The sales house used to be the predominant way of creators of content connecting with buyers of media space. The sales house was the ultimate middleman, effectively a broker between two parties. It inspired a new generation of middlemen, namely, the ad networks. The sales house model has been completely modernised and overhauled. In the UK that is.
In Germany, the sales house is still a major component of the online advertising ecosystem. In fact, the very foundation of the term ‘sales house’ in the UK and Germany now represent two entirely different things.
The UK Sales House Model
The UK sales house is under serious threat from all sides and its demise as a business model is a reflection of the UK’s heavy investment and strong focus on performance marketing. The number of large sales houses in the UK effectively now stand at two: Unanimis and Ad2One. And their share probably does not represent what it once did.
UK sales houses used to represent a strong, profit making business model. Buyers were able to choose from a laminated sheet the sites they wanted to buy across on behalf of their clients. They could see unique and impression volumes and they could also see a rate card. This was effectively how business was done and the model was so successful that Orange moved into the market and took Unanimis off the table.
The Race To The Bottom
Over time, the UK market evolved and adapted and it forced the sales houses into a untenable position: keep up and change the focus or stand still and become irrelevant. The focus this refers to is performance marketing. The UK has (rightly or wrongly) an obsession with performance, ROI and accountability (which is why it is strange UK businesses aren’t more sought after by VCs). The introduction of CPA deals in the UK effectively dented the sales house model and Ad.com were one of the main perpetrators in disrupting the cosy sales house business.
Buyers no longer just wanted to arbitrarily select some publisher sites from a glossy PDF. Their clients demanded more value to be added. They wanted to become more sophisticated with how media investment was optimised, advanced with how users were targeted and, ultimately, provide greater accountability. This is where the large blind ad networks exploited the clamour for CPAs and arguably created the ultimate arbitrage model.
Sales houses had to react, quickly. They rolled out ‘improved’ ad serving capabilities, often employing DART’s Adapt solution, which at the time could not compete with many of the proprietary solutions created by the likes of Ad.com. The sales houses did deals with behavioural targeting firms such as Revenue Science (as it was known pre re-brand). And they found themselves doing more and more cheaper remnant deals, offering low CPCs, low CPMs, low CPAs etc. On the positive side, this quickly became a major source of revenue.
The Challenges For The UK Sales House
This model simply wasn’t sustainable for the premium sales house. They could not compete on reach so would inevitably end up supplementing their access with off-network inventory, fishing in the same pool as everyone else.
They were going up against ad targeting golliath’s, such as Ad.com, with weaker tools and technology. It was like to taking a knife to an optimisation gun fight. This ultimately led to premium publishers questioning the value being provided by the sales houses. Yields and margins were being continually squeezed to the point where the sales houses lost their focus on what it meant to exclusively rep a site. The inevitable soon occurred where major sites took ad selling in-house, lifting their premium content out of the CPA bottom funnel rat race.
For what remains of the sales house market today, SSPs are now becoming a viable competitor. If a major publisher is now choosing to take premium ad sales in-house, they can just as easily enlist the services of a Rubicon, Admeld, Pubmatic or Improve Digital to hand hold them through the process of monetising any remnant through the real time channels. The question then asked is what value is created by another intermediary which inevitably increases clear prices due to additional margin being extracted?
The German Sales House Model
If we head east 500 miles we see a completely different definition and meaning of the term sales house. In Germany it simply represents how display business gets done. When speaking to those with deep domain expertise of the German landscape, the sales house environment has a cartel type atmosphere. There are large numbers of tier one sales houses (too many list) who all seem to be able to cooperate successfully amongst each other. The German sales house has become the fabric of display media buying in Germany.
Writing The Rule Book On Private Exchanges
This position of strength is long standing. This model was created long before internet ads came along. German media companies have executed their strategy with typical German precision: building supersize media conglomerates that have diversified business models.
They have consolidated a vast number of assets into spun-off sales divisions which span multiple mediums. The blind ad network model has struggled to scale in Germany because of this inventory ownership and dominance.
The German sales house wrote the rule book on the concept of private exchanges many years ago; they have always controlled pricing and access, the only difference being it is not RTB enabled. They have also been able to leverage multimedia rebates and trading agreements to offset one against the other, for example squeezing margin on TV but run online and print at massive margins.
We should point out that many of these German sales, unlike their UK counterparts, have a number of large owned and operated sites – as well as repping mid-to-long tail .de domains. And you could make the argument that the German sales house is effectively supped-up hybrid of publisher and sales house. It doesn’t deflect from the fact their business proposition is effectively a true “sales house” model.
No display deals get done in Germany without the inclusion of the sales houses. Their.de domains are coveted by agencies, retargeters and of course ad tech vendors. If you do manage to partner a top twenty sales house, you have a real business in Germany. And it is this collective strength that has cemented their position as the power brokers in the German display market.
Owning The Future Eco-System And German Sales House Longevity
One point to stress here is that German sales houses are not resting on their laurels. These big institutions are heavily invested in the future of ad tech, Deutsche Telekom for instance have an incubation fund and also an investor in MyThings. The only difference is that adtech investment/adoption is on their terms.
Could the German saleshouses be disintermidiated by the SSPs? No. In fact it is more likely the other way round. Such is their position of strength, it is not unconceivable to think that the major conglomerates will invest in their own RTB enabling tech or even acquire a player such as Improve Digital or YieldLab.
German sales houses have a track record of buying ad tech companies, and have as a result created an eco-system for localised start-up ad tech vendors who know there are big buyers in the market beyond Google, Yahoo et al.
The UK sales house however could rise from the ashes. There are murmurs of discontent from the premium publisher community when it comes to automated trading. Some feel it is enabling the buy side more than the sell side and as a result, they’re seeing yields stagnate. Could this be the opportunity for sales houses? Re-aggregate premium inventory? Bring to market real data driven solutions which are also creative and offer brand building opportunities for marketers?
You have to feel that for the remaining UK sales houses to regain / maintain their current position in the market they need to differentiate. If they follow the rest of the herd into automation, they could very well find themselves in real trouble. While it might be unfair to compare the two different strains of sales houses, it is useful to see how the German model has evolved, and understand how they dominate their market.ExchangeWire