I have been in the online ad network business for over five years now. When I started in the space, the market was complaining (loudly) about the networks and how they were a 'ticking time bomb' waiting to explode online advertising. Conventional wisdom was that ad networks would lead to a complete lack of transparency and artificially drive prices down and margins up as they commoditized online inventory. I even remember a certain comment that got quite a lot of attention about the danger of, "trading banner impressions like pork bellies." What no one counted on, however, was that the ad network's position of working with both advertisers AND publishers, gave them huge incentives to watch out for the interests of both sides. Now, while I am certainly not an alarmist, it is worth noting that the real danger of inventory commoditization could easily emerge as a reality if there was a model developed to solely benefit the advertiser, even at the expense of the publisher. This model, I fear, has come to exist as the standalone DSP.
Why Publishers Should Be Up in Arms
The standalone DSP phenomenon is a private equity funded effort that promises scalability and transparency for advertisers and publishers. But 'transparency' is such a loaded word in our business. If a publisher is using a third party to sell its remnant inventory, does that publisher want the client to see the exact CPMs they are paying for those outsourced placements? How about exact source URL information for the placements they are getting? By making the system completely automated and 'transparent' DSPs are applying strong downward pressure on a publisher's desire to make its remnant inventory available at all. Summing up a comment by the CEO/Founder of a standalone DSP during a recent conversation on this topic, he said "Who cares about the publishers, they are just a means to an end." Why aren't the publishers screaming about this kind of treatment?
Why Advertisers Should Care
So, who is benefiting from this automation? Well, as a result of the shrunken profit margins promised by the DSPs (more on this below) and the ever shrinking cost of media, advertisers are thrilled with how this is all progressing. Agencies are happy to keep their clients happy and so they continue to blindly funnel budgets into the standalone DSPs. But what happens when publishers DO get fed up being treated like commodities and they simply decide not to give remnant inventory to the DSP/RTB model? We will have erased from online advertising one of its real advantages: cost efficiency.
The Standalone DSP is Unsustainable
It is a fairly well known fact that ad networks consistently work at margins in the 35% - 45% range. It is also a fairly well known fact that DSP's boast of 'fees' in the 10% - 15% range. It is a lesser known fact that most of these automated inventory manager businesses, which are now mostly two to three years old, have yet to turn a profit. And yet, you read in the news all the time that DSP's continue to raise financing or seek acquisitions. This is critical for them, of course, because a business without positive cash flow cannot survive without outside capital. Still, they could change their business models to allow for higher margins, but that would mean doing three things that standalone DSPs can not possibly allow themselves to be seen as doing…1) caring about the publishers, 2) offering value added services in addition to technology, and 3) acting like an ad network.
Disarming the Bomb
We have an opportunity to bring a balance between the needs of the content owner/creator and the buyers in the online advertising space. As publishers look at scaling their businesses they should stop and think about who their partners are going to be. To me the word partner symbolizes a relationship where both parties get something valuable in return for the effort. In order for a partnership to exist there needs to be a relationship. It can be tempting to look to technology to make things easier. As my company has grown in this industry, we, too, have embraced the idea of building our own platform in order to eliminate waste from the system. But, for us, it is important that the technology be a tool and not the goal, itself. We have, of course, integrated DSP/RTB functionality into our offering. But we see RTB as a part of a healthy campaign, integrated with more premium inventory and targeting strategies. I just believe that, ultimately, we are still a service business and the longer we ignore that fact ….tick …tick …tick.
Rob Rasko is the President & COO of CPX Interactive, a global online ad network. Following a career in finance with companies such as Dean Witter and Oppenheimer, Rob joined the CPX team in 2006 as the company’s 7th employee. Rob can be reached at Rob@cpxinteractive.com.
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