOs and CTOs at major corporations – beyond what we’ve seen in the past, which mainly came from the “digital native” companies, such as Google, eBay, Amazon, Yahoo, Facebook and Microsoft. Now this is becoming much more mainstream.

Historically, digital media was a very small percentage of advertising spending for large advertisers, and a small percentage of revenue for large, traditional media publishers. But in the last two years, we have passed the tipping point. Let’s handle the two areas separately – starting with the marketer.

Marketers

First, let’s call the marketer by a slightly different name: the enterprise.

Large corporations, or enterprises, have invested massive amounts of money in IT over the last 30 years. Every major function within the enterprise has been through this treatment – from HR to supply chain, finance, procurement and sales to internally driven traditional direct marketing (the intersection of CRM and direct-marketing channels, such as mailing lists and even email marketing).

The great outlier here has been the lack of investment in advertising, which mainly has been driven by the fact that advertising is managed for the most part by agencies. Most marketing departments have allowed their media agency partners to take on the onus of sorting out how to effectively and efficiently spend their marketing budgets. And up until the past few years, digital marketing was a small percentage of spending for most major marketers.

Since there really hasn’t been much value in investing in advertising technology at the enterprise level for marketers on the traditional side, there was little driving change here. But as the percentage of the marketing budget on digital advertising has grown, and as the value of corporate data to digital advertising has grown, a significant shift in thinking has taken place.

Now we’ve got a way, through the RTB infrastructure – and, ultimately, through all infrastructure in the space – to apply the petabytes of corporate data that these companies own to drive digital advertising right down to the impression level. And we have mature infrastructures, bidders, delivery systems, third-party data and data pipelines,and mature technology vendors that can act on all this. None of this existed five years ago at scale.

Publishers

Just as the large marketers are enterprises, so are the large media companies that own the various online and offline publications that create advertising opportunities.

Until the last few years, the very largest of the traditional publishing conglomerates were still not paying much attention to digital media since it was a tiny fraction of overall revenue. But over the last few years there has been a significant shift as executives finally realized that despite the lack of revenue from digital as a channel, from a distribution standpoint, digital media is experiencing explosive growth. And ultimately all the traditional distribution channels – from print to television to radio – are all being subsumed into the digital channel.

You need to look no further than the people who have been hired into the major media companies in the last few years with titles like VP of revenue platforms, GM of programmatic and trading, director of programmatic advertising and VP of yield operations. These senior positions didn’t exist at these companies two years ago, and generally were areas reserved within the digital natives.

The fact that we’re seeing new focus on digital media, with both senior roles and significant investments in people and technology, means that we’re likely to see additional significant investment by these media enterprises over the next few years. I expect to see the shift happen here quickly since the consulting companies upon which they and most enterprises rely to lead these initiatives already have media and entertainment practices.

Suddenly major advertisers and publishers – who are all major enterprises – are looking at the opportunity to apply their significant IT expertise to marketing in a new way. So let’s talk about the way that IT evolved in other channels historically to try to understand what’s about to happen here.

The Evolution Of IT

A major corporation will typically hire large consulting firms with a vertical practice in the area they want to modernize. Note that the biggest consulting firms – we’ll use IBM and Accenture as examples here – have developed vertical practices around nearly every department, large initiative or focus area within an enterprise. Also note that wherever these consulting firms step in to build a practice, they assemble a recommended “stack” of technologies that can be integrated together and create a customized solution for the enterprise. One interesting thing: In nearly every case, there are significant open-source software components that are used within these “stacks” of technology.

When we look carefully at where they’ve developed practices that smell anything like marketing, they’re typically assembled around big data and analytics. There are obvious synergies between all the other vertical practices they’ve created and the intersection of using big data to inform marketing decisions with analytics, based on detailed analysis of other corporate data. So this isn’t a surprise. It also isn’t shocking that there are many major open-source software initiatives around big data, ranging from staples such as Hadoop to startups like MongoDB.

But nowhere in the digital advertising landscape do we see major open source initiatives. Instead we see the massively complex Lumascape ecosystem map, with hundreds of companies in it.

So when we look at the shift to enterprise IT for digital marketing, there are plenty of companies to plug into a “stack” of technologies and build a practice around. But there is very little in the way of open source, and no clear way to actually bind together all the vendors into a cohesive stack that can be used in a repeatable and scalable fashion.

We are seeing some significant consulting firms come into existence in this space, including Unbound Company and 614 Group. I’m certain we’ll see the big players enter the fray as they sniff out opportunity.

Oct 17 2013

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Ad Ecosystem, Ad Technology, Economics, Predictions

Who Will Win The Digital Media War?

By Eric Picard (originally published in AdExchanger October 17th, 2013)

Lately I’ve had many conversations about the digital advertising market and how it’s evolving.

The most-asked question: “Who will win the battle over digital advertising – Google, Facebook or Twitter?”

I’ve also recently been asked about other companies, such as LinkedIn and Adobe, and how well they’re positioned to beat “whomever.” And by “whomever,” everyone almost always means Google. But more often lately, I’m hearing about Facebook, too.

So, who’s going to win?

Well, it’s not so simple. I take a very different view of the market. I don’t believe there will ever be one winner in this space. Even from an ad-technology perspective, I don’t think all roads point to Google owning it all – although there’s little question that they dominate. And from a publisher perspective, Google is dominant in paid search but not in other areas.

I can hear your brain spinning right now. You’re thinking, “Wait – did you say Google is a publisher?”

Yes, I did. Google has leveraged a massive market share in paid search, and grown into other forms of advertising as well. But for some reason, people in our space don’t seem to think of Google as a publisher.

Google happens to be the biggest publisher of search – but, somehow, calling Google a search engine seems to mask for many people that Google is a publisher. They also are a publisher of maps with Google Maps. They publish video via YouTube. And they publish all sorts of other content related to the results of various vertical searches, including restaurant reviews and travel information.

Google’s also a technology company, and yet – amid all the excitement about various office applications, self-driving cars, balloon-based Wi-Fi and all the other efforts – they are primarily a publisher, one that makes almost all of its money from the sale of advertising. Even their massive DoubleClick business is in many ways really about building opportunities for more ad revenue flowing through their ad exchange and back to Google, tied to a percentage of media spending.

But even though they can almost legally be considered a monopoly, they are not the only publisher in search. Microsoft certainly hasn’t given up there. And beyond the two major publishers of search, there’s an entire ecosystem around paid search that Google can’t and won’t own. That opens up other opportunities.

A Range Of Opportunities – For Many Players

I see the market as a series of opportunities. Even if Google continues to be the dominant player across all forms of digital advertising, from a publisher or an ad-technology perspective, I don’t think that matters from a market perspective because the publisher space is far too fragmented for any one publisher to gain control. Any one publisher may dominate in one area, but won’t be a complete monopoly – not even in search. It’s even much less likely in other forms of media.

So when people talk about who’s going to “win” in advertising, I think it’s more complex than one winner and many losers. There are many opportunities to win here. And many of these markets are more than big enough for the “second-place” player to have a very big business indeed. In many cases, there will be a large number of big businesses in various verticals. Television is a great example of a market where there are many big players and no one player that has significantly dominated the market, at least not in the way we think of Google dominating search.

So what are the other areas we should be paying attention to? These areas could be very large – potentially as large as paid search – but at least as large as display ads or radio.

1. Consumer-Facing Social Media

Publishers: Obviously Facebook will dominate here. This means Twitter has the backup position in this market. Facebook is too far ahead for Twitter to come close any time soon. I think that Google+ is an outlier and could blow up at some point if Google keeps at it and really invests heavily, maybe in advertising Google+ rather than trying to gain share more organically.

Technology: There are tons of players, but nobody is dominant yet. And every major player wants to be the big gun here. I expect that, eventually, Google, Adobe and Salesforce will dominate, either through organic growth or acquisition. There are a lot of smaller players who could rise quickly depending on how innovative they prove and how good they are at executing.

Secondary Marketplaces: I think AppNexus will win. Others will play.

2. B2B Social Media

Publishers: Clearly, this belongs to LinkedIn. Google+, Facebook and Twitter will also play here, but it’s uncertain how much market penetration they’ll achieve. I’d guess that Twitter has a good opportunity to be bigger here than in the consumer space as a secondary player.

Technology: Again – too early to know. I like Rallyverse quite a lot, although they’re playing in several places here.

Secondary Marketplaces: Too early to be certain.

3. Video / TV over IP

Publishers: Obviously Hulu is a standout. You can’t ignore YouTube, either. Netflix and Amazon are very focused, and Microsoft’s Xbox is super interesting. But video and television content over the Internet is very fragmented, and I don’t see one strong winner.

Technology: Freewheel seems to be getting tons of traction (quietly, too).

Secondary Marketplaces: Clearly Google’s got a good foothold because of its anchor-tenant relationship with YouTube. Tremor had a great IPO, and there are many players like TubeMogul, YuMe and Brightroll – but this space looks to be about as fragmented as the television ecosystem, or even display ads. Part of the reason is just that there’s a lot of demand and money floating out there looking to be spent on video advertising.

4. Mobile

Publishers: Mobile is not a media type. Well, sorta. But it’s not a media type that so far is significantly differentiated as one. I suppose you could point at Apple and Google (as leaders?) for their app and content marketplaces.

Technology: This part of the market is super fragmented.

Secondary Marketplaces: I’m looking forward to Google and AppNexus duking it out over this marketplace from the exchange point of view – but there are many ad networks in this space as well, including Millennial Media, which is clearly the powerhouse of the market.

5. Cross-Media Plays

Let me break out of my model for a moment and say that while the market has certainly fragmented into players focused on each of the various channels, I think we’re now starting to see a lot of investment in cross-media initiatives. These range from publishers to technology companies and marketplaces.

But the real interesting thing to me is that in the ad-technology space we’ve rarely seen the ability for companies to support multiple media types simultaneously and become a dominant player. That is changing.

Publishers: Google, Yahoo – yes, I said Yahoo – Microsoft, Amazon, Apple, AOL and a plethora of others are starting to gain real cross-media traction. I don’t see any one publisher dominating across media, but certainly there will be publishers who stand out because of their cross-media footprint.

Technology: Obviously Google stands out here. But watch out for AppNexus, which is really investing heavily in video, mobile and social to extend beyond its display roots.

Secondary Marketplaces: Again – I think it’s Google and AppNexus that are really poised to win here.

Sep 03 2013

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Ad Ecosystem, Economics, Online Media

Why the local ad opportunity remains unsolved

By Eric Picard (Originally published on AdExchanger.com, September 3, 2013)

Local advertising is the largest pool of dollars in the US advertising industry, but is also by far the most fragmented and complex marketplace.

EMarketer’s numbers below are fascinating. They show clearly that local advertising is massively larger than digital media overall, and while traditional local ad spending, at $109 billion in 2012, seems to be stagnating (I’m not sure I buy that by the way – I’ve seen charts like this before that expect local traditional to stagnate but it hasn’t), that pool of dollars is double the next largest media. This chart expects local digital to double in size by 2017, where it would sit in the same magnitude as the big-league spending areas, including display ads, search and television.

The problem with local as a category is that it’s a cross-section of every other media, including television, radio, print, digital and a variety of other media types. And the spending is wildly sliced up across many more advertisers than national media. In national media, roughly 9,000 advertisers make up more than 90% of spending across all media. In local, there are millions of businesses spending money. This points to a significant problem scaling spending, especially on the supply side of the market.

Local Advertising Eludes Large Players

Many companies over the years have taken a run at local in the digital space. They range from companies feeding the paid search listings with local business ads to local offers through companies like Groupon and media efforts like Patch that push digital news at the local level while driving ad sales at the national level. There have been hundreds, if not thousands, of companies dashed upon the shores of digital local for every company that’s had some measure of success. This isn’t shocking – startups have spectacular flameout rates – but it is clearly a space with unique hurdles that few have figured it out. Even those we could consider successful, such as Groupon, are widely scrutinized and criticized when it comes to how they’ll scale their business.

There are few models in digital that have scaled across large numbers of media buyers. The rule has been for the most part that other than paid search, there have been only marketplaces that scale on the supply side. Paid search has roughly 500,000 active advertisers participating in the various marketplaces – the main players today are Google and Bing. Google has done a great job of leveraging that advertiser set to apply their combined demand across other marketplaces, but even adSense is a comparatively small pool of spending compared to paid search. So the biggest game in town hasn’t conquered local advertising yet – and they seem far from doing so still, although much closer than in the past.

But there is already a huge amount of money spent on local advertising – with millions of participating companies and thousands of competing publishers. It’s a business that’s been in place for hundreds of years, but only in the last decade has it really suffered. In basic media theory we see that where audiences concentrate, media dollars will flow. Generally the theory is that media dollars flow in some proportion to the amount of time spent with those media. And where those things are out of whack, analysts talk about “upside opportunity.” Mary Meeker’s frequently updated deck talks about the disproportionate time spent on digital media vs. the dollars spent as an example of the opportunity in digital (lately she focuses a lot on mobile).

What I love and hate about this analysis is that while TV has always been a fairly even match against time and dollars spent and, until the last 10 years, radio was similarly matched, there’s always been a strange outlier on this deck. Print media has always looked basically like it does on this chart. This disparity is generally used by analysts to suggest that print media is doomed.

The problem with that analysis is that it’s deeply flawed and doesn’t take into account the reasons why print has such a disparity. When you dig into newspapers, this disparity is even greater. And the more locally you dig in, the greater the disparity – with local newspapers disproportionally getting more dollars than time spent.

The Art Of Selling Media

The reason for this is so simple that it’s rather shocking. My friend Wayne Reuvers, who founded LiveTechnology (a company most have never heard of because it focuses on local traditional media creative production and operates behind the scenes) is the most expert person I know on local media.

One of my favorite quotes of his: “National media is bought, local media is sold.”

What he means is that local advertising dollars are spent mostly by non-professionals, usually someone working within the local business. And as any local business owner will tell you, local media providers trying to sell advertising and marketing opportunities inundate them with sales calls.

National media salespeople generally don’t go out and pitch ad opportunities to media buyers, they respond to RFPs. While there’s plenty of outreach from sell side to buy side, it’s mainly evangelical – making sure the buyers understand what the publisher has to offer, often not a direct business pitch with an expectation of dollars on the line. This is maybe not so true for ad networks, but for publishers it’s generally true.

Newspapers are a category that has been around for hundreds of years, and are the oldest of the local media. The models are mature and extremely efficient. When I’ve talked to local businesses about how they spend advertising dollars and why they spend so much on newspapers compared to the other forms of media, they’ve generally said, “My sales rep at the paper is great, he or she knows me and knows what I need. It’s super easy to execute a buy there, they do almost all the work for me. They’ll even do the creative for me. I just need to pay them money.” Changing the offer or creative in newspaper buys is also easy, so if the buyer needs to focus sales on a loss leader product or have a new promotion, an ad change can be made in a day or two.

Local businesses often find the costs of television spots so high that they can’t be justified. And when they’ve tried to buy display advertising from big publishers, nobody returned their calls. Paid search works well for some businesses, but not so much for others. The only other place where local businesses consistently spend money is on yellow pages. Not surprisingly, this is another place where they are sold ad space constantly with reps who are frequently in touch and educating them on new ways listings are being pushed to digital media.

Reuvers believes that newspapers have dropped the ball in the move to digital. He calls newspapers the first local search engines, and has been so evangelical about their opportunity that he published a manifesto about five years ago to push local newspapers toward a winning model. It is a fascinating read – if a bit out of date – and basically says newspapers should own the space.

Tackling The Local Digital Conundrum

I believe a successful local play for digital dollars must include the following:

1. Local Salespeople

These salespeople should focus on the community and form relationships with local businesses, meaning both small and medium-sized mom-and-pop businesses and local locations or branches of national or regional companies. These national/local companies spend 80% of local ad dollars but have wide discretion about where they spend those dollars. When companies try to run at local with a national sales force, they often fail.

2. Self-Service

Local business owners without a lot of technical skills need streamlined ways to spend dollars in a self-service and lightly assisted way. Scale will come for those who figure out self-service, but finding a way for scalable assisted buying is critical to success.

3. Easy Updating

Local businesses need simple ways to update their advertising or offer based on what works for them. This may take the form of updating the creative message or changing the format. While not deeply analytical on what advertising works, most local businesses are surprisingly astute at understanding what works.

National digital folks tend to discount how well these local businesses understand the effectiveness of their ad dollars. Few local businesses can afford to waste ad dollars, so they are pretty careful about their spending.

That said, they have limited venues to spend money on so they generally can figure it out without much work. Groupon figured out the hard way that local businesses are not stupid about the economics of marketing. There has been a lot of backlash among businesses toward any sense of being taken advantage of, strong-arm tactics or salespeople who don’t understand their business.

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