Programmatic: A Rising Tide

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Difference Between Programmatic RTB And Direct

By Eric Picard (Originally published on AdExchanger April 1, 2014)

I had the great fortune to moderate a panel called “Programmatic Guaranteed” at AdExchanger’s recent Programmatic.io conference in San Francisco. The prep conversations for this panel, the conversation on stage and the conversations with audience members afterward were very compelling.

Clearly the market wants to figure this out, and the promise of programmatic means different things to different people. This is a complex space that needs more information and definition, which we’ll do today.

As an industry we have two primary “stacks” of technology that drive advertising between the buyer, seller and consumer. One is what I’ll call the “direct” stack, and the other is the real-time bidding (RTB) stack.

Direct Advertising Stack

The “direct” software stack in play supports publishers. This is the first-party ad sever, the publisher’s inventory management system. Examples include DoubleClick for Publishers, Open Ad Stream and Freewheel.

This publisher system enables publishers to manage their advertising businesses – in particular, this is designed around the need to put ads on pages, monitor revenue and manage sales. But one of the primary uses of these systems is for publishers to package their inventory. One of the core uses of this entire technology stack is to find inventory that is available for sale, and package it in order to sell it to advertisers.

The direct stack is a set of tools and technologies for packaging inventory for sale to buyers. Packages are assembled either in advance, or in response to a buyer’s request for proposal and media plan.

The Programmatic Direct Stack

Over the last few years, a variety of companies have launched in the programmatic direct space, which aims to connect the publisher’s direct systems to buyers’ systems – either the traditional or the programmatic tools. Examples here include YieldEx, iSocket, Shiny Ads, Bionic Ads and AdSlot.

The problem with this stack, from the buyer’s perspective, is that the programmatic direct world is an extension of the direct platforms. They are designed to package inventory according to the ways in which publishers want to sell inventory. They aren’t designed to allow the buyer to manage against their own goals. The contract terms for inventory are defined by the publisher, and executed according to a publisher-centric view of the world.

The benefit that buyers get from the direct stacks are that the inventory can be reserved — in other words, the publishers and buyers can agree in advance on not only the price of the inventory, but the volume and budget that the buyer is signing up to spend. And the publisher is willing to guarantee the buy, meaning that if they under-deliver, they will give the buyer a “make-good” on the inventory that was not delivered.

Programmatic RTB Advertising Stack

The RTB software stack is focused primarily from the point of view of the buyer. There are supply side platforms (SSPs) like Rubicon and Pubmatic that are publisher facing, but like their demand-side partners (DSPs), their focus is on enabling the buyer to find inventory according to their definitions, rather than packaging inventory up on the publisher side.

The systems in the RTB world are very flexible and don’t require packaging in advance.  The only problem with this is the inability of these systems to easily offer a guarantee on the buy. There are some mechanisms that can be used, such as the Deal ID standard, which allows a buy-side system to be assigned to a specific ID in the sell-side system. But typically these are supported more by the SSP, and not within the direct stack of software.

There is an immense amount of investment in the ability to forecast and ultimately to sign reserved or even guaranteed deals in the programmatic RTB software stack, but we’re still a ways from this. We may find ourselves supported here in the next year or two – but matching these systems together has proven challenging – and recreating the ability to forecast and give make-goods in the RTB stack has been nearly impossible.

The ‘Holy Grail’

There is another path that some technology companies are exploring, which is the ability to push the advertiser’s demand goals directly into the publisher’s direct ad server. In this model, the buy-side system allows the buyer to specify their goals, and then through integration with the publisher’s direct ad server, can create line items matching the advertiser’s goals. But this is a new approach that has not been fully productized yet in the market. It will be interesting to see how this evolves.

The confusing language of ad exchanges

By Eric Picard (Originally Published on iMedia – March 15, 2014)

Our industry is filled with confusing concepts and equally confusing names. We have constantly done ourselves no favors by trying to simplify the concepts by reusing names from other industries or from parts of our industry that are not quite a match.

The most confusing area of our industry right now is anything touching or associated with advertising exchanges. I’ve heard all sorts of names for “things” in this space, and for whatever reason, we never seem to really get things “right.” The names that cause the most confusion and agitation in our space include ones like programmatic, spot, futures, guaranteed, reserved, etc.

Let me hit the term programmatic first, since this one should be easy enough to nail down. Programmatic media buying and selling really just refers to the fact that the buying and selling is automated. Programmatic buys might make use of the ad exchange (typically these are called programmatic real-time bidding campaigns, or programmatic RTB.) These are buys that use demand-side platforms (DSPs), such as MediaMath, Turn, or AppNexus, and are what most of us think of as ad exchange powered media buys. Programmatic buys might also make use of a toolset like Bionic Advertising Systems or connect to an API like iSocket. This type of buy is typically called a programmatic direct buy because the buyer is accessing inventory sold directly by the publisher, not over an exchange. But it is still an automated buy.

Television terminology

Another point of confusion that I hear about a lot is people trying to apply the concept of “spot” media buys to the exchange. The person using this term equates “guaranteed” media buys with the television upfronts and ad exchange buys with the television spot marketplace. Sometimes the term “scatter” gets used here, but not too often.

The television spot and scatter markets are essentially the same thing: spot applies to broadcast, and scatter applies to cable. These two markets basically cover all the non-upfront buys that happen in television. In broadcast and cable television media sales, the networks try to sell large blocks of ad inventory in bulk — several times a year. These sales extravaganzas are glitzy, involve a lot of money being spent in all directions, and lead to a large number of bulk sales of ad inventory in the television space.

There have been many attempts to replicate this upfront process in digital media, with varying degrees of success. The interesting thing is that the upfront process is really a discount mechanism for the media buyers. Media buyers agree in advance that they’ll pay a certain amount of money per gross-rating point (GRP) for television media inventory in order to get the sellers to give them a discount. The sellers are OK with that discount because it mitigates the risk that they won’t be able to sell that inventory later.

The rest of the television advertising inventory is sold on an ad-hoc basis in advance of the date of the show. Typically the price of inventory in the spot and scatter marketplaces is higher than the upfronts. Non-upfront buys (spot in broadcast, scatter in cable) are sold as far in advance as the buyer is willing to sign up, to as close to the date of the show airing as the seller can support technically (usually a day or two before the show is aired).

For some reason in digital, some people think of upfront as the equivalent of guaranteed and spot as the equivalent of ad exchange buys. The really interesting thing is that every “guaranteed” buy we do in digital is exactly the equivalent of a spot buy (or scatter buy) in TV. Spot buys are essentially guaranteed (reserved), and they’re bought anywhere from one day to months in advance. So we shouldn’t use the term “spot” to describe the ad exchange; this is technically incorrect. There is no traditional media equivalent to digital media ad exchanges — at least not yet.

Spot and scatter buys are reserved in advance, with make-goods and all the other nifty things expected in “guaranteed” digital buys once the contract is committed. The only minor difference here is that most buys are “preemptible.” That means that if another buyer comes along after the contract is signed, and the new buyer is willing to pay a high enough price to get the inventory, the seller can preempt the existing contract (usually this involves a penalty that the seller has to pay) and can substitute the new buy for the old one. Take note digital media folks: This is actually desirable to the buyers, and they’d love to be able to do this in digital. We just don’t support it because we didn’t design our systems that way. It would be great to really offer reserved buys instead of guaranteed buys.

Financial market terminology

The other thing we screw up in our space is trying to use stock exchange or commodity marketplace language to describe what happens in the digital media exchanges. But there isn’t an exact equivalent of most of these concepts. While the term “guaranteed” is used to describe “reserved” buys that are sold in advance in digital media, when people in our space want to discuss selling reserved buys over the ad exchange infrastructure, they try to talk about it in terms of “futures.” The problem is that a futures contract is not the same thing — not even remotely — as a guaranteed media buy.

In the financial markets, a futures contract is a very specific thing. It implies a whole lot of infrastructure and implementation that simply isn’t supported anywhere in the digital media infrastructure today. The biggest problem with trying to implement a “futures contract” mechanism in digital media is that the unit of inventory we sell — an ad impression — only exists for milliseconds. There isn’t an equivalent in the physical world that matches this scenario in which “futures” are sold for shares of a company or of a commodity that will exist and continue to exist after the contract expires.

Of course, I’m not an expert in the mechanisms used in the financial markets, and there might well be some more esoteric mechanisms I’m not aware of that more closely match what we do in digital media. But the danger here is that we push too far forward on something that isn’t a close match to what we actually need in order to have a healthy business. I don’t think it would be a healthy business decision for us to build marketplaces where “futures contracts” on ad inventory could be resold, for instance. There are plenty of reasons that this would be a bad idea.

How (and why) emerging media should plan for scale

By Eric Picard (Originally Published on iMedia – January 18, 2014)

People in emerging media spaces frequently ask me how they can get advertising into their content experiences or how they can use their technology to create value for advertising technology companies. Recently someone asked me about using bitcoin in advertising. In the past, I’ve spent hours working with clients who have hired me to help them figure out advertising models for their new emerging media products, despite my telling them early on that it’s unlikely that there’s a “there, there” related to their situation due to scale.

This is apparently hard for people to wrap their heads around, so let’s talk about this specific issue — the issue of scale in advertising. At its heart, the issue of scale is possibly the biggest and most fundamental issue in advertising — and it is frequently misunderstood. Here are my three rules of scale in advertising:

  • Advertisers need to be able to spend relatively significant budgets efficiently at a low cost per impression.
  • Advertising campaigns need to be able to reach relatively large audiences without significant complexity in managing them.
  • Return on advertising spend (ROAS) needs to be able to be calculated in some form (including, in many cases, very simple key performance indicators).

Let’s talk first about the difference between marketing and advertising. I’ll give you my definitions, as the dictionaries don’t do justice to the concepts:

Marketing is about communication; it is a commercial message to a potential or existing customer, and increasingly it is a two-way conversation with potential or existing customers. Marketing includes one-on-one conversations between employees and prospects, mail and email communications, advertising, public relations, and more.

Advertising is about reaching the largest possible audience, with the best available message, as effectively, inexpensively, and efficiently as possible, generally through distribution over a large media channel. Advertising is a subset of marketing, but it has unique properties and rules that one needs to be aware of in order to apply it as a revenue source.

The most important concept that defines advertising as opposed to marketing is scale of reach at a reasonable cost. Advertising generally requires that a very large audience can be reached at a low cost per impression. Not only must the cost to reach the audience be relatively low, but the cost to manage the buying of the advertising media must also be relatively low. In addition, the ROAS must be somewhat measurable. That said, ROAS is a fairly squishy way of discussing a variable and varied set of metrics that are generally constructed on a per-advertiser — or even per-campaign — basis to gain an understanding of results.

At this point, a few of you are probably getting ready to argue with me about some of the things I just said. The likely argument revolves around some high-CPM inventory that is bought by some advertisers for some campaigns at a very high rate. And while this does happen, my points above still hold true. The cost of the inventory is relative based on the goals of the campaign and an analysis of its results.

For instance, some inventory that is highly targeted or highly effective can sell for a high CPM, but it can still meet the ROAS goals of the campaign. This can be due to high performance or a relatively rare target audience (perhaps extremely high income or very niche interests, such as pilots, airplane owners, or sky divers). It can also be due to a highly competitive media set (e.g., auto-intenders or people who manage investments).

ROAS is a superset of all the various means of calculating performance because ROAS can be based on brand metrics as well as performance metrics. It can be as laser-focused as a tightly bound formula including cost per acquisition (CPA) and the margin on the product that the “A” drove. Or it can be as broad as understanding that for every dollar of advertising spent (using some kind of analysis that could be sophisticated or simple) gross sales increased by some amount.

The ROAS calculations can also be derivative. For instance, there may be a very clearly understood metric that has very clearly understood value that can be used as the primary goal of a campaign. For instance, in the automotive space, the value of a test drive is very clearly understood; most car companies know exactly what the conversion rate is between test drives and purchases of their cars. It’s common to use test drives as a campaign goal, which is not really the goal of the advertiser, but it is fairly measurable and clearly understood in secondary value in sales.

For those trying to roll out a new (or emerging) advertising medium — one that is based on new content models, new distribution models, or new devices or technologies — this concept of scale is critical. Until a media type can provide enough reach to be of value, it’s hard to use advertising as a mechanism to fund it. That number varies based on the makeup of the audience using the media.

For instance, if a new hand-held device for hedge-fund managers were launching, the audience size needed to be ad supported would be much lower than a hand-held device for the homeless. For a mixed-audience scenario, one that’s by nature more affluent (since most emerging media scenarios tend to appeal to early adopters, who tend to be affluent), the magic number seems to be at least in the hundreds of thousands, but it can range into the millions.

The more information available about the audience that is adopting the emerging media, the more likely early ad funding is to occur. This audience data must be collected up front. The task cannot be left until later. If it is, there likely won’t be a “later.”

 

The fundamental disconnect between buyers and sellers

By Eric Picard (Originally Published on iMedia – November 20, 2013)

If we break down the way that buyers and sellers view the world from an advertising perspective, the buyer wants to reach a specific audience on quality publications. And the seller wants to sell as much inventory as possible at the highest price.

To these ends, each party has built their own set of processes, technologies, and methodologies. Historically, media buyers would come up with a plan for reaching ideal target audiences, identify publishers that match brand goals and have access to the target audiences, and then send RFPs over to those publishers. Once buyers passed along the RFP, control was largely out of their hands. Buyers could say yes or no to things, they could ask for clarification, and they could negotiate price. But the control over exactly which audience they reach or what pages their ads land on have not been in their control. That has reverted back to the publisher’s sales, account, and operations teams.

Publisher sales organizations, meanwhile, have spent an immense amount of time and effort coming up with methods of “packaging” inventory to ensure the most sales, at the highest price. They have created significantly complex packages — with combinations of highly desirable and aligned inventory to an RFP — with less aligned and less desirable inventory that they require the buyer to take in order to get the inventory they really want.

In conversations with media buyers, I’ve been told that they see their job as “forcing publishers to blow up packages and unbundle the bad stuff from the good stuff.” This tension between buyer and seller can be quite intense — because their goals are generally not seen as aligned. There is a problem of “information asymmetry” in this world, meaning that publishers have all the information about both the buyer’s goals and the publisher’s own inventory and audiences. Ultimately they package that inventory without much input from the buyer other than the original RFP and media plan. Buyers have very little information in this world and rely on the publisher to interpret the buyer’s goals properly and to deliver what they’ve agreed to.

Over in RTB land, media buyers have much more control. In this world, the “information asymmetry” goes in the other direction. Within a DSP or other buying tool, the media buyers specify the audiences they want to reach and the kinds of inventory that are acceptable — even down to creation of a white list of which publishers are acceptable. They use inventory quality vendors, verification vendors, data providers, and all sorts of techniques to gain control over the buying process.

In this world, publishers add very little value (basically none) to the buying process, and they exist with absolute data asymmetry. Not only do they not know why their inventory is being bought (they don’t get an RFP or media plan), but they also often don’t even know who is buying their inventory. They maintain very little control over the selling process in this circumstance, which rightly makes them nervous about RTB.

As the technologies and markets evolve, a new process needs to be developed where publishers and buyers can collaborate. This process must allow publishers to gain insight into the goals of the buyers such that they can make good decisions about where to invest in building content — content that attracts the kinds of audiences that buyers want to reach. And buyers need access to data that publishers have about their audiences (which they don’t normally make available to generic ad exchange buys) that can be bound together with inventory via private exchanges or even programmatic direct technologies. So between the buyer and the seller, we can come together with a strong handshake that drives the right kind of symmetry of information — one that drives the right business outcomes for everyone involved.

Enterprise Adoption Of Ad Tech Will Supercharge The Market

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

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

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

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

Marketers

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

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

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

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

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

Publishers

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

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

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

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

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

The Evolution Of IT

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

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

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

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

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

Who Will Win The Digital Media War?

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

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

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

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

So, who’s going to win?

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

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

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

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

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

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

A Range Of Opportunities – For Many Players

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

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

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

1. Consumer-Facing Social Media

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

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

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

2. B2B Social Media

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

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

Secondary Marketplaces: Too early to be certain.

3.  Video / TV over IP

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

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

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

4. Mobile

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

Technology: This part of the market is super fragmented.

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

5. Cross-Media Plays

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

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

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

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

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

Why dynamic creative has bounced back from failure

By Eric Picard (Originally published on iMediaConnection October 14th, 2013)

Back in 1999 (when the moon did not have a moonbase Alpha, nor did an explosion send the moon rocketing across the cosmos — a reference for old-timers like me) while at my last startup, Bluestreak, we started experimenting with dynamic creative.

The idea was that there were e-commerce companies with thousands of products available online, and that based on location we should be able to test and optimize which products led to the most clicks and purchases. Over the next few years, we worked with several customers to experiment with this. We ultimately ran ads with several publishers that would rotate through a list of products, and we used our creative optimization technology to determine which combination of offers was getting the best results (based on clicks, interactions, or conversions).

It turned out that there were various combinations of location (publisher) and product that worked much better than others, and the tests were successful. But the question was really about matters of degrees. We saw significant improvements in results, and we developed great technology that supported all this. But after the bottom dropped out of the market in 2000 and 2001 and the price of inventory dropped significantly, the improvements in performance stopped mattering as much.

Essentially, the price of inventory was so low that it was cheaper to just run much higher volumes of unoptimized ads than to pay for optimization service.

But I knew that creative optimization and dynamic creative would have its time and place. Either the impact of the creative optimization would drive significantly better results, the price of inventory would come back up, or we’d be able to optimize the offers based on user targeting rather than just by publisher.

Creative optimization and dynamic creative dropped out of the industry for eight to 10 years, but it came screaming back. As I guessed, the major driver was targeting based on user data. And over the past few years, the growth of real-time bidding and audience targeting has led to significant improvements in dynamic creative and optimization.

There are now several significant companies that have built their business around the idea of optimizing the offer shown to users based on their profiles, including a lot of retargeting. They build advertising campaigns that are driven by databases — ones that pull together the creative in ways that include hundreds or thousands or even millions of possible combinations. The best offer is selected based on a variety of criteria, including audience targeting attributes such demographics, behavioral data, and retargeting data. This information is extensively available and can be used to drive significantly better optimization than just location.

We all know that with real-time bidding and ad exchanges, ads can be targeted based on this kind of data. And we all know that with basic tracking of impressions, clicks, and conversions, bid prices in ad exchanges can be adjusted to optimize results based on the number of clicks or conversions. But dynamic creative optimization can take things to the next level. Using all of these technologies and techniques in combination can significantly drive up ROI. The only question is how many different products, offers, or options are available for optimization purposes.

The more opportunities to adjust the creative — especially if those products or offers can be somehow predicted to match against different audiences’ preferences or interests — the more likely the user is to act.
Read more at http://www.imediaconnection.com/content/35170.asp#sxRJhl1kvggxUiAe.99

When will digital take over traditional media?

By Eric Picard (Originally published on iMediaConnection.com, September 12, 2013)

In 2005 I worked on a project to map the infrastructure used for all traditional media advertising and determine if there was an opportunity to inject the new modern infrastructure of online advertising into the mix. This was a broad look at the space — with the goal to see if any overlap in the buying or selling processes existed at all and if there was a way to subtly or explicitly alter the architecture of online advertising platforms to drive convergence.

If you think about it, this is kind of a no-brainer. Delivering tens or hundreds of billions of ads a day in real time with ad delivery decisions made in a few milliseconds is much harder than getting the contracts signed and images off to printing presses (print media) or ensuring that the video cassettes or files are sent over to the network, broadcaster, or cable operator by a certain deadline. And the act of planning media buys before the buying process begins isn’t very different between traditional media and digital.

I went and interviewed media planners and buyers who worked across media. I talked to publishers in print, TV, radio, out-of-home, etc. And I went and talked to folks at the technology vendor companies who supported advertising in all of these spaces. It was clear to me that converging the process was possible, and as I looked at how the various channels operated, it was also clear that they’d benefit significantly from a more modern architecture and approach.

But in 2005, the idea of digital media technologies and approaches being used to “fix” digital media was clearly too early. It would be like AOL buying Time Warner…Oh yeah, that happened. In any case, the likelihood of getting traditional folks to adopt digital media ad technology in 2005 was simply ludicrous.

And despite progress, and clearly superior technical approaches in digital (if lower revenue from the same content due to business model differences), there’s little danger of traditional and digital media ad convergence in the near term. This is actually a real shame because digital media now is stepping into a real renaissance from an advertising technology perspective.

Programmatic media buying and selling is clearly the future of digital, and I believe they will extend into traditional as well. And within programmatic, RTB is a clear winner (although not the only winner) in the space. The value proposition of RTB for the buyer is incredibly strong.  Buyers get to deliver ads only to the specific audiences they desire and on the specific publishers (or group of publishers) they want their ads associated with. While still mostly used for remnant media monetization, this is changing very fast.

Television is the obvious space to adopt digital media ad technology, and with terms like “Digital Broadcast,” “Digital Cable,” “IPTV,” and others, it would seem on the surface that we’re moments away from RTB making the leap from online display ads and digital video to television.

That’s not quite the case. While great strides are being made in executing on targeted television buys by fantastic companies like Simulmedia, Visible World, and others, this space is still not quite ready to make the transition to real-time ad delivery (what we think of as ad serving in the online space) at large, let alone RTB.

This is because the cable advertising industry is hamstrung by an infrastructure that is designed for throughput and scale of video delivery, which was absolutely not designed with the idea of real-time decisions at the set-top-box (STB) level in mind. Over the years we’ve seen video on demand (VOD) really take off for cable, but even there, where the video content is delivered via a single stream per STB, they didn’t design the infrastructure around advertising experiences. Even the newer players with more advanced and modern infrastructures and modern-sounding names like IPTV, such as Verizon’s FIOS solution, haven’t built in the explicit hooks and solutions needed to support real-time ad delivery decisions across all ad calls. That basically means that for the vast majority of ads, there’s no targeting whatsoever.

Some solutions like Black Arrow and Visible World have done the work to drop themselves into the cable infrastructure for ad delivery, but nobody has seen massive adoption at a scale that would let something happen at the national level. And the cable industry’s internally funded advanced advertising initiative — The Canoe Project — laid off most of its staff last year and has focused on delivering a VOD Clearinghouse to get VOD to scale across cable operators. So in 2013, we’re still not to the point where dynamic video advertising can be delivered on any television show during its broadcast, and even VOD doesn’t yet have a way to easily, cohesively, and dynamically deliver video advertising — let alone providing an RTB marketplace.

On the non-RTB side of programmatic buying and selling, I think we’ll see a lot of progress here in traditional media. Media Ocean has been doing their own flavor of programmatic for quite some time — in fact the Media Ocean name of the post-merger company was a product name within the Donovan Data Systems (DDS) portfolio that helped bind together the DDS TV Buying Product with a Television Network selling product and allowed buyers and sellers to transact on insertion orders programmatically for spot television. With Media Ocean’s new focus on digital media (which is getting rave reviews from folks I’ve talked to who have seen it), there’s little doubt in my mind that these products will extend over to the traditional side of the market and ultimately replace (or be the basis of new versions of) the various legacy products that allowed DDS to dominate the media buying space for decades.

If our industry can get to the point where executing media buys across traditional and digital share a common process until the moment where they diverge from a delivery perspective, I think the market overall will make great headway. And I’m bullish on this — I think we’re not far away but it won’t happen this year.

Why the local ad opportunity remains unsolved

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

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

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

graph1

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

Local Advertising Eludes Large Players

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

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

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

graph2

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

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

The Art Of Selling Media

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

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

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

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

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

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

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

Tackling The Local Digital Conundrum

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

1. Local Salespeople

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

2. Self-Service

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

3. Easy Updating

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

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

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