Category Archives: Publishers

How ad platforms work (and why you should care)

(By Eric Picard, Originally Published in iMediaConnection, 11/8/12)

Ad platforms are now open, meaning that startups and other technology companies can plug into them and take advantage of their feature sets. The ad technology space is now API driven, just like the rest of the web technology space. The significance of this change hasn’t hit a lot of people yet, but it will. The way this change will affect almost all the companies in ad technology will have an impact on everything: buying, selling, optimization, analytics, and investing.

Companies in our space used to have to build out the entire ad technology “stack” in order to build a business. That meant ad delivery (what most people think of as “ad serving”), event counting (impressions, clicks, conversions, and rich media actions), business intelligence, reporting, analytics, billing, etc. After building out all those capabilities, in a way that can scale significantly, each company would build its “differentiator” features. Many companies in the ad technology space have been created based on certain features of an ad platform. But because the ad platforms in our space were “closed,” each company had to build its own ad platform every time. This wasted a lot of time and money and — unbeknownst to investors — created a huge amount of risk.

Almost every startup in the ad platform space has existed at the whim of Google — specifically because of DoubleClick, the most ubiquitous ad platform in the market. When Google acquired DoubleClick, its platform was mostly closed (didn’t have extensive open APIs), and its engineering team subsequently went through a long cycle of re-architecture that essentially halted new feature development for several years. The market demanded new features — such as ad verification, brand safety, viewable impressions, real-time bidding, real-time selling, and others — that didn’t exist in DoubleClick’s platform or any others with traction in the space.

This led to the creation of many new companies in each space where new features were demanded. In some cases, Google bought leaders in those spaces. In others, Google has now started to roll out features that replicate the entirety of some companies’ product offerings. The Google stack is powerful and broad, and the many companies that have built point solutions based on specific features that were once lacking in Google’s platform suddenly are finding themselves competing with a giant who has a very advanced next-generation platform underlying it. Google has either completed or is in the process of integrating all of its acquisitions on top of this platform, and it has done a great job of opening up APIs that allow other companies to plug into the Google stack.

I’ve repeatedly said over the years that at the end of the natural process this industry is going through, we’ll end up with two to three major platforms (possibly four) driving the entire ecosystem, with a healthy ecosystem of other companies sitting on top of them. Right now, our ecosystem isn’t quite healthy — it’s complex and has vast numbers of redundancies. Many of those companies aren’t doing great and are likely to consolidate into the platform ecosystem in the next few years.

So how does the “stack” of the ad platform function? Which companies are likely to exist standalone on top of the stack? Which will get consumed by the stack? And which companies are going to find themselves in trouble?

Let’s take a look.

How ad platforms work (and why should you care)

Pretty much every system is going to have a stack that contains buckets of services and modules that contain something like what you see above. In an ideal platform, each individual service should be available to the external partner and should be consumable by itself. The idea here is that the platform should be decomposable such that the third party can use the whole stack or just the pieces it needs.

Whether we’re discussing the ubiquitous Google stack or those of competitors like AppNexus, the fact that these platforms are open means that, instead of building a replica of a stack like the one above, an ad-tech startup can now just build a new box that isn’t covered by the stack (or stacks) that it plugs into. Thus, those companies can significantly differentiate.

This does beg the question of whether a company can carve out a new business that won’t just be added as a feature set by the core ad platform (instantly creating a large well-funded competitor). To understand this, entrepreneurs and investors should review the offering carefully: How hard would it be to build the features in question? Is the question of growing the business one of technical invention requiring patents and significant intellectual property, or is it one of sales and marketing? Is the offering really a standalone business, or is it just a feature of an ad platform that one would expect to be there? And finally, will the core platforms be the acquirer of this startup or can a real differentiated business be created?

The next few years will be interesting. You can expect these two movements to occur simultaneously: Existing companies will consolidate into the platforms, and new companies will be created that take advantage of the new world — but in ways that require less capital and can fully focus on differentiation and the creation of real businesses of significance.

How Do Companies Make Any Money in Digital?

(By Eric Picard, Originally Published in AdExchanger 10/25/12)

In 2007 I wrote a paper that analyzed the lack of investment from 2001 to 2006 in the basic infrastructure of ad technology.  The dot-com bubble burst had a chilling effect on investment in the ad tech space, and as an industry we focused for about six years on short term gains and short term arbitrage opportunities.

This period saw the rise of ad networks and was all about extracting any value possible out of existing infrastructure, systems, and inventory.  So all the “remnant” inventory in the space, the stuff the publisher’s in-house sales force couldn’t sell, got liquidated at cheap prices.  And those companies with the willingness to take risk and the smarts to invest in technology to increase the value of remnant got off the ground and succeeded in higher efficiency buying and selling, and lived off the margins they created.

But we lost an entire cycle of innovation that could have driven publisher revenue higher on premium inventory – which is required for digital to matter for media companies. There’s been lots of discussion about the drop from dollars to dimes (and more recently to pennies) for traditional media publishers. And while the Wall Street Journal and New York Times might be able to keep a pay-wall intact for digital subscriptions, very few other publications have managed it.

In 2006 the ad tech ecosystem needed a massive influx of investment in order for digital to flourish from a publisher perspective.  These were my observations and predictions at the time:

  • Fragmentation was driving power from the seller to the buyer. Like so:
  • A lack of automation meant cost of sales for publishers, and cost of media buying management for agencies, were vastly higher in digital (greater than 10x what those things cost for traditional on both the buy and sell side).
  • Prices were stagnated in the digital space because of an over-focus on direct response advertisers, and the inability of the space to attract offline brand dollars.
  • Market inefficiency had created a huge arbitrage opportunity for third parties to scrape away a large percentage of revenue from publishers. Where there is revenue, investment will follow.
  • There was a need for targeting and optimization that existing players were not investing in, because the infrastructure that would empower it to take off didn’t exist yet.
  • Significant investment would soon come from venture capital sources that would kick start new innovation in the space, starting with infrastructure and moving to optimization and data, to drive brand dollars online.

Six years later, this is where we are. I did predict pretty successfully what would happen, but what I didn’t predict was how long it would take – nor that the last item having to do with brand dollars would require six  years. This is mainly because I expected that new technology companies would step up to bat across the entirety of what I was describing.  Given that the most upside is on brand dollars, I expected entrepreneurs and investors to focus efforts there.  But that hasn’t been the case.

So what’s the most important thing that has happened in the last six years?

The entire infrastructure of the ad industry has been re-architected, and redeployed.  The critical change is that the infrastructure is now open across the entire “stack” of technologies, and pretty much every major platform is open and extensible. This means that new companies can innovate on specific problems without having to build out their own copy of the stack.  They can build the pieces they care about, the pieces that add specific value and utility for specific purposes – e.g. New Monetization Models for Publishers and Brand Advertisers, New Ad Formats, New Ad Inventory Types, New Impression Standards, New Innovation across Mobile, Video and Social, and so on.

So who will make money in this space, how will they make it, and how much will they make?

I’ve spent a huge portion of my career analyzing the flow of dollars through the ecosystem. Recently I updated an older slide that shows (it’s fairly complex) how dollars verses impressions flow.

The important thing to take away from this slide is that inventory owners are where the dollars pool, whether the inventory owner is a publisher or an inventory aggregator of some kind.  Agencies have traditionally been a pass-through for revenue, pulling off anywhere from 2 to 12% on the media side (the trend has been lower, not higher), and on average 8 to 10% on the creative side depending on scale of the project.  Media agencies are not missing the point here, and have begun to experiment with media aggregation models, which is really what the trading desks are – an adaptation of the ad network model to the new technology stack and from a media agency point of view.

The piece of this conversation that’s relevant to ad tech companies is that so far in the history of this industry, ad technology companies don’t take a large percentage of spend.  In traditional media, the grand-daddy is Donovan Data Systems (now part of Media Ocean), and historically they have taken less than 1% of media spend for offline media systems. In the online space, we’ve seen a greater percentage of spend accrue to ad tech – ad serving systems for instance take anywhere from 2 to 5% of media spend.

So how do ad tech companies make money today and going forward? It’s a key question for pure transactional systems or other pure technology like ad servers, yield management systems, analytics companies, billing platforms, workflow systems, targeting systems, data management platforms, content distribution networks, and content management systems.

There’s only so much money that publishers and advertisers will allow to be skimmed off by companies supplying technology to the ecosystem. In traditional media, publishers have kept their vendors weak – driving them way down in price and percentage of spend they can pull off. This is clearly the case in the television space, where ad management systems are a tiny fraction of spend – much less than 1%.

In the online space, this has been less the case, where a technology vendor can drive significantly more value than in the offline space. But still it’s unlikely that any more than 10% of total media spend will be accepted by the marketplace, for pure technology licensing.

This means that for pure-play ad tech companies with a straightforward technology license model – whether it’s a fixed fee, volume-based pricing, or a  percentage of spend – the only way to get big is to touch a large piece of the overall spend. That means scaled business models that reach a large percentage of ad impressions.  It also means that ultimately there will only be a few winners in the space.

But that’s not bad news. It’s just reality.  And it’s not the only game in town. Many technology companies have both a pure-technology model, and some kind of marketplace model where they participate in the ecosystem as an inventory owner. And it’s here that lots of revenue can be brought into a technology company’s wheelhouse. But its important to be very clear about the difference between top-line media spend verses ‘real’ revenue. Most hybrid companies – think Google for AdSense, or other ad networks – report media spend for their marketplaces as revenue, rather than the revenue they keep. This is an acceptable accounting practice, but isn’t a very good way to value or understand the value of the companies in question. So ‘real revenue’ is always the important number for investors to keep in mind when evaluating companies in this space.

Many ad technology companies will unlock unique value that they will be the first to understand. These technology companies can capitalize on this knowledge by hybridizing into an inventory owner role as well as pure technology – and these are the companies that will break loose bigger opportunities. Google is a great example of a company that runs across the ecosystem – as are Yahoo, Microsoft and AOL.  But some of the next generation companies also play these hybrid roles, and the newest generation will create even greater opportunities.

Why publishers’ ad experiences need to be more flexible

(By Eric Picard, Originally Published in October 11, 2012)

In 2004, I was recruited to Microsoft, where among other things I was put in charge of coming up with a new plan for the overall advertising experience for MSN and, soon after, Windows Live. I spent about eight months digging into the advertising experience as it then existed and tried to rationalize how advertising should work on a major site like MSN and across a variety of user experiences.

In an early meeting with a group of folks from the sales team, Gayle Troberman made a fateful suggestion: “You really need some kind of framework for assessing what kind of ad fits in what kind of experience.” This was a key suggestion because it forced me to assemble a cross-disciplinary team and create a shared language that drove numerous long-term decisions.

The first-order considerations were driven by “user modality,” which is defined as the behavior and related mindset that a user is engaged in during specific activities. We needed to determine which advertising experiences were acceptable in each type of modality that existed across the myriad experiences on our properties. By carefully considering modality, we were able to create a set of guidelines for what advertising should be enabled in each type of environment.

To illustrate the point, let me give a few key examples of what we put together:

  • Users who are reading email are open to advertising experiences that are relevant and non-invasive, but that are not explicitly targeted to that user based on the content of the mail — which just is creepy.
  • Users who are writing email are not open to advertising experiences.
  • Users who have sent email are open to a broader ad experience with a larger format ad.
  • Users who are reviewing a home page or section front are open to a large format ad.
  • Users who are reading an article are open to non-invasive ads that can be large format as long as they don’t encroach on the reading experience.

The guidelines I created with that team quickly became the overall framework used by Microsoft to drive advertising experiences across all content experiences across MSN, Windows Live, and even in a variety of emerging media experiences. My “day job” at the time was managing product planning for emerging media, which at that time included video, over-the-top television, mobile, video games, software applications, and new device formats (e-readers, tablets and other device prototypes, Zune, etc.).

Some key principles that I came up with include the following:

  • Ensure that ad clutter is kept to a minimum. It’s better to have one very large-format ad on a page than five small-format ads.
  • Ensure that ads have enough white space around them.
  • Give the user the ability to give feedback about ads (both positive and negative) — such as rating ads.
  • Be transparent about behavioral targeting of ads, including how an ad was targeted to them and what profile information we stored about users. Enable users to correct and enhance their targeting profiles. (This was the most controversial of my recommendations and was discussed at length.)
  • Enable every ad unit to become “rich media enabled” with specific templatized enhancements, such as a store locator, a pop-up video unit, RFI, and others.

Like many efforts I’ve been engaged in over the years, this one met with a mixture of success and failure. It took almost five years before we enacted most of the privacy and targeting features I recommended. And none of the rich media templates ever saw the real world. But the user modality guidelines were a huge hit — maybe in a sense these were too successful. Sometimes the creation of a set of clearly defined “rules” empowers folks who are embedded more deeply in an organization to say “no” to next efforts very quickly. This is often the case with any standards effort, whether at the industry level or within a specific organization.

I experienced this one day when I was trying to roll out a new set of ad formats for software applications. I sat down with the product manager in charge of the effort, and when I started walking him through the prototypes, he quickly stopped me with a clear set of concerns: “Uhm… look — these ad formats clearly don’t fit the ad experience framework we use here. So I’m just going to have to say ‘no.'”

Of course, once he learned that I had written those guidelines, the conversation was reopened. But this is an important lesson. Core principles always need to be flexible enough to allow testing the edges and borders of experiences. Once a new content experience is rolled out, an ad experience needs to be tried out with it. Sometimes that new experience doesn’t fit in the guidelines you’ve created.

Why Media Companies Are Being Eaten By Tech Companies

By Eric Picard (Originally published on, August 20, 2012)

My friend and colleague Todd Herman (LinkedIn) once wrote a strategy paper about video content when we worked together at Microsoft. Called “Don’t be food,” it was a brilliant paper that laid out a strategy for effectively competing in a world where content is distributed everywhere by anyone.  I love the concept of “Don’t be food.”  It applies to so many existing business models, but clearly where Todd initiated it – Media – it applies incredibly well.

The media business is being forceably evolved through massive disruptions in content distribution. In the past, control over distribution was the primary driver of the media model. Printed material, radio and television content required a complex distribution model. Printing presses and distribution are expensive. Radio and television spectrum is limited, and cable infrastructure is expensive. Most media theory and practices have been deeply influenced by these long term distribution issues, to the point that the media industry is quite rigid in its thinking and cannot easily move forward.

One of my favorite business case studies is the Railroads.  Railroad companies missed massive opportunities as new technologies such as the automobile and airplanes began to be adopted. They saw themselves as being in the “railroad business,” and not the “transportation business.”  Because of this they lost significant opportunities and very few of the powerhouse companies from the rail era continue to exist.

In media, new technologies have been massively disrupting the space for more than a decade. And there is an ongoing debate about technology companies stepping in and disrupting the media companies. Google is a prominent example, and its recent acquisition of Frommer’s is yet another case where it has eaten a content company and continued to expand from pure technology into media.  But Google isn’t moving into media based on the existing rules that the media companies play by – it is approaching media through the lens of technology.

But this issue doesn’t only pertain to the oft-vilified Google: Amazon continues to disrupt the book industry by changing the distribution model through the use of technology, and is clearly gunning for magazine, radio and video content as well.  Microsoft is changing the engagement model and subsequently the distribution of content to the living room via its ever-expanding Xbox footprint, and is broadly expanding toward media with Windows 8, its new Surface tablet devices and smartphones – again using technology.  Apple has turned distribution models on their ears by creating a curated walled garden of myriad distribution vehicles (apps on devices), but charges a toll to the distributors – again using technology to disrupt the media space.  Facebook, Twitter and social media are now beginning to disrupt discovery and distribution in their own ways – barely understood, but again based on technology.

Existing media models are functionally broken – and will continue to be disrupted.  Distribution is always a key facet of the overall media landscape, and will continue to be.  But as distribution channels fragment, and become more open, the role that distribution plays will radically change. Distribution is no longer the key to media – it is inherently important to the overall model of media – but it isn’t the key.

Technology is the key to the future of media. Technology can and has profoundly changed the way content is distributed, and will continue to do so. The future of media is wrapped up in technology, and this is an indicator of why technology companies are eating media companies’ lunches, if not actually consuming them in their entirety.

Media companies don’t understand technology because they are not run by technologists. And there is a vast gulf between the executive leadership of media companies and the needs to understand technology. Every media company should be running significant education efforts to pass along the concepts needed to compete in the technology space, but I’m not convinced even that would be enough to fix the problems they face.

At Microsoft I once had an executive explain to me why most of the executives running businesses at the company were from a software background.  He said something along the lines of, “A super smart engineer who can wrap his or her head around platforms and technology issues can probably learn business concepts and issues faster than a super smart business person can learn technology.”  And he was right – it’s that simple.

Business schools should have requirements today for anyone graduating with an undergraduate or graduate degree to learn how to write software, and most importantly to develop a modern understanding of platforms. These platform models are the future of distribution, and are barely understood even among many technologists. The modern platform models used broadly on the Internet and to create software on devices that drive content distribution are relatively new, and are frequently not understood by people with technical backgrounds who haven’t spent time working with them.

Bad business decisions continue to be made by media companies because of the significant lack of technology leadership in both executive and middle management. As technology evolved, the model for many years was that business people figured out “Why and What” to build and “Where” to distribute it, and engineers figured out “How and When” something could be delivered.  Great technology companies break down the walls between Why, What, How, When and Where. Engineers have just as much say in all of those things as the business people. Great technology companies don’t treat engineers and technologists like “back room nerds.”  They recognize that engineering brilliance can be applied to the business problems facing them, and that technology innovation will drive their businesses to disrupt themselves toward future success.

Media companies must evolve away from their historical strengths based on distribution control, and must embrace technology as a key principal.  And they need great engineers to do so. The problem is, great engineers won’t work for mediocre engineers. Great engineers won’t take bad direction from people they don’t respect, especially business people. And many media companies have treated their existing engineering organizations as an extension of traditional IT models. The groups that are responsible for the corporate network, intranet, conference room systems, email servers and laptop support do an important job. But it’s vastly different from building software and inventing new technologies.  Media companies often have not understood this.

For a traditional media company to compete effectively with Google, Amazon, Apple, Microsoft, Facebook, and the thousands of hot startups now competing with them, they must build world-class engineering organizations. This isn’t a light fuzzy requirement, it’s a core fundamental of their ability to survive for the next century.  These companies must evolve forward.  They must find ways to empower internal disruption.

Media companies must build startup organizations within their own internal structures that are isolated from the existing IT leadership and given bold broad empowered charters with the leeway to disrupt other teams’ businesses.  They must build a new technology driven culture within these large media companies that is separate from the existing groups, and then embrace those internal startups as the future of the company.  This isn’t easy.  It’s nearly impossible.  And this very likely will not work the first time it’s tried. But if media companies don’t commit to this kind of change, they are going to be eaten.

How publishers sell ad inventory

By Eric Picard (Originally published on iMediaConnection, August 09, 2012)

Ad inventory is typically broken down into four buckets: sponsorships, premium guaranteed, audience targeted, and remnant. Each of these buckets can be sold through a variety of sales channels.

Revenue distribution across this “layer-cake” inventory model flows downward — with the vast majority of inventory coming from premium and a significantly lower amount of revenue coming from the remainder:

The process of an advertising sale begins with the media buyer, who sends a request for proposal (RFP) document to numerous publishers. These RFPs typically are written in prose and define the overall goals of the advertiser in question, and of the specific campaign being executed. A typical RFP has between 50 and 100 elements that are laid before the publisher as acceptable or desirable outcomes, and these elements (attributes or attributes of the buy) are generally descriptors of the audience, of the media the advertiser is looking to run on, of the acceptable (and unacceptable) content to be associated with, etc.

Advertising inventory is the base unit sold by a publisher to an advertiser. It is measured in “impressions,” which are defined as an opportunity to show an advertisement to a person. Impressions at their most basic are blank vessels made up of opportunity. Inventory is generally defined in advance by the seller based on a variety of factors, and it is these predefined impressions that are contractually agreed up on between buyer and seller.

Nearly all impressions sold are made up initially of one or two media attributes based on content association (e.g., MSN>Entertainment or MSN>Entertainment>Celebrities; Yahoo>Autos, or Yahoo>Autos>News). Or they’re sold just based on category — in some cases blind, meaning without the knowledge of which publisher the impression ran on. Further refinement of the inventory is based on other attributes such as above the fold, rich media units, or a variety of quality scores. Additional media attributes included in the definition of a piece of sold inventory include various types of targeting and other types of intelligence and filtering such as inventory quality scores and contextual targeting.

Beyond media attributes, there are numerous audience-based targeting attributes available for the buyer to request, or for the seller to offer. These include such attributes as geographic, demographic, psychographic, behavioral, etc.

It is the combination of these various attributes that define the inventory that is sold. Inventory is sold in a number of ways, including on a guaranteed basis (a buyer contracts with a seller for a fixed volume of inventory between specific dates) and on a non-guaranteed basis (if inventory is available that matches, it will be sold, but the seller doesn’t make any guarantees on volume).

In order to predict how much inventory will be available, publisher ad platforms need to look at historical data with seasonality and apply some very sophisticated algorithms to make a guess as to how much inventory will be available during specific date ranges. These “avails,” as they are called, become the basis for how all guaranteed ad sales are done.

But ad inventory has many very complex and difficult-to-predict issues that are endemic to the problem — the problem of predicting how many impressions will exist in a specific month is sort of like imagining how many cars will cross the Golden Gate Bridge in a given week. Predicting this based on historical data isn’t too hard. And predicting the color of the various cars that might cross the bridge is probably feasible with some degree of accuracy. Maybe even predicting the general destinations of the cars crossing the bridge is possible. But trying to predict how many red Toyotas driven by women with an infant in the car who have red hair and who make more than $125,000 annually is probably not a solvable problem.

This is akin to the requests given on a daily basis regarding ad targeting. This type of prediction is extremely technically challenging; nobody has been able to accurately predict how much ad inventory will be available in advance for more than three to four targeting attributes in advance. Therefore, publishers rarely will sell inventory that contains more than three to four attributes because this causes an immense amount of work during the live ad campaign for the publisher’s ad operations team. (They must monitor ad delivery carefully and adjust numerous settings in order to ensure delivery of the campaign.)

Inventory is sold within a contract called an insertion order (I/O), and each sold element is typically called a “line item” on the I/O. Line items correspond to a variety of attributes within the publisher’s inventory management systems. A simple example would be MSN>Entertainment. But a more complex example would be MSN>Entertainment>Women>18-34.

Beyond a typical guaranteed media buy, there are several other mechanisms for selling ads. Some ads are re-sold by a third party such as an ad network (examples include Collective Media, ValueClick,, etc.). Some ads are sold through an automated channel such as a supply-side platform, or SSP (examples include Rubicon, Admeld, PubMatic, etc.). There are also ad exchanges that can sit in the middle of all the transactions, and as the industry has matured, the difference between an exchange and an SSP has become less clear. These exchanges and SSPs then create a marketplace that allows ad networks and various demand-side platforms (DSPs) to compete for the inventory in real time. We’ll refer to this as real-time bidding (RTB) even though in some cases this term doesn’t apply exactly.

The management systems for buying RTB inventory are generally called demand-side platforms (DSPs). In RTB media buys, it is extremely rare to have more than three to four targeting attributes (just like in guaranteed media buys), not because of prediction but because inventory that exists for each campaign or line item that contains more than three to four attributes delivers with extremely low volume. In fact, the amount of inventory available on a per-impression basis as you layer on more targeting attributes generally drops significantly with each new attribute.  This means that a typical line item for an RTB campaign would look very much like the one for a guaranteed buy: Entertainment>Women>18-34.

For a DSP to spend an entire media buy at more than four targeting attributes, the buyer would have to manually create hundreds or thousands of ad campaigns that each would then be manually optimized and managed. It isn’t actually feasible to do this at scale manually.

In summary
In a perfect world, advertisers would be able to find all available ad inventory that matches their goals, with as many attributes as exist on all impressions. The problem is that existing inventory management and ad serving systems are not designed to deal well with more than two to three concurrent targeting attributes, whether for guaranteed media buys or RTB.

So why do advertisers and publishers prefer to sell ads on a guaranteed basis?

Inventory guarantees serve several purposes. The most critical is predictability; media buyers have agreed with the advertiser on a set advertising budget to be spent on a monthly basis throughout the year. They are contractually obligated to spend that budget, and it is one of their primary key performance indicators. Publishers like to have revenue predictability as well, which is solved by selling a guarantee on volumes for a fixed budget.

For all the innovation in the ad-tech space over the last decade, it’s fairly impressive that very few of the core problems of a publisher have been solved. At the end of the day, 60-80 percent of the revenue that publishers bring in comes from their premium inventory, sold on a guaranteed basis — which represents generally less than half of all their available inventory. Nearly all the ad technology innovation in the last decade has focused on what to do with that other half in order to raise the median price of that revenue from nearly zero to a bit more than zero.

It seems to me that there is an opportunity to focus on something else. (And you might imagine that I’m doing just that.)

How real-time bidding works

By Eric Picard (First published on July 19, 2012 on

The real-time bidding ecosystem is still fairly new, and for many in our industry, there are a lot of misconceptions about how all the different parts of the ecosystem fit together. I’ve had a lot of requests from folks in the industry to explain how RTB works, and how the different players in our space fit together.

The biggest concept to get your head around with real-time bidding is the concept of programmatic buying and selling. The idea here is to streamline the buying and selling process by removing humans from the transaction. Now this is a very important thing to understand: By “the transaction,” I don’t mean that buyers and sellers no longer interact, or that there’s no role for sales in the equation. I simply mean that the act of booking the buy — let’s call it “order taking” — is completely automated. Ultimately this is a good thing for sales teams, as it lets them focus on building the relationship and selling the buyer on the value of their publisher brands. It lets the seller step away from the order-taking process.

Programmatic buying and selling is absolutely the future of this industry; it’s just a question of how long that transition will take. The lower cost of sales for publishers and more efficient buying for media agencies absolutely will make up for any hit to average CPM. And many (myself included) believe that we’ll actually see higher CPMs as a result of all this streamlining. Today most of the inventory that’s available is remnant, and it’s not the high-quality premium inventory currently handled by sales teams. Ultimately, all inventory will transact programmatically. But, like I said, sales will still play a very important role.

At the center of the RTB ecosystem are the ad exchanges. These platforms allow all the various players in the ecosystem to share supply and demand and create liquidity in the market. Examples of ad exchanges include Right Media, the DoubleClick exchange, AppNexus, and many others. On top of these pure-play ad exchanges are many ad networks and supply-side platforms that have essentially built ad exchanges on top of their existing products. The lines get very blurry between the “pure play” ad networks and the other aggregators of inventory that make that inventory available programmatically.

Similar to how stock or commodities exchanges allow inventory to be transacted upon at high volumes with maximum liquidity, the advertising exchanges play that central role. But it’s very important to understand that, just like in the financial services world, the big revenue opportunity is not with the exchange; it’s with brokers representing buyers or sellers. It’s these brokerages that represent the bulk of the value and that pull away the highest percentage of the transaction costs.

The equivalents of brokers in the RTB space are the ad networks, the supply-side platforms (SSPs), and the demand-side platforms (DSPs.) All of these ecosystem players have important roles and provide value. However, it should be noted that the lines are beginning to blur throughout the ecosystem. I predict that in the next few years, many DSPs will roll out SSP services, and many SSPs will become full-fledged ad exchanges. (But more on this in another article.)

So let’s follow the ecosystem participants from start to finish:

The impression starts with the consumer and runs through a web browser. (I didn’t put device in here, but note that even on mobile and tablets, there’s a browser involved.) The impression moves over to the publisher, through some SSP (or ad network) to the ad exchange, and then through to the DSP that is managed by an agency trading desk team on behalf of an advertiser.

There’s nothing very sophisticated about what I’ve drawn here — but note that this is the simplest way I could draw the RTB ecosystem. Here’s another view:

Note that even this is a simplified view, and that many of the various partners can service numerous blocks in the ecosystem. At the end of the day, the RTB ecosystem is made up of dozens of players (possibly hundreds), and they’re all scrambling to figure out their business models. This new ecosystem is definitely the future, but how all the pieces will ultimately fit together is still being determined.

The important thing to note in the RTB space is that from the moment consumers visit a web page, the entire transaction of selling and delivering the advertisements to them takes only a few hundred milliseconds. And this is where the revolution plays out; the competition over those impressions plays out in real time. The best ad for monetizing that user is theoretically shown, and the highest yield for the publisher is achieved. Thus, it should make the ad ecosystem function much better.

But there are many changes that have to take place, and I believe we’ll see it happen. First is that publishers need to push more and more of their premium inventory into the RTB environments. Publishers can make use of almost any ad exchange or SSP to create a private exchange where they can define advertiser-specific or agency-specific terms that are negotiated in advance, and the transaction simply makes use of the RTB infrastructure. Terms with specific advertisers can be reached in pre-decided negotiations, and the transaction takes place through the RTB infrastructure.

In a nuts-and-bolts summary article like this, I’ve glossed over a lot of the nuance and details, and I’m sure we’ll hear from a few parties about what I’ve missed or how I’ve not quite explained this correctly. But I welcome the dialogue. In the RTB space, I think there’s a lot of focus on the details, and not a lot of high-level framing going on — which alienates some of the industry folks who are looking to participate but haven’t dived in yet.

Making the most of the New IAB Creative Formats

By Eric Picard (First published May 21st, 2012 on

The IAB has finally released new creative standards for the first time in a decade. The new rich media branding units (formerly called “rising stars”) are now officially the newest standards out there and should drive a new revolution in advertising online. Creative formats are the No. 1 reason that major brands have not adopted online advertising to the extent that spend matches hours spent. (There are several other major issues, but this one is the biggest.)

So where do these new rising stars fit in the overall continuum of online display advertising? And how fast can we expect them to be adopted? Let’s review.

There are two types of advertising experiences that are created on major publisher sites today.

One is an extremely brand-centric page-takeover type experience that is very custom and fundamentally overtakes the user experience on the homepage (or section front) of a major publisher to give a quality brand significant creative license. This is great for everyone, including the audience visiting the site. The experience is custom, crafted, and well considered. But this doesn’t scale as a business model, and many publishers don’t yield much profit from these implementations. They’re essentially loss leaders that bring in more spend on scalable inventory.

So what is “scalable inventory?” Well, judging from the 20 or so major publisher sites I just visited, it looks like that has consolidated around a combination of two standard IAB formats — the leaderboard (728×90) and the medium rectangle (300×250). There are, of course, a few other formats that are used at some degree of scale, particularly various formats of the skyscraper ads out there. But I’ve been seeing fewer of these on major publications, which seem to be consolidating on the 728×90 and 300×250 combination.

On one level, this makes me very happy — because I made very strong recommendations to adopt these two formats as the industry standard when they were released. In 2002. Yes, the UAP format standards were released to the industry way back in 2002. (Yes, that’s a decade ago.)

The problem with this lag is that while screen resolutions have radically increased in this timeframe, the formerly “large” 300×250 standard ad unit is now a postage-stamp sized unit.

The graphic above is one I created in 2009 to make the point that creative formats were too small. The problem has gotten worse with wide-screen monitors becoming the new standard.

Now that we have the first new formats available in a decade, it’s on the shoulders of media buyers and publishers to force this issue. First, media buyers must demand this inventory from publishers at scale. They should be pushing to get these units on every page of every publisher they buy from. These shouldn’t be a more-scaled version of the page takeover; they shouldn’t be special media buys that are a fixed percentage of a buy. They should be the bulk of every buy.

As for publishers, they need to enable (and quickly) every page on their sites to immediately adopt these units as their standard unit. The UAP is a decade old, far too small, and very prone to banner blindness by users. These new ad formats are well-thought-through and do a great job of catching user attention.

Publishers also need to make sure that these new units are not held aside as special options and used like rich media has been used for more than a decade now — as the way to preserve floor price. Yes, that’s a good thing for us to do; publishers should be preserving floor price wherever they can. But if we don’t aggressively move off of the long-in-the-tooth formats from 2002, we’re going to continue to see overall CPM erode.

Publishers must also make sure that these new units are made available for programmatic buying and selling. If we move to a world where hand-sold inventory is the rising star units, and all page views serviced by ad exchanges are UAP ads, publishers are going to cause a huge economic problem for themselves. I can imagine the argument being made that this helps with channel conflict resolution — but it won’t. It will create a new class of ridiculously cheap inventory that will further erode overall CPMs.

If media buyers demand that all their buys fit these new formats, and if publishers ensure that there is no friction in acquiring ads in these formats at scale, the whole industry will significantly benefit.

Why Facebook will ‘own’ brand advertising

(Originally published in iMediaConnection, February 2012) by Eric Picard

I’ve been watching and reading the Facebook IPO announcement frenzy with curiosity. The most curious meme floating around is the one that pooh-pooh’s its strike price, market cap, and valuation because its ad business “clearly isn’t going to be able to sustain growth the way Google’s did” — to which I call BS.

Here’s why Facebook will ultimately be the powerhouse in brand advertising online (and eventually offline as well):

Facebook is a platform

To really do this one justice, I’d need to write a whole article about the power of platforms and explain why platform effects are almost impossible to defeat once they’ve started. Platform effects are similar to network effects, so let’s start there in case you’re one of the 20 people left on the planet who haven’t learned about them. Network effects are basically when multiple users have adopted a platform or network, causing the platform or network to be more valuable. Telephones are the primal example here — the more people who have a phone, the more valuable the phone platform or network is to its users, therefore more people get telephones. Facebook has cracked that nut — it’s a vast social network, and network effects have rendered it as difficult to avoid getting a Facebook account as they have rendered not having a telephone or email address to be almost impossible.

Platform effects are similar, but even stickier: They come from opening a platform to third party developers. Once you have developers creating software that relies on the use of a platform, the platform becomes more useful and therefore becomes more adopted by end-users. This has been proven repeatedly — from Windows beating the Mac originally because so many software developers and hardware manufacturers supported the Windows PC platform. Apple has of course had the last laugh there, with the iPod/iPhone/iPad apps marketplace taking a page right out of Microsoft’s playbook and kicking them in the teeth.

Facebook is a platform that “consumer facing applications” like Zynga and other game companies have made good use of. But also it’s a massive data and business to business platform, which has been less broadly publicized, but which is beginning to gain adoption. And that part of its platform, tied to the data from the consumer side of its platform, is why advertising will ultimately bow to Facebook (barring some horrible misstep on their part.)

Facebook takes user data in return for free access to the Facebook platform

Facebook requires all users to opt into its platform — and despite all the various privacy debates and discussions about Facebook, it is actually pretty good about being transparent and providing value to users in return for sharing all sorts of data.

Facebook is right now (my opinion — open to debate) the most authoritative source of data on consumers, their interests, and brand affiliations. It’s going to grow and become more comprehensive, meaning that it will become the main source of all data used by brand advertisers to reach targeted users.

To my mind this is already destined to happen — and locked up due to the fact that Facebook is a platform. It builds content that no media company would be able to build (social content.) So in that way it really doesn’t compete with online publishers. Online publishers wisely have adopted Facebook as a distribution platform as well as an authentication platform for allowing consumers to accesstheir content.

It’s only a matter of time before publishers become so intertwined with Facebook’s platform that all their content becomes effectively part of the Facebook platform. But not in a way that publishers should be worried about Facebook disintermediating them. If Facebook is smart, it will work this out now and find a way to give publishers what they want in return for this: Let the publishers own their own targeting data, and work out a way to help them make more money without losing that data ownership.

Facebook will own brand advertising, and will not need to own direct response

Most of the wonks in the ad space are pooh-poohing Facebook because of a near-sighted over focus on direct response advertising. They believe in this false premise because of a single proof point, which is Google paid search advertising. The idea is that, “Since Facebook owns ad inventory that is further ‘up’ the purchase funnel than Google’s, Facebook will never justify a high enough CPM to compete for supremacy in the online space. Since Google is the owner of advertising online, and it did this by creating a vast pool of inventory that is sold at extremely high CPMs (because it is so close to the purchase on the purchase funnel) and because most of the online ad industry has been focused on DR for its entire existence, DR is where online must go.”

The wonks are wrong on this topic. Google undisputedly “owns” paid search advertising. But the entire paid search market is made up of something close to 250 billion monthly ad impressions. Google gets a very high premium on those ads — around $75 CPM. But Facebook has many more ways to play in the ad space than Google, and a lot more inventory to play with. Estimates put display ad volume well above 5 trillion monthly impressions, and Facebook has a huge percentage of these.  Since Facebook can cater to brands, it can be an efficient platform for selling ads to brands that target authoritatively to very granular audiences. Nobody has cracked that nut yet — the targeted reach at granularity and scale “nut” (disclaimer — this is specifically the problem I’ve been working on for the last year.)

So Facebook could own brand advertising online, could own a role as the authoritative data provider for brand advertising, could own the way that the big brand content platform of TV makes its way into a more modern and effective ad model, and could very well be the winner of the online advertising (nay the entire advertising) space for brands.

Facebook will dominate local advertising

Facebook has already grown a massive advertising business, and my bet is that when the details of its ad revenue are fully disclosed, a big chunk of that business will prove to be locally based. It is the only real play to be had for local businesses online right now; the only place to get local audience reach at any kind of scale. Local is a massive advertising market — one that nobody has been able to crack online, and Facebook will be the gateway between traditional media and online media for local advertising. Zuckerberg must already secretly have 200 people working on this problem as I type.

I’m very bullish on Facebook, but then, this is all just my opinion: I don’t have any idea how much of this Facebook really understands itself. All it really needs is some decent ad formats, and it’s got everything pretty well sewn up.

Why publishers should stop selling remnant inventory

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

Typically, online publishers make their money through the sale of online display advertising, with a few making a lot of money from paid search. But the way that publishers monetize their sites has evolved over the last 10 years to a point where a lot of energy is expended on work that doesn’t pay off very well.

The one thing to keep in mind as we progress through this discussion is yield. From a publisher point of view, this is essentially the profit on inventory sold. It’s always important for publishers to consider yield in any discussion of revenue, because while they may sell inventory at a higher CPM through the human premium sales channel, the cost of sales is always going to be very high there. So when you strip away cost of sales and technology costs, what revenue the publisher keeps is its yield.

Many publishers began selling their remnant inventory off at wholesale prices to ad networks and an ever-changing and evolving ecosystem of other vendors who buy cheap remnant inventory, apply some “special sauce,” and resell the same inventory for a higher price. This arbitrage has evolved as many publishers saw an opportunity to liquidate their entire pool of inventory at any price and never leave any money on the table. But liquidating all inventory at “any price” is a horrible idea, and has led to many unintended consequences, namely driving a perception of “unlimited” inventory out to the market. There’s a reason that the broadcast networks limit the amount of remnant sales they do to approximately 10 percent.

I’ve stated before that most companies get addicted to “bad”‘ revenue that operates at a net loss. I would argue that almost any remnant ad sales at wholesale prices sold in bulk to resellers is “bad” revenue. While cost of sales may be much lower on this sales channel, all the value gets stripped off the inventory, and then the final clearing price of the inventory is super low — probably well under $1 CPM — probably as low as $0.30 in many cases, and often under $0.10.

Yahoo recently announced that they’re going to stop selling inventory this way, and I think this is one of the gutsiest and smartest things I’ve seen a big publisher do in a long time. Here’s why:

Publishers have gone to immense effort to build a refined product to sell. Your audience is not a “raw material.”  You’ve taken the effort of cultivating an audience to consume your content, and you’ve developed a sales force to represent this inventory. By selling wholesale to a reseller, you’ve turned that inventory into a “raw material,” and it’s up to the reseller to then refine the inventory and make it more valuable.

In a perfect world, you would sell your refined audience through direct sales channels and liquidate it all at a very high yield. Since this is simply unlikely for basic human scale factors, there needs to be secondary sales channels that don’t suffer from the same scale problems. One way that publishers have been trying to handle this problem is by applying a dedicated human sales force and yield optimization team to manage their remnant liquidation.

In my opinion they should have a dedicated team to manage selling inventory that “fell through the cracks” of their human sales force, but this is not remnant wholesale practices. They should only be selling the inventory that can be sold as a “refined good,” not a “raw material.” All publishers have high quality inventory that is not able to be sold by their sales team, even if they are “sold out” in the publisher’s sales interfaces.

Because of the way that inventory prediction works, there is generally more actual available inventory than most systems will allow to be reserved. This is because of a technical reason — since the industry has told software engineers that guarantees are being made contractually, it’s using a very high confidence interval on the prediction of avails. Confidence intervals specifically refer to how confident the engineers are that the inventory will actually exist, which is a mathematical prediction.

Since the engineers are being conservative due to the nature of the contract being guaranteed, there is actually always inventory that has sold out in the sales system due to high demand, but at delivery time there is actually more in existence. Additionally, since most publisher side sales systems allow (for very good reasons) the sales team to pull avails and reserve for a short period prior to the deal closing, hoping that their IO will be signed, this causes a lot of premium inventory to get locked up until it’s too late for another sales person to actually sell high demand inventory.

Let’s look at a hypothetical example: Samantha reserves a bunch of inventory for a December 15 start date for a big pharma client who has a proposal in front of them. On December 10, the client comes back and refuses the offer saying it will come back in January. Samantha frees the inventory up to the rest of the sales team, but with only five days left, it goes unsold (even though many other buyers would have loved to get access to it two weeks earlier.)

This high quality inventory is dropped on the butcher shop floor like some sad porterhouse that is washed off and then ground up for hamburger. Across the industry, there are tons of great inventory going to remnant sales that could be sold by the publisher as New York strip, filet, and rib eye rather than ground into hamburger. But the remnant sales channel doesn’t allow for this — and everything looks like hamburger.

Finding a way to offer this inventory to the market through a secondary sales channel and selling it with as much of a possible premium is a critical issue. The inventory should be sold not in a wholesale way with all data stripped away. It should be sold in a channel that avoids conflict and that drives highest possible yield. I’ll give some ideas on what these channels can look like below — but first, let’s discuss the most basic approach: Simply stop selling remnant.

If publishers would simply reinvest the resources they spend selling the 40 to 60 percent of inventory that is currently sold “wholesale” remnant, and put the same headcount to use (maybe different people) focused on selling premium, they only need to increase premium sales a very small percentage would completely offset all their wholesale remnant sales. When 10 percent of your revenue comes from half your inventory — there’s a problem. Better to stop selling it wholesale and bolster your average CPM, and protect your user experience. Ideally remove ad units when there isn’t a sold impression (rather than always delivering ads.) This does require some design changes, but could be well worth it. At the very least, if you can increase your sell-through on premium sales just a tiny percent, you will more than make up for all that unsold remnant.

Yahoo certainly has done this math and determined that it doesn’t want to feed the remnant piece of the pie chart above any longer. Its decision is that it’s going to push the inventory into the purple piece of pie I’ve labeled “audience-based sales.” It’s doing this through Right Media Exchange (RMX), which it owns. It’s requiring that advertisers have a seat on the exchange, and it’s creating programmatic mechanisms for those advertisers (through its partner agencies, trading desks, and DSPs) to purchase Yahoo’s premium inventory in an automated way without going through the premium sales channel. And it looks to me like it’s going to do this in a non-blind way, meaning the buyer will not be buying hamburger — it’ll buy porterhouse or New York strips.

This is a bit of a gamble, but a super smart gamble. Publishers can create “tunnels” through any of the major exchanges, where they can set agency- or advertiser-specific rules about who can buy inventory at what price, with what discounts, and in what ways. This technology has been around for a while, and some publishers have opened “private exchanges” using it. But Yahoo’s taking this to the next level, where it’s only selling its “remnant” inventory this way now. A move I applaud (whoever made this call and got it pushed through, let me know — I want to buy you a drink!)

My sincere hope is that Yahoo sets hard price floors on what it sells through this sales channel, and that it doesn’t liquidate the inventory at any cost. And when it does let retargeting companies or its other former “wholesale” customers of remnant purchase the inventory — it should ensure that it’s getting paid what the inventory (based on the audience they’ve attracted) is actually worth — and force the reseller to identify who the buyer is, and what the closing price of the inventory is. But baby steps are fine with me!