Call it a platform. Call it a stack. Call it an ecosystem. Whatever it is, it is being assembled pretty rapidly by some key industry players. There will be room for a maximum of five we believe. They will all have their own point of difference and will finally start consolidating the vast amount of feature plays in the market.
The path to locking down business on the entire stack is complex however. Long-winded business cycles, frustrating endless ‘pitching’ and ‘validating’. Closing a deal would seriously be made all the easier if some of the stack were for instance given away for free.
It is like developing the freemium model for ad tech – a Trojan horse, if you will, for ad tech domination. And there is nobody better placed in this space – we all know it and recognise it – than the big G.
Google is putting together one of the leading stacks. A stack which has little friction and maximum scale potential. What Google also have on its side is an established client base on both the buy and sell side, outside of the programmatic buying space. This refers obviously to the DFP and DFA businesses.
Both DFP and DFA have long been the native, predominant ad server of choice for many publisher and advertiser (agency) alike. The erosion of the cost of these ad servers over time has meant that Google basically gives the technology away for free now (afforded by presumably cheaper scaling ad serving infrastructure costs).
But what if Google actually gave the use of these servers away for free on the condition that you were locked in to using either Invite Media/Adx-Admeld (or in some cases both)?
This would have obvious benefits for the buy and sell side – not only from a reduced duplication/discrepancy perspective but also in terms of cost savings. A potential gripe from the buy side would be the reduced ability to mark up ad serving costs. It is no secret that in years gone by, the ad server mark-up was a valuable revenue stream. For the larger agency groups the reduced cost of ad serving has made this a slightly redundant practice. And given the increased transparency between agency and clients this mark-up rarely happens anymore.
The above does make one large, potentially incorrect assumption: give away the cheap part of the stack to make more money on the higher margin business. It could be argued however that it is actually the ends of the stack that make the greatest margin albeit lower revenue. Do the DSPs and SSPs create greater margin than the actual ad servers?
Ad servers need limited resource when compared to trading platforms, which are notoriously heavier in the function required to run them. Does this then make it impossible to give away these technologies, and just focus on monetising the ad servers?
Whatever way you look at the current situation, Google is in an incredibly powerful position to bring new business flow into its trading platforms – but do not rule out the likes of AppNexus, which are growing quickly into becoming the end-to-end stack for publishers, agencies and networks.
Perhaps the inevitably of the complete stack won’t be the preferred solution to build a business around. Maybe some will see too much conflict residing in an end-to-end play, and will opt for specialists on their respective sides of the value chain. This could be a likely choice for much of the eco-system
As the game becomes more competitive, expect some aspect of a freemium model being deployed along the value chain. Locking business in before opening up into products that drive greater profitability. Expect to see the Trojan Horse strategy deployed very soon.ExchangeWire