Private exchanges and the death of remnant inventory

SAY Media's acquisition late last year of ReadWriteWeb is just one recent example of the challenges that ad networks face when they don't own media properties. With a weakening ad network marketplace, is now the time for media companies to consider launching a private exchange? 

While ad networks were once seen as a way to generate revenues and offset ad serving expenses for unsold inventory, they are now viewed as competitive threats to publishers because they cause erosion in CPMs. Agency trading desks pit publishers against a slew of ad networks in a battle for both scale and quality.

"Publishers coming out of the dot-com bust saw a huge glut of unsold inventory, and this gave significant rise to ad networks," said Doug MacDonald, VP of digital with the Newspaper National Network (NNN). "The world has since shifted to buying audiences."

Building a walled garden for inventory and data

Buying audiences is both a disruptive force in the marketplace and an opportunity. It's easy to buy ad targeting data these days, but the quality of the data varies greatly. This trend favors premium publishers, as their behavioral data performs better than many other sources. The key is to protect that data.

"Publishers are taking their remnant inventory off of the open market and working with supply-side platform to create walled gardens around their remnant inventory," said MacDonald. "By doing so, they are seeing $0.75 to $1.50 CPM increases by using one of the supply side platforms. That’s a pretty nice story to tell executive management."

Don Scott, director of national sales for digital media at Media General, shared his experiences building an exchange for Media General with two partners, Rubicon and PubMatic.

"All three organizations that we looked at (Rubicon, AdMeld and PubMatic) have very positive points," he said. "I felt that AdMeld and PubMatic have been able to keep their focus on the necessary technology components to play in the exchange marketplace."

Scott also spoke to the importance of "fire-walling your data," saying: "Data is something that we have to consciously manage because it is part of who we are. That relationship that we have with our audience is why we exist. It informs the content we create and helps advertisers agencies find a match."

The death of remnant inventory

Launching a private exchange gives publishers a technology-driven direct sales channel, which ensures that publishers are able to maximize the value of their traffic. "I am eliminating the term 'remnant inventory' from Media General," said Scott. "Fundamentally, we have two types of inventory: guaranteed inventory and un-guaranteed inventory. We’re going to be more prudent about how we go to market with our inventory. We will limit the access to our inventory so that we have quality advertisers where both parties (seller and buyer) are getting value." Media General's sales team will sell guaranteed buys while its private exchange will sell un-guaranteed inventory.

Scott believes that real-time bidding (RTB) will drive CPMs higher, similar to the way that bidding on search results drove cost-per-click (CPC) rates higher for search. "With a private exchange, I’m allowed to set my floors," he said. "I can see who is willing to pay more and favor them."

Source: Hochman Consultants http://www.hochmanconsultants.com/articles/je-hochman-benchmark.shtml

Scott sees this as being part of a free market, "We’re going to strip out excess profit margins, and we’re going to negotiate based on the true value of the inventory based on a dynamic market," he explained. It's a nice alternative to the negotiations over the arbitrary CPMs on publisher rate cards. The publisher knows exactly what the market will bear for non-guaranteed inventory.

There is a sense of urgency in the market. Many players have the infrastructures to expand, and once agencies find partners with the best data, there will be less opportunity for new players.

"If it took five years for the ad network space to mature, it will take two to three in the mobile space. NNN is looking to build a supply side platform that will sit side-by-side with our mobile ad network," said MacDonald.

Advice to other publishers

Scott raised the importance of scale when looking at launching an exchange. "Depending on size and scope, you may want to join an alliance that enables you to better leverage your inventory," he said. If you do that, he added, "Lock down your data. Make sure that it’s your data and not accessbile to someone running an ad network buy."

MacDonald offered some counsel as well on protecting data: "Use Ghostery to see if you have a data leakage problem. It allows you to see all of the cookies and tags that are hitting your page."