Category Archives: 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

  1. 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
    • 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.
  2. 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.

Ad Tech Vet Eric Picard Joins Pandora As VP Of Ad Product Management

Originally Published on AdExchanger.com – Wednesday, December 21st, 2016

Pandora is increasing its bet on ad tech.

The streaming music platform will bring on Eric Picard as VP of ad product management to continue building out display and video products and lead its dive into programmatic audio.

Picard is a longtime ad tech executive. In 1997, he launched Bluestreak, one of the first companies to create the rich media formats that are standard in digital today. Since then, he’s launched numerous ad tech startups, led ad product strategy for Microsoft and, most recently, was VP of omnichannel media for MediaMath. Picard joined MediaMath via its acquisition of Rare Crowds, a programmatic platform he founded in 2012.

“I’ve been in ad tech my entire career,” he said. “I have played roles in teams across pretty much every aspect of the space.”

In audio, and at Pandora specifically, Picard sees an opportunity to “participate in such a large marketplace for an ad media type that hasn’t been fully explored yet.”

“There aren’t too many places in the market to go that are nearly as exciting as the marketplace that Pandora has built for audio, display and video ads,” he said.

In his role, Picard will lead a team of 15 to 20 product managers focused on building and optimizing ad products. He plans to grow that team during his tenure.

Pandora has been bullish on programmatic display but hasn’t yet begun selling its in-stream audio ads programmatically. Picard will likely have a big part in pioneering that in 2017.

“I’ve been deeply involved in the next generation of platforms and methodologies, what we loosely call programmatic,” he said. “You can imagine that we’re thinking a lot about a lot of those things.”

Pandora offers an opportunity to innovate in an area of ad tech that’s still nascent.

“Figuring out the future of audio is obviously the enticement,” he said.

 

Viewability in programmatic media: An honest conversation

By Eric Picard, Ari Buchalter & Mike Monaco (Originally Published on iMedia – October 1, 2015)

An advertisement — whether it’s a banner ad, video pre-roll, mobile pop-up, or anything else — needs to be viewed by a consumer for it to be valuable for the company placing the ad. But does that mean advertisers should only pay for ads that are “viewable”? The answer is complicated.

The Interactive Advertising Bureau (IAB) defines a viewable ad as at least 50 percent in-view for at least one second. Even with a standard in place, vendors measuring performance use their own proprietary means for calculating “viewability” scores. Despite commonalities, no two vendors net the same score. It’s up to advertisers, agencies, and their ad-tech partners to determine which viewability vendors are providing the most accurate score. These scores are not just important post-ad placement. In the programmatic space, knowing in advance if the ad is viewable is key. Vendors have rolled out pre-bid viewability targeting as a result, and programmatic buying platforms should have this capability.

Viewability is not an issue for advertisers and ad-tech companies to solve alone. Publishers are reacting to the demand for more viewable inventory. Some are redesigning their websites to promise higher numbers of ads in view, even guaranteeing viewable space.

Should advertisers only buy from exchanges or publishers guaranteeing viewable inventory? Of course not, and especially not in programmatic buying. Viewability is only part of the equation in making a decision of when and where to place an ad. If you have a segment of highly responsive users, like shopping cart “abandoners,” it might still be a high-value ad buy even if the viewability score is not at 100 percent. You risk missing a potential convertor, and possibly at a lower CPM, for the sake of one metric like viewability.

For clarity, just because an impression does not get scored as viewable — or doesn’t have a high probability of being viewable — doesn’t mean the user didn’t view the impression. We recognize that this is a confusing issue because viewability is based on a variety of methodologies that often include some consideration of probability. So when buying in the programmatic space, viewability is not necessarily the primary score that should be used, although it can certainly be a valuable metric.

There is a false conflation of viewability and fraud — meaning that sometimes the market has believed that when an impression is viewable, it is by nature not fraudulent. This is not the case, and it’s important to understand that the two things are not the same. Fraudsters have become wise to the fact that markets care about viewable ads, leading to a new type of fraud: view fraud. They can easily manipulate web behavior in order to pad a flimsy viewability metric. In fact, a 2014 study by White Ops reveals that when examining the viewability score of fraudulent entities versus real humans, the fraud actually exhibited a higher viewability.

In the programmatic space, we can swiftly push aside view fraud as an issue by optimizing to real advertiser outcomes, which are harder to manipulate. Optimizing to outcomes such as product purchases or validated account sign-ups are two great examples. Even for brand marketers, or those without online purchases to measure, a curated list of other success metrics can be used; downloads, email submissions, content viewed on site, time spent on site, and pages viewed are all such examples. These are much better success indicators than viewability.

In either case, a marketer can introduce A/B testing in order to see what benefit the media served had over an unexposed group. This methodology is easy to implement, with one nice byproduct being that in order to optimize to real outcomes, the ad has to actually be seen in order to prove lift. Even media at a slightly lower percentage viewed can drive better performance lift if the audience is more responsive.

In addition to A/B testing, you can also consider scrubbing out any conversions where the ad was deemed unviewable. While not perfect, due to the technical limitations described earlier, the focus on the viewability-required business outcome will promote better media planning decisions for future campaigns.

Publishers understand that viewable ads are in high demand, so they charge a premium for this inventory, often in the form of private marketplace deals. In cases where publishers are charging a fixed CPM or high floor price, the money you spent to pay that premium likely overshadows any waste you might have encountered from purchasing open-market non-viewable ads. Choosing a better KPI should solve for viewability by default, but there are still some marketers fixated on 100 percent viewability as a goal.

Unfortunately, percentages don’t tell you anything about media cost. If you are able to achieve 80 percent viewability, but at half the cost, and consequently serve more of those highly responsive cart abandoners, why would we necessarily care about achieving 100 percent viewability? You may argue that the more expensive ads are more “premium” in nature, but without considering additional KPIs, what does premium even mean? In an ideal world, we’d be serving 100 percent viewable ads to every user we identify to be high value. However, due to the vendor and supply constraints described earlier, this simply isn’t feasible in the present state of the market.

The pursuit of high viewability might be worthwhile, but instead of relying simply on a percentage metric to define success, remember what outcomes you are ultimately trying to achieve. Being able to tout 100 percent viewability does not get you any closer to driving true business outcomes, and in fact, can distract you from the metrics that do correlate to your outcomes — finding the right audience, supply mix, and creative messaging, and then valuing each element appropriately.

Eric Picard is vice president of product planning for omni-channel media at MediaMath. Co-author Mike Monaco is MediaMath’s vice president of programmatic strategy and optimization, and co-author Ari Buchalter is president of technology at the company.

Why Do Web Pages Load So Slowly In A Broadband World?

By Eric Picard (Originally Published on AdExchanger.com – Wednesday, September 30th, 2015)

If you ask anyone, anywhere, if they like advertising, the answer will likely be a laugh and quick “no.” From a small number of people, you will get a virulent “hell no!”

But most people recognize that the content they consume is free because of advertising, and they have been willing to accept the quid pro quo of free content funded by advertising for nearly all media, for nearly all time. That’s changed over the last few years, and the easy installation of ad blockers – which frequently improve the experience of viewing web pages – has negatively impacted the ad-supported Internet.

We’re in this situation as an industry because we’ve abused our relationship with consumers. We’ve failed to design pages with the user experience optimized around the content first, with the advertising experience seamlessly incorporated into that content. That is not a call for native advertising. It’s a call to actually design the advertising and content experiences together – and to ensure that both work well and satisfy consumers’ need of great content for free.

What I mean here is that the page needs to load quickly, with the content loading first, followed by ads and then invisible code to track users. In addition to loading quickly, the page needs to be beautiful and have high utility for the user.

We all have had the horrible experience of tapping a click-bait link in social media that leads to a web page with a photo gallery of 20-plus images, each of which require as many as three clicks to move to the next image. Each click also leads to a new load of advertising. That’s the most egregious example of what is frustrating consumers today. It should be equally frustrating to advertisers and agencies – who are basically footing the bill for terrible experiences and likely getting no value from those ad impressions. 

Unfortunately, the mean load times of nearly all content pages on the Internet is not much better than these “bottom-of-the-barrel” sites, with a few notable exceptions. Once you move beyond the very best publishers, the cliff over which the consumer stumbles is pretty high. The vast majority of sites don’t load much faster than the very slowest.

Why has the web become a wasteland of user experiences, and why do web pages take almost as long to load today as they did back in the days of dial-up? Is this fixable?

A History Lesson

As I’m finding more often these days, we need to look back in order to look forward.

In 1997 when I started Bluestreak, one of the first rich media advertising technology companies, the bandwidth available to nearly all Internet users was dial-up constrained to either 56K baud (that’s bits audio) or even 14.4K baud. That’s worse than your worst mobile data connection today. Yet we were able to deliver amazing ad experiences. But that was almost 20 years ago.

Bluestreak’s technology was Java applet-based and designed to support the needs of low-bandwidth users at a time when publishers had extremely conservative file size restrictions on advertising.

Our initial load of image and code was less than 1 kilobyte (KB) of data, which would render an ad on a page with a message that read, “Loading.” A subsequent download of less than 5 KB would get an initial image onto the screen. The total subsequent load of a rich media banner would be less than 64 KB. And these were rich media ads – not static banners.

In 1998 we rolled out expanding banners, rich media applications with multiple pages and all sorts of “special effects” and various interactive behaviors. The following year, we launched some of the first video ads online. We made wonderful things happen for advertisers and consumers within the very tight constraints of bandwidth and file-size limits.

With bandwidth basically unlimited today, why do pages load so slowly when we proved almost 20 years ago that great ad experiences could be loaded on dial-up connections?

Solving The Problem

Publishers really own the bulk of this problem because slow page loads relate to how pages are coded. Software for delivering web pages must be optimized such that the site’s visual components and content load very quickly. This is not an overnight change – it may require entire web experiences to be recoded. Finding quality engineers in the publishing space who understand how to code pages properly is a challenge. But this is a critical and almost existential issue for publishers, and we’ve repeatedly seen how good user experiences drive up the value of pages.

To that point, advertisers and agencies need to hold publishers accountable for the user and advertising experiences. They should stop buying advertising from publishers that don’t solve this problem, or at the very least push hard on publishers to ensure that they design pages that load quickly and are not bandwidth hogs. This last part is particularly important for mobile – where the user’s data plan is being impacted by all the content being loaded on the page, including the advertising.

When buying ads programmatically, advertisers and agencies should use a technology provider like Trust Metrics or Integral Ad Science to determine if the advertising experience being provided is high-quality and brand-safe. The technology provider can scan a web page to determine if there is quality content and page layout, with a small number of ads and sufficient white space, or if the page is an “ad farm,” with dozens of ads.

Creative agencies need to design ads that load quickly and optimize file size. This means building teams with coding skills to build fast-loading HTML5 ads and working with rich media vendors to build optimized ad experiences.

Similarly, rich media ad companies need to embrace the idea that desktop web users need fast-loading ads – even if they are on broadband – and that rich experiences don’t require massive file sizes or bandwidth.

And agencies should vet these companies and ensure that they are following best practices. While desktop users typically have “all-you-can-eat” data consumption plans, that’s not the case for mobile. Many of the pages we visit on mobile are non-optimized desktop sites that load even even more slowly over mobile devices. If the consumer’s data plan takes the hit of all the ad content loading, it’s injury to insult.

Users are not blocking advertising because they hate advertising. They hate the horrendous experience of visiting terribly coded and designed web pages with too many and slow loading ads. If the experience of viewing the web using an ad blocker is significantly better because pages load faster and look better, this is purely a problem that publishers, creative agencies and rich media companies need to fix.

Our industry is the problem, not the consumer. So let’s fix it.

How Microsoft Almost Won Digital Advertising

By Eric Picard (Originally published on AdExchanger.com, Wednesday, July 8th, 2015)

The announcement last week that Microsoft is effectively selling off its display advertising business to AOL made me a bit nostalgic. I was recruited by Microsoft as it geared up for a major foray into the advertising space.

Although I only worked there from 2004 to 2010, I think my perspective on the company’s evolution and decision to leave the display advertising business holds some value.

When I joined Microsoft, there were 20 people on the product planning team responsible for advertising technology products. The engineering team for ads was about 400. By the time I left in late 2010, the business team had grown to more than 300, and the engineering team had more than 1,500 heads. And that doesn’t include the sales and marketing organizations.

While I was at the company, we acquired seven ad tech companies, reviewed hundreds and engaged on about a dozen. We invented whole swaths of technology that the market, in general, isn’t aware of. We drove massive innovation and investment in the space. We could have won it all.

Moving To Microsoft

I had started one of the early ad tech companies – Bluestreak – in 1997. We had raised a large war chest of venture funding – and acquired several companies after the dot-com bubble burst in 2001. In late 2004 I was recruited to Microsoft by Mike Hurt and Joe Doran.

During my interview, Joe disclosed that Microsoft had come to the realization that digital advertising was critical to its future. He showed me printed slides showcasing Google’s revenue growth, funded completely by ads. Google would soon make more money than Microsoft from each copy of Windows.

In no small part, this revelation drove the decision to fund Microsoft’s search product, especially the advertising engine behind it, referred to as Project Moonshot at the time, later to be called adCenter. AdCenter was about a year from launch, the center of innovation and scale for the company. Microsoft’s broad analysis showed that digital advertising was critical to the ongoing funding of software, which was increasingly being bonded to the Internet. Joe needed someone who understood the ecosystem and could help drive the future strategy of the company. He laid out an enticing opportunity: I could help drive the investments that Microsoft would make across the ad technology landscape.

Joe described a scenario where digital advertising was potentially a core monetization mechanism for Microsoft software products that would either serve as their primary revenue source, enhance revenue, or offset lost revenue from piracy.

Over the course of the next few years I met an extremely impressive cast of characters.* They ranged from the core business team under Joe to some of the most brilliant engineers I’ve met and executives from whom I learned an immense amount about business and technology.

Microsoft’s Not-So-Secret Weapon: Engineers

When I talk to people about the value of world-class engineers, they often fundamentally misunderstand what I’m talking about – because they’ve never worked with world-class engineers.

There’s a whole set of assumptions that are wrong, such as the belief that engineers build what business people ask them to build. Or that engineers are socially goofy and can’t understand business issues. That engineers would never get anywhere without business people who translate the market to them.

The engineers who I worked with at Microsoft – especially at senior levels – were in many cases geniuses. While there was the occasional social stumble, this was less common than you’d expect. And any of the senior engineering leaders could easily transition to CEO or non-engineering leadership roles at most companies – and many have.

In the first few weeks at Microsoft, I met a handful of engineers with whom I’d form long and fruitful relationships. Tarek Najm was the engineering leader who started the adCenter team. He’s one of the most brilliant people I’ve met – extremely inventive, high-energy and curious. Tarek took the lead in trying to catch Google’s AdWords product. With a relatively small team, he built a superior monetization engine from scratch.

One of Tarek’s lieutenants on adCenter was a program manager named Brian Burdick, who became one of the great unsung heroes of the advertising technology space. Brian is the one who ultimately invented RTB.

Tarek’s lead engineer for display advertising was a wiry man named Phani Vaddadi – who brought with him his two lieutenants, Alam Ali and Brian Tschumper. These three guys formed a back-room brainstorming group with me. Among other things, the four of us came up with some ideas around ad-funded software that we incubated and brought to market, which ultimately became the mechanism by which ads were delivered into Xbox.

There were also numerous trials in a variety of devices and applications, from the ill-fated Zune to trials of ad-funded Office and Windows in various markets across the world where piracy was an epidemic.

During my first year, we launched new brands, including Windows Live – if you can remember that one – and innovated on advertising formats. I crafted a set of principles regarding when and what kind of advertising was appropriate for which content experiences. It was based on the idea that modality of the user experience should drive whether we showed ads at all, such as when a Hotmail user is composing an email, or whether the ad could be disruptive, such as covering the page where a user is reading an email.

2005-2006: The Plan And Beginnings Of Execution

In addition to being responsible for overall ad technology strategy, I led a group focused on “emerging media.” This included mobile, OTT and addressable TV, video game advertising, device-based advertising, ad-funded software and a category known as “other.” Working with Joe, his direct reports and some of their direct reports, we crafted a comprehensive vision and plan for winning the ad technology space.

The strategy that evolved was pretty comprehensive and clear: build, buy or partner analysis on all opportunities in the space. Where we had existing investment in heads and technology, we’d increase our investment in alignment to revenue opportunity. We would acquire other companies in the space that owned strategically valuable components and held significant market share. We’d partner when there were assets that were not strategically important to own – but were needed for our customers or to operate our business.

The overarching vision was to be the platform of record for buyers and sellers, and use the scale of our technology investments to drive prices down while claiming a small percentage of all transactions. Our vision was that we’d automate buying and selling, and build direct connections between buyers and inventory owners wherever possible.

In 2005, Joe asked me to pick up all the M&A coordination work. Over the next few years, we reviewed hundreds of deals and pursued about a dozen.

Video

I engaged on a massive video and television advertising project that went through various iterations for nearly three years. Steve Ballmer had asked Joe to rationalize all the video advertising projects across the company and ensure that we had one cohesive strategy. Within three weeks I found six major initiatives across three divisions of the company that all were trying to build a comprehensive video or television advertising product suite as a standalone. It took several quarters, but eventually we rationalized all these projects and packaged them up.

I suggested that we should either partner or create a joint venture with broadcasters, networks and studios to offer a digital version of their content over the web. It would be integrated into all of Microsoft’s consumer-facing video consumption assets, including Xbox, Windows MediaCenter, Microsoft TV, Windows MediaCenter and MSN Video. This was before YouTube, while Netflix was still mailing DVDs. Our various business discussions with broadcasters may well have been the kernel of the idea for Hulu.

We had significant investment across numerous divisions and technologies – and we supported video advertising for one of the largest digital video providers, MSN Video. We invested in software to run video ads in any Microsoft product or device.

In-Game

On the video game front, Kevin Browne reached out to us while investigating the emerging area of “in-game” advertising. He said that some new companies were driving significant revenue to game studios by dynamically inserting ads into the video game, usually in a billboard-like model.

He suggested that the Xbox division wanted the capability to support in-game advertising but it wanted the overall monetization and advertising sales to be centralized outside of its team. Joe and I had agreed upon a strategic framework for technology investment such that if any player in an emerging market had gained significant market share that seemed sustainable, we should consider them for acquisition.

Massive fit that bill exactly: It had about 80% market share and was growing. While there were other companies in the space, Massive was the standout – nearly defining the category. It became the first of several acquisitions I was involved with for the company. It also taught me for the first time exactly how hard it was to get acquisitions at Microsoft to work post acquisition.

Mobile

Microsoft has obviously lost many opportunities in mobile, not least of which is in mobile advertising. But in the days before the iPhone, when the smartphone market was made up of Blackberry, Microsoft and “other,” Windows Mobile had a chance to be big.

And we saw mobile as a big part of our strategic footprint. We invested in core assets in the mobile space. To bolster our European footprint, we acquired ScreenTonic in France.

Nobody imagined Facebook back then. Nobody imagined that Apple would build a smartphone. And Google was a threat we all feared. In 2005, Google acquired Android – but nobody got it.

Programmatic

In 2005, I first heard about a paper written by Brian Burdick, with help from others on the adCenter team. He proposed something called an Open Listings Exchange (OLX) to mirror the financial markets when ad exchanges went digital. His paper was a revelation. I believe it was the first time anyone proposed the concepts we now know of as real-time bidding (RTB) to the market.

In my purview of emerging media was that category called “other.” It was in this “other” category where the OLX lived. Today, we call it “programmatic.”

The adCenter team proposed building a broad overarching platform that was open and available for all parties in the space to develop against and plug supply and demand into. When we pitched this to Bill Gates and asked for 1,000 engineers to run after this opportunity, he balked.

This led ultimately to our acquisition of AdECN, which had an early ad exchange that didn’t quite meet the technical need we envisioned for OLX. But that wasn’t until 2007.

Search

Also in 2005, Microsoft brought in David Jakubowski to build a new product marketing team for adCenter to effectively bring adCenter and paid search ads for our search engine to market. David hired a stellar team of leaders that included Brian Boland, James Colborn, Jennifer Kattula and many others. With great product managers like Jed Nahum, Erynn Petersen and Saleel Sathe on Joe Doran’s team, along with others working with David’s team, adCenter and related products and technologies went live.

What Went Wrong

Over the next few years, we significantly grew our investment in advertising technology, with much of the investment going toward our defined build, buy or partner strategy. We acquired DeepMetrix as a web analytics provider, Massive for in-game advertising, Screen Tonic for mobile advertising and AdECN as an advertising exchange.

All of these acquisitions were done with the expectation that we would bite off a big chunk of a market and grow – but as I learned, Microsoft had a hard time ingesting acquisitions at the time. There are many reasons why. Suffice it to say that DeepMetrix, ScreenTonic and Massive didn’t provide the catalysts we’d hoped for to jumpstart these marketplaces. Of all of them, only the AdECN acquisition seemed to have real promise because Brian Burdick took over engineering as CTO and ran after RTB.

2007: aQuantive

Numerous times in our strategic analysis of the space, our team recommended running after DoubleClick. Ultimately, our executive chain was unwilling to consider such a large acquisition in the 2005-2006 timeframe, so we went after other opportunities.

By late 2006, we had been pushing our vision externally to target opportunities with video and even OLX. We’d met with every large media company and every large company in the TV and video content space. Mostly these strategic discussions were driven by Yusuf Mehdi, Joe Doran, me, folks in the corporate strategy group and Tarek Najm.

In 2007 Yusuf, who had been the CVP who managed search, MSN and advertising, was promoted to the title of SVP and chief advertising strategist. This signaled internally and externally that Microsoft was very serious about investing in digital advertising. Since my team owned ad tech strategy, I was asked to dotted-line report to Yusuf as we started considering big strategic opportunities.

By 2007, with Yusuf’s promotion, we started reviewing much larger and more strategic deals and investments. We recirculated across the video content space and held numerous meetings about our OLX vision and the desire to invest in an alternative to Google, which resonated with strategic partners. Executives from agency holding companies and media companies frequently expressed extreme interest in Microsoft developing as the alternative to Google in paid search and across all digital media.

We began to get very serious about a few big acquisitions that we’d developed an appetite for. One was DoubleClick – the other was Donovan Data Systems.

DoubleClick was the only company that met our strategic framework on the ad platform side. It had a huge position – approximately 65% on publishers and about 45% on agency desktops with DoubleClick for Publishers (DFP) and DoubleClick for Advertisers (DFA). Importantly, we started hearing about a new large project internally called the DoubleClick Exchange.

We investigated and ultimately passed on acquiring Right Media at the end of 2006. We were now fervent in our belief in the OLX vision, which had matured over two years. OLX could be catalyzed by combining the supply from DFP with the demand from DFA, with Microsoft inventory as an anchor tenant. We’d have the opportunity to really take off.

We saw Donovan Data Systems as a perfect fit in our strategy. It had a huge percentage of agency media buyers using its systems, and was a big Microsoft customer.

Unfortunately as we neared a swing at DoubleClick, which would have been the centerpiece of our strategy, it ran a quick process and stepped into exclusivity with Google. We tried unsuccessfully to break them out of that exclusivity and were prepared to throw a ton of money at it – but Google prevailed.

The alternative approach that Yusuf, corporate strategy, Joe and I came up with was less than optimal. We’d basically acquire and roll up several major assets. We bought AdECN to create a center of gravity around our OLX vision. We continued discussions with Donovan Data Systems and got very close to a deal.

And we began conversations with aQuantive.

Since aQuantive was based in Seattle, it was easy for our executive team, who hadn’t been deeply ingrained in the strategic view so far, to step in and participate directly in conversations. And things accelerated quickly – so fast that negotiations moved beyond the pale of expectations – with the valuation of aQuantive eclipsing the next most expensive acquisition at Microsoft by a wide margin.

Ultimately, Microsoft decided that aQuantive was the big bet we would make in the space. The strategy was to leverage the buy-side footprint of Atlas, which was similar to DoubleClick’s 45% market share, and attach it to the AdECN exchange to form the basis of OLX. While I continued to push hard for Donovan Data Systems to augment that Atlas footprint, the decision was made to focus on aQuantive and build out an automated optimization engine that would connect Atlas with AdECN, providing automated bidding capabilities. Microsoft’s ad network inventory would anchor the exchange, including owned and operated remnant inventory with a small amount of premium inventory. And we would create synergy with our existing adCenter customers.

Things didn’t proceed as planned. It took a long time to get the new aQuantive team up to speed on our OLX vision, and they were skeptical. The aQuantive leadership team became the business leadership team of the new advertising organization that swelled to 1,500 engineers and 300 business people The aQuantive executive team never embraced our OLX-enabled advertising platform business strategy – they felt that the astronomical price we paid for the company validated their previous strategic direction. They felt strongly that we needed to incrementally grow revenue from our base, which is how they’d grown their company. What they missed was that their existing revenue had very little impact on the strategic imperatives that Microsoft cared about. We needed to move the needle by billions of dollars, not millions.

The plan had been for Yusuf to lead the new division, with his core leadership team making up the leadership ranks. During the final stages of the aQuantive negotiations, a new path was forged with Brian McAndrews and his team stepping into the lead. I really liked those guys – and had been friends with many of them for years ahead of the acquisition. But ingesting and digesting that acquisition was really hard for both companies. And adECN died on the vine of that ingestion. We weren’t allowed to start testing live inventory through the exchange because an executive wouldn’t sign off on the revenue risk.

Ultimately we lost our opportunity. Prior to that acquisition, we refuted the idea that Microsoft couldn’t be agile and responsive to the market. After the acquisition, we crawled into our cave to digest a big meal – like a dragon. By the time we emerged from our cave, the world had evolved past us.

We ran instead after a giant partnership with Yahoo on search. We reduced our investment in display and other forms of advertising. That defocus culminated finally in the exit we saw last week from everything but search and paid search.

But there was a time when Microsoft almost won. We were duking it out with Google and focused on a major win, not just participating. We led the market. Many of those in this story went on to huge careers in advertising – with several now at Facebook.

We almost had it.

* While posting a comprehensive list of people on Joe’s team back then would be nigh impossible, there are some key players that should be mentioned. Those included Alexandra Tibbets, Jed Nahum, Michael Dwan Matt Carr and Mike Hurt and Some real powerhouses that worked under them, giving the bench on this team extraordinary quality and depth, including Ryan Mackle, John Genna, Meera Bhatia, Sloan Ginn, Aaron Sandorffy, Michael Weaver, Dean Carignan, Gabriel Nanda, Gabe Bevilacqua, Mark Jacobson, Gary Hebert, Jilani Zeribi, Khan Smith, Erynn Petersen, Saleel Sathe, Maziar Sattari, Jenn Dorre, Bart Barden and Matt Romney, as well as many others I’m sure that I’m forgetting, with apologies.


14 Comments

  1. Augustus July 8, 2015
    Are these the same “world-class engineers” that wanted to convert DRIVE to run on Microsoft’s in-house ad server that couldn’t support flash, CPC/CPA cost methods, or 3rd party publisher inventory in 2007? Or the ones that claimed adCenter was fully “converged” and display capable in 2008? Or maybe it was the ones who attempted and failed to build a publisher ad serving system from scratch after spending 6 billion to acquire a company that had all these pieces. Let’s not shit ourselves, the failures were abundant. Trying to pass it off as aQuantive leadership’s inability to see a larger, Microsoft-wide vision is to ignore the inherent flaws in the Microsoft strategy you claim to have helped craft. Did you really think a network or exchange anchored with 90%+ Microsoft owned and operated inventory was going to be a solid platform play? Were you seriously banking on converting demand from adCenter to spend in display? Was keeping Microsoft’s targeting data confined to O&O inventory and off the network (and ultimately the exchange) just something that was done because everyone got in a room and decided that they hated making money?You’re right that we almost had it. If it weren’t for that $6 billion, we (AQNT) would still be having it.
    • Eric Picard July 9, 2015
      Hi Augustus, nice to hear from you. Let me avoid a back and forth snipe-fest and just address a few factual issues with what you said, and maybe answer a few of your questions.1. “couldn’t support flash, CPC/CPA cost methods, or 3rd party publisher inventory in 2007?”That’s actually wrong on all counts with one caveat. Microsoft’s Display Ad Platform is (and was) a pretty remarkable platform. It was not designed to support external users logging in – which was literally a user permissioning and data segregation issue. Frankly – that’s not a problem that required world class engineers to solve.

      2. “Or the ones that claimed adCenter was fully “converged” and display capable in 2008″

      adCenter was never claimed to be “converged”. I don’t recall the date we began supporting display ads in adCenter (actually the pubcenter product) but I don’t believe it was 2008. Given that the convergence project (systems integration) was literally never completed, and there’s plenty of reasons I could give for that (e.g. plenty of blame to go around), that’s just a silly statement. Many core systems became shared, but obviously since Atlas was able to be sold off, it remained standalone.

      3. “inherent flaws in the Microsoft strategy you claim to have helped craft. Did you really think a network or exchange anchored with 90%+ Microsoft owned and operated inventory was going to be a solid platform play?”

      The market clearly has shown that companies *without* the vast volume of inventory Microsoft could have passed into an exchange were able to be very successful both before and after the timeframe I’m talking about (Right Media and AppNexus are obvious examples) your point doesn’t make much sense. AppNexus really took off after he additional supply from Microsoft was added. So yes – I think it was a very solid platform play. The market shows that to be true. Obviously Google made lots of rain with the DoubleClick platform as well – but given that there are other examples (Rubicon, Casale, OpenX, AppNexus) yes, Microsoft certainly could have done it. Given that we had solicitations from dozens of huge publishers and literally every major agency holding company, who literally asked us to build such a platform, yes – I think we could have done this.

      4. “Were you seriously banking on converting demand from adCenter to spend in display?”

      Banking on it? No. But was it applicable? Obviously it was – Google was clearly able to apply its AdWords demand against display (e.g. Google Display Network.)

      5. “Was keeping Microsoft’s targeting data confined to O&O inventory and off the network (and ultimately the exchange) just something that was done because everyone got in a room and decided that they hated making money?”

      I’m not going to name any names. But this was literally the plan of record prior to the aQuantive acquisition. The plan of record was to open up all MSFT targeting data (effectively offer a DMP) and all inventory short of a set of premium established inventory onto the exchange. So you’d need to tell me the answer to your question.

      What I was told at the time was that doing so would put too much revenue risk on the O&O inventory to even allow a few million of impressions come out of hotmail to run adECN tests. And there was a lot of discussion about liquidity and asymmetry that would have been easily addressed if we were allowed to actually run tests. Not sure what more can be said about that.

      Eric

      • Augustus July 10, 2015
        Eric, we’re talking about a scenario where thousands of people lost their jobs or at least had their careers significantly derailed as a direct result of terrible strategy + execution. So I agree, let’s get the facts straight.1. “couldn’t support flash, CPC/CPA cost methods, or 3rd party publisher inventory in 2007?”This is just a fact. Even up until about a year ago, AdExpert couldn’t support performance cost methods. I’m not even sure it can today. Point is, shortly after the acquisition, there was an engineering-led effort to convert DRIVE (a top 5 ad network at the time, mind you) to AdExpert by Microsoft. I personally was asked directly by the MSFT engineering team which of those features (among a laundry list of others) the network could live without, preferably all 3, was how it was phrased.

        2. “Or the ones that claimed adCenter was fully “converged” and display capable in 2008″

        Again, this happened. I won’t name names either, but let’s just say the head of engineering at the time announced exactly this statement at an all hands. I was there. A few months later, he left the company and we all discovered that this claim was without merit. A silly statement, I agree.

        3. Let’s not act like Right Media is a shining example of platform success, and I think AppNexus would be just fine without Microsoft inventory. Look, the anchor tenant plan was a great one, I’m not arguing that. But when the anchor tenant is the only tenant, you don’t have a platform. The publisher tools business was established and growing within aQuantive (and RAPT), and shortly after those acquisitions, the strategy to move all of those pub-side tools to a different platform is what killed it. Publisher customers were FIRED, if you recall. Fired them. They were paying money, Microsoft said, “nah, don’t want that business.”

        4. Search and display were separately managed budgets then, and they still are today. Again, just a fact. If the plan was to change the way the industry spends across these 2 formats, you needed a lot more than one more checkbox in the adCenter UI.

        5. Great, something we can agree on. Tell me this then, why was targeting data kept off of DRIVE immediately after the acquisition, and remained off of the AdMarket platform for the remainder of its existence? I can send you a Quick Wins doc where this is laid out clearly as something that would have made an immediate revenue impact within 90 days, and yet it was promptly shut down by Microsoft leadership… on the engineering side, btw.

        Your vision for adECN at the time was indeed a great one. Missteps were made by several folks (I know the ones you are referring to) that prevented the exchange strategy from taking hold and flourishing. But Google has been able to successfully execute a display network and an exchange, both best in their respective classes. That combined vision is something that was absent throughout the process, or at least never agreed upon in a way that allowed for successful execution. Those of us in the rank and file felt most of the pain resulting from these decisions and lack of solid leadership. It would be nice if ALL of the leaders responsible took their fair share of accountability for the disaster.

      • Eric Picard July 13, 2015
        Augustus, as I feared things went down a didactic path. So let me try to address the intent of the article rather than going back in and picking apart your reply to my reply.My motivation for writing this article was that the press response to the AOL announcement was to basically repeatedly state, “Yeah, Microsoft never knew what they were doing in advertising.” That simply is not true. The strategic blunder that the company made was in acquiring aQuantive and losing three years that they were never able to recover from. This was what I was alluding to in my article by referencing the digestion of a meal that was too large. Keep that in mind when reading my further comments below.Since I left Microsoft in 2010 (when it became clear to me that the company was not going to continue to invest in anything ad related but Paid Search) I no longer have access to any of the direct paperwork such as various presentations, and internal memos – many of which I wrote. But having a semantic argument about what was said by who at a meeting in 2008 at this point seems superfluous. I’ll just say that I wrote most of the decks that were presented at engineering leadership / all-hands meetings post-acquisition – and I think your memory and mine are very different.

        I will address one thing that I haven’t, which you brought up in both of your comments – regarding the publisher tools business. aQuantive had acquired Accipiter and renamed it Atlas for Publishers (or something like that.) I have nothing but respect for Brian Handly and the many folks from Accipiter that I knew over the years. But that platform was ancient and architecturally needed a complete rewrite. It was simply not possible for that platform to be the center of gravity of the business going forward. You reference this as if it was as simple as attaching RAPT to Accipiter and backfilling with DRIVE PM. That wasn’t going to work on any level – just the handful of sales done with large publishers after the acquisition proved that Accipiter wasn’t salvageable. It’s unlikely you were aware of those issues, but I can tell you without any hesitance that this wasn’t going to work.

        I can also tell you definitively that the decision to move away from plan of record on the post-acquisition timeline was not made by engineering. I was in those meetings. Your perspective is missing key facts – but I’m not going further on that.

        My point in this article was not to point fingers at anyone and blame them for Microsoft’s subsequent failure in “non-search” advertising. I have huge respect for Brian McAndrews, Mike Galgon, Karl Siebrecht and Scott Howe – they’re all very talented and intelligent executives. If this article seemed like it was taking pot shots at them – that certainly wasn’t the intent. See my comment above about dragons and meals.

        The issue simply is that there were vast and complex systems across both companies, and a consensus based decision about which systems to bet on was allowed/caused to go on for more than 2 years. The big lesson to bring away (although I was Cassandra in this one – having learned this lesson earlier in my career) is that clear definitive executive decisions about paths forward (whether engineering or business) need to be made quickly and followed through on. But that wasn’t the point of my article – so perhaps there’s another article in there about how to do acquisitions well and what to avoid.

        I will respond directly to one statement you made, “But Google has been able to successfully execute a display network and an exchange, both best in their respective classes. That combined vision is something that was absent throughout the process, or at least never agreed upon in a way that allowed for successful execution.”

        This is exactly the point of my article – the entirety in two sentences. Our vision of the future of the market was exactly the same as Google’s prior to the aQuantive acquisition. And that vision was shared across engineering and business from the lowest to highest levels. Unfortunately it took more than two years to get that vision accepted and understood across the executive team post-acquisition. And that’s the tragedy of Microsoft’s advertising business, the lost years while the market surged past us. When it was clear that nobody was going to bless adECN as the exchange for Microsoft, I didn’t raise any objections when Microsoft bet on AppNexus. At least there would be one platform in the market that matched our overall objectives – and we’d own some of it.

  2. Robin Laylin July 8, 2015
    Eric, thank you for taking the time to describe this period at Microsoft, one with so much potential for not only advertising business pursuits, but also benefitting and leveraging Microsoft Enterprise identity, server, desktop, analytics products to deepen reach and value. Thanks again for the excellent summary!
  3. Great write up as usual Eric. This tale reminds me of a Yankee fan talking about how great their team would have, could have been if only this that or the other had happened. And since they bought the superstars, had all the resources in the world, unlimited funds and still sucked whose fault is that?I am amazed at how much money Microsoft threw at this industry and lost. To me its a lesson in how not to run a business and a very real example of how large companies are seldom, if ever able to compete in emerging businesses.
    • Eric Picard July 10, 2015
      Alan – thanks for your comment! I absolutely hear you. But the reality is that this is more along the lines of Xerox Parc lamenting the Graphical User Interface being credited to Apple. 😉My main motivation for writing this was that most press I read in response to the AOL deal got this all very wrong. Repeatedly I was reading sentiment stating that “Microsoft never knew what they were doing in advertising.” That’s just simply not true.Microsoft’s in-house team was ahead of the market curve. And we were executing well toward that plan. Not without missteps, mind you. But there seems to be a sentiment that Microsoft didn’t know what to do in the ads space, which isn’t true – we were doing very well.

      As far as the lessons you suggested – it’s really hard for big companies to take on new challenges and succeed. So we’re in agreement. But Microsoft has built more large new businesses than any other company – so it can be done – the question is how to do it.

      Microsoft’s past had shown that big moves with either huge internal investments with giant teams (Office taking over the world or the huge investments and losses of Xbox before it became profitable) or large acquisitions driving big new incremental businesses (Great Plains driving MSFT’s enterprise business forward) were good patterns. But Microsoft had never faced a competitor like Google before – and they proved impossible to fast follow against. The Bing investment turned out to be much more like Xbox than Office.

      • Thanks Eric for your response. The issue is that neither the video game console market or search were emerging markets. They were both well established businesses for many years with many parties at play. So while I appreciate your response, it doesnt actually hold water.MSFT screwed up with a massive amount of enterprise level failure. My dealing with the company during this time (and there were many from several different companies) was one of arrogance and hubris. You guys thought you were smarter than everyone else (not you mind you, you were and still are very kind and humble guy). But that kind of arrogance always translates into failure. And boy did it ever in this regard.I realize that you gave MSFT a lot but they didnt give you what you truly needed. The reigns. And that is one of many reasons that they lost big time. But most of all is that they had no business entering into the ad business. I think that was and will always be their failure. Trying to muscle their way into a sector that really was about as far removed from their core competency as possible.

        On another note: I wish AdExchanger had more dialog on their site. This discussion is one of the best I’ve read here but they dont promote dialog between the writers and the readers and certainly dont provide a channel for engagement.

      • Eric Picard July 13, 2015
        Alan – thanks for your thoughtful reply to my reply. 😉I don’t think Display advertising was much of an emerging market at that time, but of course the movement toward exchanges and real-time bidding was an emerging space.I’m not sure who you dealt with at Microsoft in those days, but I will tell you that I was repeatedly surprised at the lack of arrogance and hubris I experienced across the board while working at Microsoft. Not to say there weren’t egos – but your experience was not the one I had.

        Microsoft was on a great path from 2004 – 2007 and making great strides toward an epic head-to-head battle with Google. But the lost years that happened after the aQuantive acquisition were not possible to recover from.

        Note – I firmly believe that if aQuantive hadn’t been acquired, they’d still be a successful business in the adtech space. So the tragedy cuts in both directions.

  4. Robin, who was another unsung hero in this saga is definitely right in his congrats for Eric on the story. There were so many other non pursued threads – around the world was part of the shame of it.
  5. Realist July 9, 2015
    Eric, it took some courage to write what you did. Don’t let the haters get you down. I agree more with Augustus, most the genius of Microsoft engineers is in building three-legged stools, re-inventing wheels and blowing through budgets. Moonshot projects that need 1000 engineers? Sorry but ad tech ain’t NASA.
    1. Eric Picard July 9, 2015
      Hi Realist. The reality is that large scale teams at huge companies frequently are less efficient than smaller companies. And remember at the time we were competing with Google, who had well more than 1,000 engineers working on the project. Microsoft’s “fast follower” approach that had worked well for all its major successes previously (e.g. Office) set the stage for large resource requests.Obviously we didn’t throw 1,000 engineers at adECN when we completed that acquisition. And we did bring the first RTB exchange to the world – unfortunately we just were not able to get it launched. It sat fallow for two years before it died on the vine.Again – obviously you never spent any time with the kinds of folks I’m referencing. If you’d spent any significant 1:1 time with Tarek Najm, Brian Tschumper, Sachin Dhawan, Nitin Chandel, Subir Sidhu, Scott Tomlin, John Beaver, etc… you wouldn’t feel like you do. My guess is you didn’t spend any time with the core engineering team at Microsoft. Your perspective isn’t informed by reality.

A better way for publishers to manage ad inventory

By Eric Picard (Originally Published on iMedia – April 16, 2015)

Publishers in general have, up until recently, thought of programmatic advertising only as a mechanism to clear unsold (remnant) inventory. Over the last few years, publishers have been able to begin integrating their programmatic sales more completely into their overall inventory pool. And those publishers that dived fully into the programmatic pool have been gathering significant learnings and gaining sustainable advantage over their competition. For those publishers who have not fully adopted programmatic methodology into their mainstream revenue operations, the time has come.

Today I’ll be using Google’s DoubleClick for Publishers and Ad Exchange as the examples of how publishers are operating. But other ad servers, SSPs, and exchange technologies support similar functionality to what I’ll describe here. I’m using Google’s because, frankly, its documentation is public, easily found via a search (shockingly), and easy to understand. If you’re using different vendors, feel free to reach out to them and ask about these concepts. I’m certain they’ll be able to accommodate you with similar approaches on their platforms.

Starting with the basics

RTB and direct make use of different infrastructure for decision-making, and ultimately it’s the publisher ad server that “owns” the direct ad sales, which controls the destiny of whether an ad impression is available to be purchased on the exchange.

Below is an example of how ad calls are made when a user visits a web browser and the page loads. This fundamental of our business should be understood before we dive into the deeper arcana of how programmatic systems interact with the publisher ad server.

When a user visits a web page, myriad events take place — most of which we’ll ignore in this article. The important thing to understand is that publishers code ad tags into their web pages, which call out to the publisher ad server. The publisher ad server returns unique identifiers to the page that tell the browser where to find the ads that have been selected.


This is how nearly all ads are served online today — and have been for more than 15 years. What’s important is how this is fulfilled under the surface of the impressions. There are numerous interactions happening within the publisher ad server, and the external systems — including standard ad platforms like third-party ad servers (DFA, Atlas, Sizmek, etc.), dynamic creative and rich media platforms (Flashtalking, PointRoll, etc.), and programmatic platforms such as supply-side platforms, ad exchanges, and demand-side platforms.

More advanced scenarios

All sorts of decisions are made in the milliseconds between the user visiting the publisher’s web page in a browser, and all of these various systems interact with each other. But we’ll leave most of these interwoven interactions aside for this discussion and keep to the critical ways that the publisher ad server interacts directly with whatever programmatic integration it has made.

Most of the time the publisher ad server interacts with an SSP (Rubicon, PubMatic, etc.) or directly with an ad exchange (Google’s AdX, AppNexus, etc.). While I’m giving examples in some parts of this article to illustrate the kinds of companies seen in the space, the reality is that the lines are very blurry, and some might argue that components of AdX and AppNexus operate like an SSP, and components of Rubicon and PubMatic operate like exchanges. Think of them as relatively interchangeable at this point.

Regardless of what vendor and mechanism is used for the programmatic supply integration (and often multiple are used), the publisher’s ad server interacts in somewhat specific ways with these systems. So let’s begin with the prioritization queue set up within the publisher ad server.

Most publisher ad servers provide functionality to allow the ad operations teams to assign the various contracts (insertion orders, or IOs) and specifically their subsequent contract line items against specific prioritization levels within the ad server. DFP has 16 levels of prioritization available, with the first 11 levels being set aside for “reserved” or “guaranteed” line items. Of these top 11, typically the first three levels are used for sponsorships — as the highest priority line items placed into the ad server.

The Fundamental Changes Happening In Programmatic Today (What ever happened to Programmatic Direct – or Automated Guaranteed?)

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

Media buying and selling have been on a slow evolutionary course since the late 1990s. With real-time bidding at the forefront, the industry has evolved rapidly since 2007, but relegated primarily to direct response on the buy side and remnant inventory sales on the sell side.

Most media sales – about 80% of digital dollars – have still been done over the direct channel, with RFPs, negotiations and inventory purchased well in advance of the campaign’s “go live” date. Despite significant growth in programmatic mobile and video, programmatic still represents a tiny fraction of dollars spent in those media channels.

While we’ve heard a lot about “automated guaranteed” over the last few years, the sector hasn’t grown as quickly as many would like. Analysts have been bullish about its growth, with Magna Global estimating that 83% of digital display spending will be “programmatic” by 2017, largely driven by the adoption of automated guaranteed and other types of “programmatic direct.”

We see the kind of growth expected in the RTB space, but not in the automated guaranteed space. Although some were gaining traction, vendors had trouble making money and several leaders were acquired last year for fairly low prices.

The amount of traction has been debated behind closed doors, with the quiet consensus emerging that automated guaranteed isn’t really taking off. The question is: Why not?

Automated Guaranteed’s Biggest Hurdles

Until a few years ago, publishers were a bit squirrelly about RTB. Sales-driven organizations doubted that RTB could provide the value that direct sales have produced for 20 years, and there was a belief that RTB drove prices downward.

Five years ago, new vendors entered the fray to focus on solving an old problem: automating the convoluted process of buying and selling direct ad campaigns. They sold publishers on this idea and created pipelines that allowed publishers to create packages that could be pushed over an API to buying tools, and would automate and streamline the human interactions that take place during a media buy.

This is a very logical path to go down – billions of dollars are spent on these direct media buys and everyone agrees that this space is incredibly inefficient. So why not just build some automation and have the whole thing streamlined and driving growth of the market?

Several factors have limited growth of the automated guaranteed space. One is that publishers have treated it like a new sales channel to shop inventory packages, not as a means to replace the standard RFP-driven direct channel. Publishers use automated guaranteed as an intermediate sales channel between direct buys and remnant sales. They have tried to use it to open up more direct buys – effectively money that was never on the table before – and entice buyers to pick up inventory packages directly instead of using RTB.

But analysts, vendors and many sales executives didn’t envision this for automated guaranteed. The goal was to push direct sales into this automated process for selling and for buyers to adopt buying tools that streamlined the RFP process. While there has been some success with this model – particularly with dedicated buying tools in the direct space – overall it has been sluggish.

To exacerbate the problem, publishers tended to package inventory for this channel in ways they’d never do if they were responding to an RFP. One media buyer I talked to about this debacle laughingly said, “They’re creating media packages and pushing them through this channel that they can’t even sell with their sales force involved. Why do they think anyone will buy it over this channel if they can’t sell it with people?”

The implication is that most buyers aren’t interested in publisher-defined inventory packages that aren’t tailored to the specific campaign goals. And what most publishers have missed is that buyers have complete control over the inventory definition when buying over the RTB channel, which has been as much a growth factor as reducing waste or lowering average CPMs. Control always wins for buyers.

These various problems with the automated guaranteed channel have slowed adoption and growth of the programmatic direct space and produced a chilling effect on investment, leading to some of the vendor exits. But this is only in the automated guaranteed portion of the “programmatic direct” channel. There are many ways the market is beginning to improve and reinvent the media buying and selling process, and automated guaranteed is only one of them.

The final major issue here is that automated guaranteed is solving an old problem without changing the nature of the thing it’s trying to solve. It has made direct buys more efficient, rather than producing radically better direct buys.

As the automated guaranteed space was inventing itself, the RTB channel evolved much faster than anyone expected. Publishers began to begrudgingly admit that RTB wasn’t a “race to the bottom” as many feared and instead was driving significant revenue at a significantly lower cost of sales. As skepticism and suspicion evaporated, publishers have become open to bigger and broader uses of RTB.

RTB Growth

RTB has given us more value than direct buys and helped us find ways to radically improve upon direct buys. The largest vendors in the space, particularly DoubleClick and the closely related AdX exchange, rapidly innovated and released technologies like Enhanced Dynamic Allocation (EDA), leading publishers to experiment with the way they allowed direct and RTB demand to compete with each other over impressions in real time.

The result has been a significant increase in yield and overall rising CPMs in the RTB channel. In many cases, demand coming from RTB yields higher than direct buys. Using tools like EDA has not led to underdelivery or undercutting of direct deals.

And while “standard RTB” has grown rapidly and is now encroaching on inventory that traditionally was reserved for direct deals only, private marketplaces have been a real winner in the RTB space. While Deal ID as a mechanism for instituting a private marketplace buy has been somewhat vilified in the industry trade press, complaints are mostly unfounded. Private marketplace deals over RTB have grown incredibly fast and are poised to accelerate. We’ve also seen buying and selling tools rapidly advance and processes are becoming streamlined.

Buying teams within agency trading desks (ATDs) use various flavors of private marketplaces to enact one-to-one deals with publishers that largely replicate direct buys. They’ve also completed more extensive global deals with publishers that take advantage of the total demand they represent as an agency and share the supply among their clients. They are even using these broader deals as differentiators with their competitors.

Similarly, the demand-side platforms are creating differentiated supply deals with publishers that put them toward the top of the queue within the ad exchanges and, in some cases, help them bypass the exchange infrastructure altogether using RTB-based buying tools.

We’re now seeing that the ATD model itself is fracturing as media agencies pull the resources and capabilities of the ATDs in-house and push their media buyers to incorporate programmatic mechanisms into the standard buying process. Executives at nearly every large media agency and most holding companies are privately or even publicly stating that programmatic – primarily RTB mechanisms – will be incorporated into mainstream buying teams starting this year, if they haven’t done so already.

One major area of investment needed in order for media agencies to begin adopting RTB at large are tools for planning and executing buys that support the needs of a more “standard” media buyer. Specialists will certainly be helpful for the tools of today, but media planning and buying as a discipline is missing a significant window of insight and execution capability that could be coming from this channel. Tools for planning buys across direct and programmatic channels (RTB, private marketplaces, automated guaranteed and across various differentiated vendors) are desperately needed in our space.

As you might expect, vendors connected to the exchange infrastructure get access to data about all impressions defined by all criteria – including publisher, contextual, geographic and first- and third-party data segments. That data has yet to be unlocked for broad media planning and buying but soon will be. You might imagine this is an area where I’m spending a lot of my time.

I believe that success will be driven by broad shifts in the programmatic space, faster adoption of RTB-enabled buying and selling mechanisms, new programmatic offerings beyond RTB and tools to help less specialized buyers to be successful in programmatic.

How private marketplaces actually work

By Eric Picard (Originally Published on iMedia – December 13, 2014)

Recently Ricardo Bilton wrote an article for Digiday about the difficulties that publishers have had embracing private marketplaces (PMPs). The validity of his article is arguable, and he called out a few of the buy-side platforms as causing some of the difficulty — despite the massive and growing volumes those platforms are actually driving in the PMP world. So instead of rebutting his article, let me define how these things work, and what the scope and difficulties are in making use of private marketplaces, but also what benefits can come from them.

Before we get into it, let’s talk about complex vs. complicated. They actually mean different things. Complex implies that the difficulty of embracing something is unavoidable — some things are just complex, have lots of moving parts and lots of opportunities to implement. Complicated implies that the difficulty is avoidable, and could be designed around. Private marketplaces today are both complex and complicated. We need to remove the complications.

History

Back in the dark ages of the programmatic world, let’s say 2008, publishers were wary of the newly emerging programmatic landscape. In order to convince them to put their inventory into the proto-exchanges that existed, the concept of a private exchange or private marketplace evolved. Keep in mind that up to that point, mostly the inventory that flowed on the exchanges came from ad networks daisy-chaining their inventory together. But as publishers began participating, and SSPs entered the scene, these private marketplace mechanisms were rolled out to support publisher concerns about yield optimization — and especially cherry picking and cream skimming — buying strategies that were major concerns for publishers in those early days.

As a result, the first private marketplaces were fairly simple to understand, and were nice ways for publishers to get their feet (or at least their toes) wet in the programmatic space. The basic concept was simple: Publishers could expose some or their entire inventory to an exchange or SSP. They could hand-pick which advertisers were invited to come into the private marketplace. Only those invited to have access could bid on the inventory.

The problem with this early approach was that it missed out on some very important fundamentals of exchange-based buying and selling. One important fundamental is bid density: For every impression that is exposed to an auction, you need as many bidders (buyers) as possible competing for that inventory in order to have the price reach a reasonable amount — especially in a second price auction.

What is a second price auction?

It’s a pretty simple idea, really — if three people participate in a second price auction for an Apple, all three people put in the highest price they’re willing to pay for that apple. Person A bids $1.00. Person B bids $1.50. Person C bids $0.50. Person B would win the auction, but only pay $1.01 for the Apple. The reason for a second price auction rather than a first price auction (in the example above for a first price auction, person B would still win, but would pay $1.50) is to encourage the bidder to put their true price into the auction. Second price auctions are generally understood to have less “gaming” of the auction — since the high bidder is protected from overpaying.

But in a world where only one or two advertisers are bidding on the same impression, there’s often no second price to use. So private marketplaces by nature are problematic when it comes to bid density — and many early private marketplaces ultimately failed to succeed. There are mechanisms that can be tried — for instance using a first price auction for private marketplaces — but of course this can lead to rampant gaming of the auction — and rarely will a buyer put the actual price they’re willing to pay into a first price auction. Another mechanism is price floors –which protect the publisher from having the impression fall on the floor for close to nothing — but often a PMP price floor in those days became a price, rather than a floor due to the lack of bid density.

As our industry evolved away from the original exchanges and toward real-time bidding, a whole host of new complex issues were uncovered — but also amazing new capabilities. One of the key things that this drove in the PMP world were new innovations like dynamic floor pricing — where the SSP or even the publisher ad server was able to analyze demand across the ad server, the SSP, the PMP, and the open exchange and set the floor on a per-impression basis.

As publishers got over their initial fear of programmatic selling, they began to put their inventory into the open exchange and blend the private and open bids into the same auction. Publishers quickly realized that they needed to give the buyers that had private marketplace access a set of preferences so that they would continue in the PMP rather than bounce out to the exchange. This led to all kinds of mechanisms — across various systems that have brought us to our modern programmatic landscape for private marketplaces.

Private marketplaces today

Private marketplaces today are very confusing. They’re both complex and complicated. There’s no clear and simple definition of a PMP that means exactly the same thing to everyone because there are so many ways to implement one. And depending on your ad server, your choice of SSP and/or exchange, and the buyer’s DSP, it’s fairly impossible to know in advance how the PMP will instantiate itself. Literally if you took five impressions of a PMP and reviewed them, each could be delivered completely differently from the others.

For publishers looking to start using private marketplaces today — without any legacy configurations or expectations, there are some benefits of having waited. Today PMPs are really about giving the publisher control over the way their preferred customers get treated by the auction. As everyone knows, when you have a big customer, who spends a large amount with you annually, you probably want to give them some discounts and benefits for working with you. Private marketplaces today are evolving into sets of controls for protecting the relationship with the buyer, and often for giving them either a discount, or giving them better access and control over the inventory they want to buy. It is the latter scenario — giving the buyer control — that makes some publishers very nervous, but is the real benefit of the PMP in today’s market.

In this scenario, the publisher lets their big spending customers get some additional control over defining the audience and the inventory that they have access to. Sellers frequently will bundle this additional control with a larger overall buy, or with a high minimum CPM, or with a high minimum overall budget. And publishers are finding that this approach makes everyone on all sides of the deal much happier. Everyone wins, as long as the complexity required to pull this off is embraced.

One of the biggest innovations in the programmatic world, and one that causes a lot of the complexity behind the issues this space has been saddled with, is the Deal ID. Deal ID was supposed to solve many problems in the programmatic space, but they have added another layer of complexity. The trick is to embrace the complexity without structuring things in such a way that they become unnecessarily complicated.

What is deal ID?

It became clear that while RTB was a vastly superior way to buy and sell ads than anything else we’d seen as an industry — there were touch-points between the old systems and the new systems that were confusing. Nowhere was this confusion worse than when a buyer wanted to execute a guaranteed deal over the RTB infrastructure.

But that Deal ID mechanism has now been used in much more flexible ways than its original driving intent. Think of a Deal ID as a way to prioritize a buy against supply. And the features for how you prioritize the bid vary by ad server, by exchange, by DSP, and by SSP. Sometimes the combination of each of those things leads to a different set of capabilities.

If you’re feeling confused, you’re getting the picture. This isn’t simple stuff. But that’s okay, because with complexity comes opportunity. Here’s a complex, but powerful scenario that Deal ID opens up:

All of these bids are Deal ID bids — prices are CPM:

  • Advertiser A sets up a dynamic bid that lands at $5 for the impression. Publisher floor prices this advertiser at $7.
  • Advertiser B sets a dynamic bid at $6 for the impression. Publisher floor prices this advertiser at $4.
  • Advertiser C sets up a dynamic bid for $17 for the impression. Publisher floor prices this advertiser at $20.
  • Advertiser D sets up a dynamic bid for $1 for the impression. Publisher floor prices this advertiser at $3.

In the above scenario, Advertiser B would win the auction, and pay $6 CPMs for that impression. Since one of the Deal ID bids won the auction, the impression never makes it to the open exchange. If for some reason the publisher had set the floor price for advertiser B at $7, then this auction would have flowed through to open exchange, and then advertiser C would have likely won the auction (assuming nobody in the open exchange bid higher than $17). Advertiser C would end up paying whatever the next highest bidder was willing to pay, plus $0.01.

How was that for complex? Want it to be more complex?

Some ad platforms can support a Deal ID with a dynamic bid, or a fixed price with a priority cascade. So while price mattered a lot in the example above, if one of those bids (even the low bid) was a fixed price, it would have won the auction at the fixed price. That’s how you give your preferred advertisers ways to find their preferred audience while giving them a fixed price. The trick is to negotiate well on the price on both sides so everyone gets what they want.

So while Deal ID is just one mechanism that may or may-not be part of a private marketplace, the two concepts are becoming somewhat inextricably linked together. What is a private marketplace today? It’s a complex set of interacting tools, systems, mechanisms, and approaches that can be used to give the publisher control over the prioritization of their supply against the demand represented over the exchange. Easy to understand? No. Easy to configure? No. Easy to execute against? Not yet. But worth using? Absolutely!

This complexity means power, but the complexity leads to confusion and complications. So when we have people who aren’t practitioners writing articles about very complex systems and how they are used, and then going to sources for quotes about adoption of these complicated scenarios, the answer is going to either be vague (not quotable) or clear (not accurate.) And these clearer quotes, which aren’t really very accurate in many cases, paint a picture of the space that looks like it isn’t working.

Private marketplaces give publishers control over the prioritization of buys coming from the programmatic channel. As an industry, we’re still figuring private marketplaces out — but vast and growing dollars are being spent over them in the meantime, and those buyers and sellers willing to take the time and effort to understand the complexity are winning. Yes, we need to make the execution of private marketplaces less complicated. It would be nice if we could also make them less complex, but only if we don’t lose the power that comes with the complexity. And in the meantime, the channel is growing and productive.

Programmatic buying: The FAQ every marketer needs

By Eric Picard (Originally Published in iMedia – November 15, 2014)

I was at the ad:tech conference in New York last week, and in one of the sessions, three different people asked about programmatic. They didn’t ask any nuanced questions. They effectively asked, “What is programmatic?” They were embarrassed that they didn’t know, but after the first person spoke up, others in the room were emboldened.

For someone so steeped in the programmatic space, this took me by surprise. Certainly, I thought, no one in our industry doesn’t know what programmatic is. Adding to my consternation was that this specific panel was focused on SEO — and I figured that anyone working in search must be in the know on what was happening in programmatic. So I walked around and asked people for the rest of the conference what they knew about programmatic, just so I could see how out of touch I was from the mainstream. While most people were relatively up to date, I was surprised by the lack of general knowledge and the amount of misinformation there was out there.

So I figured it was time to step back and go over the very basics in this classic frequently asked questions (FAQ) format.

What does the term “programmatic” mean?
The term “programmatic,” which I’ve been told I coined back in 2009, really just is the umbrella term for automated buying and selling of media. While this is how I use the term, and what the market generally tries to use it to mean, many people use it to refer just to one part of the “programmatic ecosystem” — real-time bidding (RTB).

What are ad exchanges?
Much like in the finance world where stocks, commodities, and derivatives are sold over “exchanges,” we now have mechanisms to sell advertising over exchanges. Think of this as an auction-based mechanism to sell ads. Most exchanges are second-price auctions, meaning that whoever bids the highest for an ad wins the ad impression but pays the price (sometimes plus one penny) that the second-highest bidder was willing to pay. And nearly all of these exchanges have moved to RTB. Ad exchanges typically perform the function of providing liquidity to the marketplace, letting supply and demand match fluidly. Ad exchanges are not typically where the dollars accumulate; they’re a relatively inexpensive conduit through which demand and supply flow.

What is real-time bidding?
RTB is an auction-based mechanism for media buyers to bid on advertising at the impression level, as the ad impression takes place. When the ad impression takes place, a call is made to the exchange, which submits the impression to all bidders (participants with seats on the exchange). Those bidders have a very short time — usually less than 100 milliseconds — to respond to the auction with their bids. Unlike in the world of paid search, where all the demand for ads sit within the ad system of the search engine, ad exchanges federate out the auction, meaning that each bidder contains its own demand and only submits what it chooses to the exchange. This makes the exchange more of a clearing mechanism, rather than the revenue-generating mechanism that the paid search auction is.

What value does an advertiser or media buyer get by using RTB?
RTB enables a media buyer to specify exactly what their goals or outcomes are and look only for ad inventory that matches against those goals. Sometimes those goals are performance based; sometimes they are audience based. In other words, buyers can specify what audiences they want to reach and buy only those ad impressions that match. This is very different from the experience of buying from publishers directly, where the publisher specifies the inventory definition. Over RTB, the buyers specify the inventory definition and only buy what they want.

Are exchanges only available for banner ads?
RTB and programmatic exchanges are not in any way limited to one inventory type. Pretty much any available media inventory (ironically except for paid search) is available this way. Display, mobile, video, social, and even some traditional media such as television, radio, and print are either already available over exchanges or will be soon.

How do I buy ads on an exchange?
Buying mechanisms for ad exchanges are typically referred to as demand-side platforms, or DSPs. Some ad networks also enable exchange buying but in some cases are not transparent about this (i.e., they might be buying ads on the exchanges and reselling them to their customers). DSPs are available from companies like MediaMath, Turn, DataXu, The Trade Desk, AppNexus, and others.

How do publishers sell ads over exchanges?
Publishers that are quite large can sometimes offer their inventory directly over an ad exchange. Some even have their own. But most publishers use an aggregator of one kind or another — either an ad network or a specialty platform called a supply-side platform (SSP). SSPs are kind of the inverse of a DSP and have specialized software for managing supply on the publisher’s behalf. Some exchanges are incorporating the functionality of SSPs directly such that publishers don’t need a separate vendor to support this need. And some SSPs are beginning to behave as exchanges on their own.

Can I buy directly from publishers programmatically?
Yes, many publishers make their inventory available over the exchange, and most DSPs can specify publishers they wish to include in a buy. Many publishers also have rolled out “private marketplaces” using either ad exchanges or supply-side platforms. These private marketplaces are kind of like private ad exchanges where the publisher makes its inventory available only to specific buyers. These have all the benefits of RTB to the buyer but give the publishers more control over floor prices they want to set — or even fixed rate deals they want to support with specific buyers or advertisers.

Can I execute direct buys, or guaranteed buys, programmatically?
Yes, there’s a whole subset or category of the programmatic ecosystem that is appropriately called programmatic direct. Solutions in this space are less well defined, as it is newer. But the general goal is to provide more automation to the buying and selling of media. These buys can happen over display, mobile, video, social, and even television, radio, and print. The ecosystem has vendors supporting the needs of buyers and sellers independently — and a few that are hybrid solutions. Companies in this space include Bionic Ads, Shiny Ads, Yieldex, iSocket, BuySellAds, and others. Many DSPs are now plugging into the programmatic direct inventory sources as well, allowing one-stop-shop buying of both RTB and direct inventory.

Is programmatic replacing more traditional ways of buying and selling media?
Yes. Interpublic Group, one of the biggest agency holding companies, has stated that it wants to move 50 percent of its media buying to programmatic methodologies by 2015, and ultimately do that across all media types. In public and private conversations across the industry with executives at both marketing and media agencies, the zeitgeist is definitely moving in this direction. Publishers were the holdup until the last few years, when they started to see the benefits of programmatic selling on their own. Many publishers are finding that programmatic selling provides higher yield, either because their cost of sales are lower or because the inventory is being used more efficiently.

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.