A sea change has been underway for the last three years in the world of digital media. The buy side has become sentient - re-architecting the buying process leveraging open marketplaces, data and technology innovations such as Real Time Bidding (RTB). This is already beginning to impact overall media buying for advertisers, with improved efficiency and effectiveness on bidded display media. For agencies, this translates into building defensible competitive services around technology, process and people.
However, for the market to operate efficiently, both buyers' and sellers' needs have to be met in a fair and profitable way. Having had many conversations with publishers, for the most part I don't believe publishers are aware of these implications. In its current state, RTB is lopsided and problematic for publishers. Remarkably, many publishers are not aware of the potential risks of RTB as they exist today– risks such as data leakage, yield erosion, loss of control and brand safety.
Understanding these issues requires a look back at the short 15-year history of the digital media industry.
Primary & Secondary Markets
For the nearly fifteen years prior to this change, the digital display advertising market has predominantly been a seller-based market. Explained briefly, publishers create specific content that attracts audiences – often desirable, sometimes scaled, occasionally both. Then, publishers contract with a third party such as comScore to audit and report on the size and composition of their audience with demographic and/or psychographic data points. Independently, advertisers research who their customers are and deliver brand briefs to a media agency, which transforms them into actionable media plans. The agency issues an RFP and publishers respond to convince the agency that the combination of publisher brand association, content and audience make up is worth committing the advertiser's budget for the right to deliver the advertiser's message in a standardized or customized creative format within the defined content and media spaces. Rinse, repeat, rinse, repeat.
Approximately two-thirds of display advertising dollars are booked in this "Primary Market" process where the publisher / agency / advertiser work directly and the advertiser pays an above-market rate to have a) integration into the publisher's content, b) a guarantee of delivery, c) transparency into where the campaign is delivered, d) some level of targeting if the buy is beyond content based targeting, and e) some association in the advertiser's/consumer's mind with the publisher. Advertisers may give up one or many of these elements for lower pricing, such as transparency (For example, run of network is always lower priced than run of channel).
When the publisher has unsold inventory, this is sold or redirected to one or several networks. In this "Secondary Market," the publishers agree to sell inventory to the ad network because managing unsold inventory can be time consuming, not a core competence and low revenue compared to their Primary Market activities. The ad network generates additional revenue for the publisher and generally commits to not share the sites on which the campaign delivers. The rules of the Primary Market are differentiated from the Secondary Market because publishers sell brand and content based targeting at a premium, don't want sales channel conflict and they also don't want the buyers knowing their unsold inventory may clear at a much lower price.
Real Time Bidding-based ad serving is an auction based ad serving model that enables integration with other prediction/bidding technologies that *sit outside* the seller's ad servers. For example, the Right Media Exchange ad server, Yield Manager, is fully real time. Each ad call is a separate and unique auction where buyers instill all their decision logic into Yield Manager and when the ad call is made, every creative and all available data is evaluated to assess how to maximize ROI for advertisers and revenue for the publisher given the advertisers decision logic and constraints (targeting, pricing, pacing, etc). All eight billion impressions a day are auctioned in real time.
RTB recognizes that decisioning may not always happen inside the seller's ad server. So, rather than forcing the advertisers to instill their decision logic into the seller's ad servers, an RTB-enabled auction calls out to bidders with a bid request as the auction is executing. This bid request likely has the URL and other anonymous audience attributes such as geography, browser operating system etc. The buyers are able to maintain all their data and decision logic in one place, and sellers are sending bid requests where the buyers have a certain timeframe to respond with a bid and the URL of the creative if they win the auction. Think of it like a jump ball. Hundreds, even thousands of potential bidders see the bid request and are able to decide whether the auction is worthy of their bid; if so, what's the bid; and if the bid is the winning bid, what's the ad to serve.
RTB provides significant value to buyers such as access to more inventory and ability to control frequency more discretely. Many blog posts and editorials have extolled the virtues of RTB from the buyers' perspective. I think we can all agree that buyers love a fully transparent, completely accessible inventory.
So the rub is that the introduction of RTB has created a lopsided market that jeopardizes the publisher side of the equation. RTB fundamentally changes the nature of the market. By providing the full URL to literally hundreds or thousands of buyers, the opaque unsold market becomes very transparent. Think about this:
Publishers focus their sales efforts leveraging field sales to call on advertisers and agencies. The vast majority of their revenue is generated via the field sales, seller-based model. While field sales may generate 70-90% of revenue for a typical publisher, it may only represent 20-30% of all available inventory. The unsold remainder can be monetized via ad networks which are contractually prohibited from disclosing site level reporting. By distinguishing their direct sold, transparent, guaranteed campaigns from their indirect sold, non transparent, non-guaranteed campaigns, publishers are able to price their inventory with more control and little sales channel conflict.
With the full transparency that RTB provides, the opaque unsold market becomes fully transparent. Buyers get billions of bid requests across publishers where the full URL is exposed. From this, they can bid on only the most valuable URLs and reduce the need to contract directly with a publisher's sales team. This creates direct and severe sales channel conflict.
Remember the Interclick and Wall Street Journal dust-up (http://bit.ly/bHzGhh)? Interclick said that WSJ's unsold inventory was being auctioned via Google's AdX, which runs using RTB.
Data Availability & Leakage
When the RTB bid request is broadcasted to bidders, buyers can store, glean and leverage bid information for subsequent usage. If the bidders do not bid or bid very low each time, there is information there with very few restrictions on its usage. RTB enablers are not consistent on what data can be used for what purposes. In the absence of widely understood and accepted principles around this and if I were a buyer, I would consider:
1) Tracking overall sell through over time for a publisher, which helps my upfront negotiations because I'll know how a publisher is trending on their sell through.
2) Capturing behavioral information if I can tie the cookie to URL characteristic (behavioral targeting) without delivering an ad after the bid request/response.
3) Capturing the URL either on the bid request or when an advertiser's ad is served, use a third party to contextualize the page and store for subsequent behavioral targeting for the same or another advertiser.
4) Estimating the number of times I might see a user on the internet (frequency)…which translates into a scarcity multiplier or willingness to pay factor. By determining the frequency of finding an audience I can adjust my bidding up or down.
(Note: Currently, Right Media contractually requires RTB participants to agree not to use information related to bid requests for retargeting or profile creation.)
Yield - Apples and Oranges?
Some RTB purveyors have justified using RTB saying it's generating higher CPMs for the publishers. What we don't know is whether RTB is intrinsically better at driving higher CPMs or whether buyers are simply bidding more for the combination of media and data that they get from the publishers. A more thoughtful comparison might be to evaluate CPM for RTB-based impressions against CPM with non-RTB based impressions, where buyers have no subsequent rights to store or use seller's information. Stated plainly – buyers may be paying more for the embedded information. Without clear restrictions and with the opportunity to access and leverage a lot of information, buyers are willing to bid higher.
Another argument for RTB is that more and smarter buyers will bid and buy more. That may be correct long term, but there are two issues. First, buyers are trying to transition their Primary market buys to the Secondary market via RTB. While the newspapers have a "dollars to dimes" problem where print dollars are coming online with different CPMs, RTB creates a "dollars to quarters" problem. Does the transition to RTB enable smarter buying and greater ROI such that buyers will move dollars out of other mediums? The quarters would have to stack up much higher than the dollars for the "smarter buyers spend more" argument to work for publishers. Either way, this transition will put downward price pressure on vertical publishers disproportionately.
Second, in the short term there is a "depth of demand" issue. In the Right Media RTB pilot conducted early this year, for every 100 bid requests, buyers were bidding on roughly 10%, and then they won some percentage of that. That is a lot of publisher visibility in order for a buyer to bid 10% of the time. At the moment, it's hard to reconcile a limited set of RTB providers and low bid rates with higher CPMs unless the auctions included the publisher media and data together.
Lack of Control
Aside for the potential data leakage, sales channel conflict and general upending of the publisher sales model, RTB increases risks by reducing control of the advertising assets that are delivered. There is a lower risk issue of a buyer delivering a heavy creative and affecting the load time of the page for the user. This may not impact the seller's brand immediately, but it affects the user experience and that's an issue buyers and sellers should be sensitive to. There is a higher risk issue is that a bad ad / code is delivered onto a good publisher because the ads exist outside the seller's direct control. There are some ways to control for this, but the risks are still enhanced when the actual ad is not housed in the seller's ad server. There is another higher risk issue that a publisher who is adhering to the Self Regulatory Program for Online Behavioral Advertising (www.aboutads.info) may not be disclosing sufficiently when buyers have access or rights to leverage publisher information.
With some major improvements, it's likely that a portion of display inventory can be cleared via RTB. If there isn't a thoughtful conversation about what both sides need to make RTB work for them beyond short term revenue, it will negatively affect publishers who depend on advertising revenue to product high quality, free content for consumers. At some point, publishers may simply revolt en masse.
The rules around the Primary Market upfront are generally static, understood and honored. The Secondary Market rules are evolving rapidly. With RTB, there are significant ramifications that I don't believe publishers are either aware of, happy about or able to control yet. Innovations around RTB can alleviate or address many of the issues, but publishers must engage in the conversation about how the markets are evolving more than they have.
The Primary and Secondary Markets are not going away but we are moving to a new equilibrium of digital media selling where the markets, and the rules under which they operate, must evolve to create a healthy ecosystem for both buyers and sellers. It's likely that these markets will consolidate over time with blended rules. Consolidation will reduce costs and simplify operations for publishers and will enable publishers to address innovation like RTB head on. Several providers including Yahoo! will provide platforms, process and consulting to manage both markets effectively for maximum long term profitability. I'll leave you with six things that a publisher should think about as the markets are evolving, and specifically about RTB.
1. Understand what the buyer can see in the bid requests
2. Understand what rights the buyer or RTB provider has to store and use this information
4. Understand how the transparency is or isn't creating channel conflict
5. Push for, implement actively support industry guidelines specific to RTB
6. Engage in technology conversations that enable you to deliver on long term profitability, not just month to month revenue.
Ramsey McGrory leads the Right Media Exchange business, and is also responsible for establishing and growing Yahoo!’s strategic use of data and insights for Yahoo! North American Marketplaces, whose mission is to leverage customer needs and marketplace dynamics to create winning strategies for the company’s display, search and video solutions. Ramsey can be reached at firstname.lastname@example.org.