On Wednesday the 6th of July 2011, the IAB hosted a conference in Melbourne to provide the industry with insights on Ad Exchanges.
While Media Agencies are venturing down the path of Demand Side Platforms, it is interesting to see where the market is at and the challenges that we are facing.
- In a struggling media environment, Digital is recording 19.2% growth in half year 2011 (Jan-June year on year comparison from SMI data). This continued fast expansion of the channel is outgrowing its old distribution, sales and buying methodologies to the point that we can now expect the majority of media to be traded electronically in the future.
- The digital market place is also maturing and technology is allowing compression of the media sales value chain, reducing the need for multiple intermediaries between publishers and advertisers.
- In the USA, Forrester predicted that Agency DSPs would represent 30% of the online display spend in 2011, while it would be around 15-20% in the UK.
Advertising exchanges explainedTo put it simply, they are web based auction systems that allow the buying and selling of online advertising in real time. It brings the publishers selling their inventory closer to the advertisers using DSPs, reducing the need for ad networks in between. It presents benefits for advertisers as they can:
- Access to inventory at a lower effective CPM thanks to the desintermediation.
- Have visibility on the inventory and data to reach the right audience using targeting filters (ie gender, geography…), leveraging on their own rich data set (keeping control over it) and using third party data for further targeting segmentation too.
- Display relevant messages to specific targeted audience segments.
- Use universal capping and centralize their reporting from an operation point of view.
For Direct Response advertisers, this can result in better effective CPA. Pubmatic tracked a 749% rise in performance results in the USA.Publishers can take advantage of ad exchanges as they keep control over the selling price and could find a better way in managing their inventory:
- Ad exchanges facilitate the allocation of their inventory and associated audience to the relevant advertiser who would value those impressions more than another advertiser. This would drive better yield of effective CPM. Pubmatic revealed a 64% lift in revenue for publishers in the USA.
- It reduces the need for publishers to use the intermediation of ad networks to sell their remnant inventory but also provide them with an automated behavioural targeting product.
- When selling on performance, publishers take the risk of burning their inventory to drive agreed actions. Ad exchanges enable them to offer a performance product on a CPM basis, giving them better visibility on revenue streams.
It poses a challenge for ad networks but also offer them the opportunity to revive their business model and partner with Agencies to service them with expertise in managing their trading desk.Uptake to date in Australia On the Agency side:
- Vivaki was the first Agency buying group to launch Audience On Demand in November 2010.
- Group M followed a few months later and recently launched Xasis.
- Aegis is partnering with Adconion to manage their trading desk.
- Omnicom Media Group are yet to launch Accuen.
On the publisher side:
- Google was the first to launch its Double Click ad exchange in November 2010 offering Australian Agencies’ DSPs access to local and overseas inventory.
- Microsoft in partnership with AppNexus is set to launch the Microsoft Advertising ad Exchange with NineMSN following its introduction in the USA in April 2011.
However at this stage, major local publishers do not seem to be convinced in the capacity of those ad exchanges opened to Agency DSPs to drive better yield for their inventory:
- Fairfax Digital and Yahoo!7 are not considering to run a test for now.
- News Digital Media who tested the opportunity would consider going further only for their mid to premium inventory.
- Sensis/Telstra Digital appear to be the only local major player to be ready to seize this opportunity in the short term.
Moving forwardWe can assume that this will remain a test and learn ground for all parties in the short term. Agencies are cautiously moving into that space and while there is a strong appetite for it, we would not expect Agency DSPs to represent more than 10% of the ad spend online in FY12 (the actual tracking of Agency DSP spend by SMI started in June 2011). So far DSPs are mainly used with standard banner formats. This could be expanded into richer formats like videos. Will we overcome the issue of scale? Even if all the local publishers come on board, we are yet to determine if we will reach sufficient scale to fully leverage on the audience targeting capability of the platforms. With an audience of 14.7 million online active users in Australia (source: Nielsen NetView in May 2011), we will not necessarily have the volume to achieve efficient audience segmentation and targeting might generate only niches of audience that would be difficult to leverage on. This is an issue related to the inventory size but there is also a challenge with the availability of qualitative third party data on online users in Australia, limiting the potential for segmentation. Are Agencies really equipped to manage DSPs? It requires a different set of skills to today’s media buyers. Agencies considering in house solutions will need to revisit their staffing approach for local resources or use the overseas capabilities of their global network. The other alternative will be partnering with ad network to manage their trading desks. Will the legislation on privacy and behavioural targeting prevent us from fully leveraging on the audience targeting capabilities? On 25 May 2011, a new EU directive stipulated that website owners should be requesting explicit consent from visitors for their data to be collected in this way, used at a later date or even sold on. Following that move, are we likely to see a similar evolution in Australia in line with the existing regulation on opt in for Direct Marketing? www.youronlinechoices.com.auis lobbying against such a move, highlighting the benefits for online users in personalized advertising. But the debate is only starting and will be a key focus for ADMA. If local publishers end up embracing ad exchanges opening their inventory to Agencies DSPs, how will it affect their resources? Will they see it as an opportunity to reduce their sales force, potentially scaling down their performance team when it is not their core strength or will they really see it as a way to sustain the growth of their digital channels?