4 key components of a private exchange
Automated ad exchanges featuring real-time bidding (RTB) have proven to be a viable option for selling remnant inventory. Recent research from Econsultancy and the Rubicon Project found that 44% of publishers sell their online display advertising via RTB exchanges, which has resulted in a 20% lift in remnant display ad revenue.
Separate research conducted by IDC for PubMatic projects RTB ad spend to reach $6.5 billion by 2015 in the U.S., France, Germany and the United Kingdom. RTB spending as a percentage of all online ad spend in the United States will rise from 10% this year to 27% by 2015.
With RTB taking hold, premium content publishers are looking for ways to catch the wave while protecting their audience data and maintaining some semblance of premium pricing. The problem with automated media buying is that they can diminish or destroy a publisher's value proposition and shift the balance of power to media buyers and even the vendors that are providing the technology for automated systems.
Revenge of the Private Exchange
A good counterattack may be found in private ad exchanges. One in 10 publishers in the Econsultancy/Rubicon study said they have established a private marketplace and 35% said they plan to create one. A private exchange enables a publisher to apply the benefits of a programmatic environment to premium, above-the-fold inventory.
“A private exchange is automated, but value and brand alignment are still very important components,” said Andrew Casale, vice president of strategy with Casale Media.
Casale’s RTB and bid management technology is the backbone of a just-launched private exchange from GateHouse Media, which operates more than 400 local media properties across 21 U.S. states. GateHouse views its private exchange as a way to bring more national advertising into its local properties, which the company says generate a collective 80 million page views a month.
“We weren’t taking advantage of all that scale,” said Mike Moreau, GateHouse’s vice president of digital. “We didn’t have a great way to tap into national advertising except through third-party ad networks. You hand over your inventory to those companies, but there aren’t many tools to manage it effectively yourself. We now have the tools to do that and capture some of the money flowing through those systems.”
The GateHouse exchange will fill a gap between inventory sold by the publisher’s sales force and remnant inventory sold primarily through third-party networks. Exchange inventory will be exclusively above the fold; Moreau emphasized that “this is not a remnant play for us.”
The price floors GateHouse has set for the exchange inventory are about triple existing remnant rates and one-quarter of the CPMs for locally sold inventory, which average between $12 and $20, Moreau said.
GateHouse is one of a growing number of media companies that have launched private ad exchanges, spanning consumer, B2B and local media. Earlier this month, USA Today launched a private marketplacethat runs on Admeld’s RTB platform. In November, Condé Nast introduced a private exchange, also using Admeld technology. Publishers as diverse as IDG and Forbes have also launched private exchanges.
Clearly, these publishers are betting that a private exchange will help them sell excess inventory within price parameters they control and without cannibalizing their direct sales programs. A private exchange also enables a publisher to keep its precious audience data away from third-party exchanges.
Is a private marketplace right for you? Before rolling your own automated RTB environment, make sure these four components are in place.
As Moreau noted, you need the right tools to manage an in-house exchange. Several vendors are positioning their RTB and other sell-side technology as platforms for private exchanges, including Admeld (whose acquisition by Google recently closed after receiving approval by the Justice Department), PubMatic, The Rubicon Project and AppNexus. Casale Media recently joined the party with its CasaleX platform.
Beyond the basic questions you’ll ask about things like pricing (rev share? implementation fee? monthly license?), you’ll want to explore how flexible each platform is for setting campaign controls such as price floors. Make sure you can set minimum prices for inventory by category or site placement. Casale includes a mechanism for setting terms at a brand or campaign level. Admeld touts its ability to dynamically set optimal price floors for each impression using advanced algorithms.
Also important is the ability to control which brands and trading desks participate in the exchange. Casale Media says it gives publishers “maximum insight into and control over” which brands and campaigns are buying inventory. Condé’s exchange will limit access to a few select advertisers based on their ad spend across Condé properties.
The more flexibility publishers have, the more revenue they will be able to extract from the exchange. “There are so many controls, so many different deal types to offer,” said Moreau. “We can get really creative with the deal terms if we look at the data and different trends.”
Speaking of data, a private exchange requires lots of it – along with a willingness to share the data (including first-party data such as registration information) directly with DSPs and trading desks. Deep insight into your audience is a critical selling point with a private exchange, because a buyer’s confidence in reaching a specific target will increase bidding activity – and CPMs.
“There's lots of incentive to expose more of our audience data,” said Moreau. “If we provide full transparency about where their buys are running, along with lots of data, we can start to get very far away from true remnant rates.”
To be appealing to advertisers, a private exchange also requires scale, which is why most of the publishers launching automated marketplaces are established brands with multiple properties or high-volume websites.
“Data-driven buying requires scale,” said Casale. “If you’re not at a certain size, you’ll be limited – and you’ll probably generate more revenue by being part of a bigger, open exchange.”
A lack of scale does not preclude a publisher from launching a private exchange, however – it may actually provide a business opportunity. Casale noted that a publisher could partner with similar media sites to achieve the necessary scale. B2B publisher IDG has taken this approach with Tech Media Exchange, a private marketplace that provides media buyers with access to tech audiences across multiple brands participating in IDG’s TechNetwork, which boasts 90 million monthly unique users across a global network.
Moreau has a similar plan for GateHouse Media’s exchange. “It’s our intention to work with other peer publishers, including more regionally focused sites that have the same quality that our sites do,” he said. “We can put together a really interesting exchange and have a true national footprint by bringing in the right partners.”
Even if you’re letting the platform vendor run your private exchange, it would be wise to bring some buy-side skills in-house. GateHouse recently hired two directors with deep experience in ad operations (specifically, buying exchange-traded media at scale) and demand-side platforms.
“We didn’t have the skills to manage this previously,” Moreau said. “We needed expertise in buy-side, programmatic advertising, someone who understands the terminology, the technology, and the value of inventory.”
If you have a direct sales force, you’ll need to spend time getting them up to speed on the fundamentals of RTB and how the ad exchange will align – not compete – with their direct sales efforts. Initially, it may make sense to have a separate team manage RTB operations.
“Selling RTB is a very different conversation,” said Casale. “We have seen the most success in having business development or a similar group handle the initial operations to maximize the opportunity.”
Once the exchange is established, it may make sense for the entire sales force to incorporate it into their pitch. The key is convincing the sales team that an exchange is simply another channel to sell premium display inventory.
“RTB seems like a radical new thing,” said Casale, “but in reality it’s nothing more than an automated way of what we’ve been doing in the display space for the past 10 years.”