Ad exchanges – What am I missing?


I was reading this article about Ad Exchanges in the US and this line grabbed me.

“CPMs on exchanges that use Triggit have risen to the point where they now average $3”

$3?

That’s $3 pre the exchanges cut (and anyone else using it). Maybe the publisher might see $1, $2 max.

So for a piece of content that generates 100,000 reads, that’s $100-200 in revenue. The economics of these exchanges seems to make little sense for publishers. And ultimately, they will make less sense for users and they will get more ads, and poorer quality content (as content is expensive)

2011 is seemingly the year of agency DSPs. I get the appeal for an agency (incremental revenue stream and the ability to cut out the network middleman) – and I get the appeal to a publisher with loads of remnant cheap inventory (the chance to make a few cents extra for minimal cost). But I don’t see how sustainable it is for the companies creating the content and generating the pages.

There’s talk that the larger publishers will set up their own networks, their own DSPs, private ones. Again, I understand the thought (when they’re giving their inventory to network x who sells it at a 1-200% margin through a loose ‘blind’ buy) but this will ultimately have to erode the areas they’re making a strong CPM.

At $3 cpms no one is making any money. They are losing it.

Maybe instead of focusing on this race to the bottom (which somehow hides behind technology that does no favours to the content creators/site owners) we should be focusing on ways to generate more value.

If DSPs and networks are the future of online advertising, it’s a pretty dark future for everyone involved. I don’t buy the argument that it makes things more efficient. Sites shouldn’t just sell pixels, they should sell context and insight. These things don’t come with a network/automated play.

Here’s the thing – in the media world only the digital side is choosing this ridiculous race to the bottom. Outdoor, radio, TV, print, magazines would never consider this approach. 99% of them don’t let anyone sell their assets besides their own teams.

Selling on price seems to be a last resort when you can’t demonstrate value elsewhere. Is digital media becoming so devoid of value that many just throw it out there into these mass exchanges and hope for a few cents after everyone takes their share? How sustainable is this?

 

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6 responses to “Ad exchanges – What am I missing?

  1. I couldn’t have put it better myself Ben.

    The traditional media seem to be better at controlling the supply side of the equation whether by legislation (TV) or time limitations (STV, radio), or space/cost limitations (newspapers, magazines, OOH). When demand exceeds supply then the price will hold up. Online historically seems to have been pre-occupied with selling the largest number of ‘impressions’ which appears to have translated to supply exceeding demand and the downward spiral in cost.

  2. The thing most publishers don’t realise they’re selling is the information about what people are reading. There’s value in being able to know and aggregate that — and they’re giving it away for really pissy CPMs.

    I think your point about outdoor, radio, TV and print never selling through intermediaries (well, they do: what’s an ad agency if not an intermediary?) but the point would be they’d rather leave the space blank, run a house ad or run a charity ad than sell at ridiculously low prices. Otherwise you’re devaluing your space.

  3. talkingdigital

    It’s amazing how many publishers that take networks and embed Facebook modules etc don’t realise they are giving away reasonably valuable audience information away that can be used to compete against them.

    If network X can offer me a million men who use business sites for $2 by retargeting them on junk sites, why would someone pay $60 to get them via CPM. They wouldn’t – but the publisher themselves has set this up by allowing the networks unhinged access to their audience.

    For TV there’s only one place you can buy people who are watching the AFL. That’s by sponsoring the AFL broadcast. You can’t retarget them on shitty 4am infomercial slots. TV would never be so short sighted.

  4. Nice post.

    Tthe only contrary view to the reasoning in this is that online is different to the other mediums in that there’s no real incremental cost to extra inventory.

    Some sites do literally millions of page impressions a day. There are countless online businesses which make money pretty much exclusively off remnant. Think of sites like free dating sites, weather, or even networks like the Cheezburger network (only does remnant). For these types of businesses, an extra few cents across billions of impressions makes a difference.

    But in general, I agree with the bottom-down race being suicidal.

  5. Good point Zac that the incremental inventory is at extremely low cost (which is why it’s being done). But the point is that the low pricing associated with this incremental inventory is tending to drive down the overall average price that can be charged. This means decreasing CPMs and potentially LESS nett revenue for the next campaign and the one after that etc. That is, the cost side of the equation (i.e. bugger all) is tending to drive the revenue side of the equation (i.e. CPMs close to bugger all).

    Do I dare mention re-targeting via ad-networks and leveraging their lower CPMs than the publisher CPMs as another side issue?

  6. As a publisher, if we had ever accepted performance, or allowed our inventory to be sold by a third party, we would not be in business today. I also believe, that had the majority of the industry adopted the same philosophy, then our business and every other display business would be significantly better off for it.

    Sure, some functional sites like weather and dating suit the model. But not sites whose success relies on it’s influence and audience. If you’re telling everyone you’re a fine wine but they know you’re selling clean skins out the back door for 3% of the price, it’s obvious what the outcome will be.

    Networks, exchanges etc are a by-product of an era where over ambitious financial expectations where placed on the new digital frontier. When they were not met, the bean counters turned to the quick fix, cash in the door solutions with no thought to the future.

    Once the tap is turned on, it’s difficult/impossible to turn off, as very few have the long term vision, leadership or the balls to shoulder the short term revenue hit. It’s all about immediacy.

    But now you face a situation where many of these businesses are maturing but they are still losing money, have eroded their rate position and allowed their audience to be re-targeted elsewhere on the cheap. Hard to come back from that.

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