There is a developing battle going on at the moment between the ad net and agency DSP for ad spend. Slowly but surely ad net margins are getting squeezed by the emerging DSP market. Agencies, who remember have the client direct relationship, are implementing fairly robust exchange strategies now. They are looking to put a lot more of their spend through these automated channels (either through 3rd party vendors or their own platforms). Who will suffer most from this shift of budget to the DSP? The ad network of course. Price and inventory transparency remain the key drivers. But transparency remains a tricky subject especially in the European DR market. A lot of ad nets are selling blind because premium publishers don’t want to them repping their non-premium inventory – for fear of sales channel conflict. The agencies are demanding more transparency and less of the black box sales patter.

This is a difficult place to be for the ad networks. The industry Cassandras who called the death of the ad network 12-24 months might not have got it quite right, but you feel there is a big shake-up about to come. There are a couple of reasons for this? The biggest reason, which have already touched on is the rise of the agency buying platform, with ad agencies taking a more pro-active role in buying and optimising media on behalf of the client instead of outsourcing the process. Another big factor for the shake-out is the rise of the so called data economy. For years, data was given away without a thought. Its economic value was never fully appreciated by publishers. The data leaks will soon be plugged up by revenue hungry publishers and ad nets will have to pony-up for its use. And questionable tactics like burying scripts in ad tags will never capture enough data.

Ad nets do have of course access to large volumes of actionable data, but thrity-day cookie decay and regualr cache clear-outs will ultimately force their hand. Publishers will be looking to be compensated for data use. I’m not saying ad nets are in danger of disappearing. But there are too many ad nets in the UK – and with automation becoming the trend there will eventually be no business need for 80 middle-men. The bigger technology-driven and well financed operations will survive and prosper. And they won’t be satisfied with being on a media plan. Some will, but others will be looking at this from a different perspective. I envisage a future where agencies and ad nets are going head-to-head for advertiser budget.

Imagine for a minute you are top-performing DR ad network with solid tech, data and expertise. Are you going to let a third-party or agency DSP suck all your business away and leave you as an ad-hoc outsourcing solution? Of course not. The ad nets will go straight to the brands and advertisers, and try to distinguish themselves from their agency competitiors. How will they do this? They could build out a DSP proposition similar to Lucid Media or licence tech to compete with agencies trading in the exchange marketplace. The data “blind spot” could be covered by establishing attractive rev share deals with publishers. Basically the uber ad net will need to play heavily on the tech and data angle. People in the industry say ad nets and DSPs can co-exist in one harmonious space. I’m saying it’s possible but there will be less ad nets in the market and their business model is going to look a lot different than today. Arbitraging inventory will no longer cut it especially if agencies continue to put more and more budget through ad trading platforms.

Unfortunatley there continues to be a real dearth of European-focused events covering the area of automated ad trading and media optimisation. With the intention of fostering informed debate on the evolution of the display market and indeed online advertising as a whole, ExchangeWire is today announcing details of the Ad Trading Summit 2010. It will be the first dedicated European event of its kind, and will look to attract decision makers form agencies, advertisers, ad traders, ad nets, ad exchanges, ad-tech vendors and publishers across Europe. The best minds in the industry will be brought together to discuss and debate the changing face of the European display advertising market, the increasing influence of automated trading platforms and the explosion of the data economy.

Confirmed speakers for the day include: Mike Nolet, AppNexus CTO and Cofounder; Curt Hecht, President, VivaKi Nerve Centre; Martin Kelly, Cofounder and Managing Partner, Infectious Media; and Konrad Feldman, Co-founder and CEO, Quantcast. Additional details on the speaker line-up and agenda will be announced in the coming weeks. ExchangeWire will also bring you the thoughts and opinions of the event’s speakers in the run up to the actual event on September 23. Tickets are now on sale – but please note that the numbers are limited. Further event information can be found on the Ad Trading Summit 2010 site.

I’m not suggesting that pubs should go down the ad network route. I think publishers exploring this option should buy one hundred per cent of display media through the automated channels (ad exchanges, SSPs, etc) forgoing the messy relationship building with pubs in their niche. How might a publisher buy this inventory and target ad using their proprietary data? They could use Invite or AppNexus. But they could build their own. Granted there would be some resource required in building out the technology and hiring people who have experience of buying inventory across exchanges. But the opportunity is there. Not everyone can do it of course – because all publishers have good data. I’d be looking at one of the niche publishers to take the plunge – particularly those in verticals that pay fat CPMs or can generate the most ad revenue. The FT would be the best candidate. It has ridiculously good data which it can use to augment its reach.

How might the FT look to put something like this together?

- Hire a bunch of developers to build out a proprietary DSP solution that will leverage data but prevent leakage
- Bring in some exchange-buying expertise to trade across the automated platforms
- Use a vendor like Netezza to help crunch the data
- Use a dynamic creative provider
- Hire some ad net sales staff to get you on those all important media plans

It sounds all too easy. And it is to begin with. There will be teething problems. Some campaigns won’t work – and some will. But the thing to remember here is that the ad net market is worth £250 million in the UK alone, and some pubs are missing out on taking a slice of it. What you also need to remember is that the European exchange ecosystem is slowly being knitted together. Invite can plug into many of the exchanges in Europe, and because of this you will see a lot more centralised media buying in digital. A lot of it will be done from London. Shouldn’t the FT be looking at this development as a big opportunity for revenue generation.

But what about sales cannibalisation? Audience-buying will affect my tier one inventory, and I won’t be able to demand my fat £70 CPMs from the market. Well, there’s something called sales conflict management. Seeing as the FT is running its own DSP it can instruct its sales staff to stay away from certain brands, agencies and advertisers.

Paidcontent reported yesterday that the FT was in the process of launching a niche site on the FT network, as it looks to increase ad revenue opportunities. Why limit yourself to a few hundred thousand in advertising when you could be accessing a market worth hundreds of millions Europe wide? The FT could own a chunk of the media buying market in finance if it wanted. But is owning and running a DSP a bridge too far for any publisher?

The graph below illustrates the growth in the German exchange marketplace over the past two. Note that all numbers listed are in millions of euros.

Neumann points out that Invite will probably get access to Google’s treasure trove of search and GCN data. This will allow it to offer buy-side clients unparallel targeting capabilities. It will undoubtedly impede other players in the space, including XA.net – a DSP which Jerry has an investment in. It is no secret that Google was planning to build DSP and RTB capabilities into DFA – and it would be logical to assume they would have allowed DFA to leverage the same search and GCN data. After looking at the timescales of getting it to market, Google reasoned that it was cheaper to buy Invite at a snip for $70 million dollars. The price does severely mess-up the valuations of other DSPs, eyeing up a possible bonanza exit. I’d say some VCs weren’t too impressed – but I digress.

Jerry is right to point out that Google is now ridiculously conflicted. It’s an ad network, an exchange and now a DSP. He points out that having insight into data and pricing from other inventory sources would give it a real competitive advantage over its rivals:

Because when Invite is integrated into Google, it seems reasonable to assume that Google will:

1. Start cherry-picking the other exchanges’ best publishers; and
2. Start front-running the other exchanges, keeping the demand for themselves****.

By giving Invite access to their marketplaces, Microsoft, Yahoo! and AOL give Google access to data about position and price of every ad that runs through them. They would be giving Google the very data it needs to outcompete them. If the other exchanges allow this, they won’t for long. Because if they do, they won’t be in business for long.

**** It’s widely rumored in the industry that Google has a double standard in exchange pricing between people buying through Google’s user interfaces and people buying through the exchange API. If Invite is an insider, it shouldn’t surprise anyone if they get preferred access.

He has a point here. But it won’t be so easy for Google to dominate completely – especially when a lot of publishers on the sell-side are hesitant to throw their lot in with Google. Rubicon, Improve Digital, Admeld, Adjug, Adscale and the Orange Ad Market are becoming the preferred automated channels for a majority of European publishers. It will be difficult for Google to “front-run” other exchanges when its own exchange only has access to millions of Mickey Mouse Adsense sites with crap content. Audience matters – but so does context. Expect publishers to be more self-aware of this. And there is no doubt in my mind the good people at Rubicon, Admeld and Improve will be pushing hard on the agnostic angle. You’d expect, if you were a betting man, Google to make it very difficult to integrate DFP with these platforms. But these guys are good at innovation – and they’ve got the resource, talent and cash to meet the challenge.

Giving too much power away to Google is not in the interests of any publisher. There needs to be competition in the space to improve pricing and innovation. Is it really healthy for a single company to have a stranglehold over a publisher’s entire income? I would call that commercial suicide. Monopolies are a bad thing. But I will say one thing for Google: it keeps everyone on their collective toes, making companies innovate and continuously push the envelope.

The Invite acqusiiton could leave some on the buy-side in real trouble – especially the big agencies. Disintermediation is a real possibility here. If I was a Google strategist, I’d be looking beyond the “unnecessary buffer” of the agencies and going straight to the top European brands. Google’s got the tech and the data – and could probably deliver better results. What to do? Make yourself relevant before it is too late. Innovate. Invest in technology. Are we getting carried away? In fairness, agencies are doing all these things already. We are still at the start of this automation process in display. And as one sage industry stalwart told me yesterday, the industry needs to stop whining about Google and get on with developing better solutions and tech for its clients. It was a good post by Jerry, but now that we know the big G’s strategy let’s see if the rest of the industry can outmanoeuvre them.

If this did happen, and I was a CMO, I would be asking myself why I need an agency to manage my buys. I could hire a couple of account managers and let Google do the heavy lifting. And probably get better results with a lower cost because of the unbelievable search data I can use through its DSP. And what about re-targeting? Yep the big G can do that too. Brilliant – a one-stop shop for all my media buying needs. Where do I sign up? Alarm bells should be ringing with C-level agency execs at the minute.

Darren Hermann, Chief Digital Media Officer at Kirshenbaum Bond Senecal + Partners, knows a few things about automated trading and where the future of the display lies. He helped found Varrick Media, a specialist exchange-trading unit within kbs+p some years ago. He wrote an interesting post this week on the very subject of big agencies ceding too much control to players like Google and Microsoft. Darren’s argument focuses on the ad server, the hub of all display media buying for agencies. He argues that as media buyers and sellers both Google and Microsoft are a little conflicted (given their dominance on both the buy and sell side) and might not always have the best interests of the agencies:

I’m skeptical of Google and MSFT, specifically with the hundreds of billions of impressions they serve collectively. It would make sense that every campaign served thru them would make them smarter. Hey Toyota, did you know that your campaign for the Toyota Camry just made Honda’s campaign for the Accord much smarter?

There is the above issue and now an important one. MSFT and GOOG can see every advertisers campaign that uses their system including cpms, impressions, conversions, etc. Being that MSFT and GOOG sell media too, they have a huge advantage if they were to use that data in the way they pitch us and price us.

So what to do? Well, that’s something for highly-paid agency strategists to figure out. Agencies could go agnostic I suppose, and use a buy-side only ad server. This would address some of the issues Hermann talked about in his blog post. Agencies could also consider building out their ad server technology. WPP already own an ad server through its purchase of 24/7 Media so it’s no stretch of the imagination to imagine that other holding agencies couldn’t follow a similar route by buying in the technology. They could build in some DSP capabilities. That’s why I reckon a MediaMath or another hybrid service/tech buying platform will be bought by a holding comapny. The one thing that agencies need to be aware of is that their position in the display (or even digital media) buying chain is quickly being eroded by the growing influence of some ad-tech players – and ultimately the evolution of the display space.

» There’s some interesting numbers in Adsafe’s industry report for the first quarter of 2010. The most striking is the percentage of campaigns running through automated platforms:

The composition of the buying channels utilized by AdSafe clients varied across the course of Q1 2010, with Ad-Exchanges / Real-Time Bidding Platforms / Demand Side Platforms serving the majority of traffic at 47% of inventory. Ad-Networks served 34% of traffic and Direct Sales served 19% of traffic. This percentage of traffic served by Ad-Exchanges / Real-Time Bidding Platforms / Demand Side Platforms increased significantly from Q4 2009’s share of traffic, suggesting that premium brand advertisers are beginning to shift a larger percentage of media dollars to these channels.

These numbers relate to the US market – and are based on Adsafe clients only. It does suggest a significant change in buying habits for display. Why is this significant for Europe? We tend to be about 6-12 months behind the US in ad-tech development. And you are already seeing significant volumes flowing through exchanges in Europe. According to Adscale CEO, Mathias Pantke, the automated market is expected to rise from 40 million euro to well over 120 million by the end of 2010.

Munich, June 1st 2010. AdScale, the leading marketplace for online advertising in Germany, has announced today the successful conclusion of the financing for its expansion in continental Europe. TIME Investors, a Paris based specialized investment firm providing strategic support to European Telecom, Internet, Media mid-sized companies, is investing more than 5 million euros in AdScale (www.adscale.de) for a minority shareholding and is thus expanding the circle of existing investors, beyond the European Founders Fund and Holtzbrinck Ventures.

Matthias Pantke, managing director and spokesman for AdScale’s management: “We are delighted about the investment of TIME Investors, which is proof of the great potential that AdScale holds in store. The additional financial means, combined with the expertise brought by Time Equity Partners, management Company of Time Investors, will give us the opportunity to further expand Adscale’s product portfolio and geographical reach. We will introduce further advertising formats and booking options to our business model this year. In this way we will strengthen our position as a leading online advertising marketplace in Europe.”

Jean-Luc Cyrot, partner at TIME Equity Partners, management company of TIME Investors : “It is our main goal to operate at the heart of the digital revolution. With a very solid business model, AdScale has experienced stellar growth thanks to an impressive and highly scalable online advertising platform that can be leveraged on a pan-European footprint. And most of all, AdScale is led by an excellent and visionary management team with which we look forward to partnering. The aim of our investment is to substantially support the growth of the company over the coming years.”

Sven Achter, partner at Holtzbrinck Ventures: “AdScale has proven from the very start how well the business model can work in Germany. Within a very short time frame the company has developed into the leading and a profitable marketplace for online advertising in Germany with a triple digit growth rate. We are convinced that the future will belong more and more to the online advertising marketplaces and are looking forward to further expanding the market leadership of AdScale together with TIME Equity Partners.“

About AdScale

AdScale is the leading marketplace for online advertising in Germany, which brings together advertisers, media agencies and publishers. Via AdScale, advertisers, advertising agencies and website publishers buy and sell video, display and text advertisements.

The company offers a portfolio that currently comprises over 3,500 websites of all sizes, which advertisers can book self-contained via a single platform. As a real time and a transparent platform, AdScale offers publishers and marketers a tool for controlling inventory use. According to comScore, AdScale has achieved a reach in Germany of almost two thirds of all internet users (64.9 percent or 35.1 million unique users in April 2010) in the online display sector and delivers nearly 8 billion ad impressions a month in Germany. Advertising spaces are auctioned for every ad impression. As such AdScale achieves fair prices while at the same time creating transparency. Launched in September 2007, AdScale was founded by Klaus von Doemming and Stephan Kern. Since the beginning of 2008 the management has also been reinforced by Matthias Pantke. Further information can be found online at www.adscale.de.

About TIME Equity Partners

TIME Equity Partners advises and manages a 100€m equity allocation granted to TIME Investors by four European entrepreneurs through their joint company Yam Invest NV.

TIME Equity Partners is led by Henri de Bodinat, Jean-Stéphane Bonneton and Jean-Luc Cyrot, who have a strong experience in the Telecom, Internet, Media sectors. TIME Equity Partners focuses on companies with a proven business model and profitability and high quality management team, it provides the funds necessary to finance organic or external growth. TIME Equity Partners is above all a strategic partner for the management, thanks to the proven experience and expertise of its partners, both in investing, consulting, creating and managing Telecom / Internet / Media companies.

Can you give you an overview of the Httpool proposition?

KA: Httpool is an online advertising provider focusing on emerging markets, especially the Central and Eastern European region. We provide clients with localisation services together with all segments of online advertising in the region – including premium inventory network, performance network, contextual and behavioural network, and search engine marketing. Httpool has 10 years of experience and expertise across the region serving major agencies, global and local clients with digital strategies and planning.

How does the Httpool offering benefit UK advertisers and agencies?

KA: Httpool provides UK advertises and clients a one point access to all of CEE markets. With offices in the majority of these markets we have direct access to local inventory, publishers and specifics that differentiates our offering from other sales houses in the UK. Direct relationships with local content providers in the CEE markets enables us to provide a streamlined process and a quality service to agencies so that they can execute efficient online campaigns in this region.

What markets does Httpool currently cover in Eastern Europe?

KA: Httpool has direct access to all CEE markets and offices, including Austria, Czech republic, Slovakia, Slovenia, Croatia, Serbia, Romania, Bulgaria, Macedonia, and Bosnia. We are currently expanding to the rest of the region with plans to open offices in Poland, Hungry, Turkey and the Baltics within the next 3-6 months. Httpool also services Asia via their Honk Kong and Indian offices.

How evolved is the display market in Eastern Europe? Are exchanges and automated platforms gathering much traction there?

KA: The display market is quite evolved, and in some markets represents even more than search in terms of budgets. Advertisers use many advanced rich media formats combining it with more content integration. On the other hand exchange platforms are getting lots of traction. Httpool offers a self serving platform in many of our markets, which enables local publishers to get several high eCPM products with one single tag. Advertises on the other hand can manage their own campaigns. However, there is a huge opportunity for growth for these platforms because the average ad spend around 3-4% is still low, but knowledge still has to improve.

How influential are ad networks in the Eastern European display markets? Do ad nets play an important role in aggregating inventory for local and international agencies?

KA: The importance of ad networks varies across the different Central and Eastern European countries but mostly they play a critical role in the CEE display market. The main reason is that ad networks are able to provide advertisers with various solutions, helping them to achieve their campaign objectives and get better reach in a fairly disparate marketplace.

What’s your view on real-time bidding? Has Httpool any plans to use RTB to trade ad inventory?

KA: At the moment real time bidding in the region is not the best solution. It works best where supply and demand of inventory are in balance. In CEE there is excess of supply which pushes CPM prices down using RTB. This causes some limitation in growth of markets. At the moment we are not planning to use it across our platform. Automatisation of buying and selling inventory will definitely grow as the number of buyers increases, and expertise of marketer becomes more widespread.

What current trends are you seeing in the Eastern European display market?

KA: The main trends are reflected in focusing increasingly on targeting solutions such as contextual and predictive behavioural and larger ad formats on top premium properties.

You’ve recently went through a rebranding and a repositioning of the Infectious offering. Can you explain the Infectious Media proposition in more detail?

MK: Yes, it’s simple, we make display advertising work for our clients. Clearly there’s a lot more to our business in terms of how we do that but that is our proposition and how we sell our services. We operate exclusively in the ad exchange space and offer these services to both advertisers direct and to agencies. We’ve purpose built both a team and trading platform, Impression Desk, to service this opportunity in the UK and Europe.

The rebrand and new website was about reflecting this focus.

How in your view has the exchange market evolved in the UK since the launch of Infectious Media?

MK: There wasn’t really one when we started so it’s come a long way! Right Media was the only place we could trade and was in itself the preserve of a few very smart networks, it’s incredible really that a whole new ecosystem has developed in the space of two year, the pace of change is staggering. The component areas of the value chain seem to be settling down a little now and both publishers and buyers are starting to do deals with and build infrastructure around DSP’s and SSP’s in order to service the opportunity. It’s not yet clear how the traditional intermediary, ad networks, will respond to these changes.

Do you think there is still not enough quality inventory available through automated channels?

MK: I think there is quality inventory available at scale but an issue that buyers will find in this environment is that it’s hard to find and the ways of doing this differ by platform. All supply sources take a different approach to defining quality as do all the DSP’s so it’s a minefield with no standardisation. We have chosen to tackle this issue head on and have invested a lot of time and effort in to devising our own manual vetting procedure for inventory sources. We are about to introduce our own transparent classification system for inventory that we vet ourselves so watch this space.

Has the arrival of the SSPs, the DoubleClick Ad Exchange and now the Orange Ad market improved the buying opportunities offered through automated channels?

MK: There is momentum growing on the supply side and these intermediaries are driving things forward. Ultimately this makes sense for everyone involved, with lower transaction costs associated to this channel and CPM’s increasing substantially in the last 6 months alone. Part of the education process for publishers is that the CPM’s that they receive for their inventory are higher than those they receive from a network as the buyer has much more opportunity to recognise value in the platform environment than they do in a bulk network buy. We, on average, currently pay double the average CPM in the Doubleclick Exchange quite simply because we can see the value that our activity is driving for the advertiser and bid accordingly

Do you think this volume on the sell-side will attract a lot more display spend into the exchange eco-system?

MK: I don’t think anyone on the demand side is under any illusion that this is the way that the market is going and needs persuading any more. The barrier is more around attaining the skills and technology to operate effectively and the speed with which this will happen.

Data plays a huge role in the automated buy. Do you think the absence of UK-specific data sets from the data exchanges and other platforms is hindering the development of the exchange eco-system?

MK: The data market has been slow to develop in the UK but there are now some companies entering the UK such as Quantcast and we welcome that development. I would also say that from an Infectious Media perspective this has meant we have had to focus our product development around data analysis and decisioning in the absence of ‘off the shelf’ target audiences.

We speak to many of the top UK publishers and they are keen to find ways to monetise their data so it will just be a matter of time before this market develops further and there is room for some big winners in the UK and European data market.

Is Infectious currently buying inventory through RTB? Would you say the buying process is different than a typical auction buy on the Rightmedia and Adx exchanges?

MK: Yes we are currently buying via RTB in the UK and across Europe. The buying process is no different in many respects, this is just the buying of display media after all. The difference is the amount and richness of data points that can be passed through to the buyers on each impression but I don’t yet think this is being fully exploited by the supply side especially. The more information a publisher passes about an impression, the more of a chance that we will see value in that impression and bid higher accordingly. What has been a real game changer for Infectious is impression level reporting which is a huge volume of data that we take in to our data warehouse to analyse but has meant we can scrutinise performance to a new level of granularity and optimise accordingly.

Infectious is an exchange trading specialist – far removed from a traditional media buying agency. What kind of skills does Infectious, which puts technology and data at the heart of its business, look for in new hires?

MK: There is some cross over with media buying agencies in what we do but we’re a very different type of company. Exchange trading is our only service and we offer this to both advertisers and agencies and because of this we have built a very specialist team and infrastructure. Our last three hires have been a statistician, a business information systems architect and an agency account manager. So some cross over with an agency in terms of personnel but in the main something completely different. Coming from large media agency backgrounds it’s been a breath of fresh air for Andy (co-founder) and myself to be able to build the team from scratch with new skills and a company structure that is fit for purpose. To date we have not employed anyone from a pure media buying background.

Now that the DSPs have finally arrived and RTB inventory has come onto the market, how do you see the space developing in the coming months?

MK: The pace of change is rapid at the moment and will not be slowing down any time soon. The coming months will see the completion of the infrastructure for the UK platform trading revolution, new UK data centres opening, trading desk offerings appearing, SSP’s hitting scale and we hope a more open debate around data and privacy that needs to happen if we are to successfully self regulate as an industry.

Oh, and loads more hype, as ever.