Buy-Side Becomes Sell-Side: What If Xaxis Or Criteo Bought RMX?

Yahoo! is in selling mode. We have seen numerous stories this week (usually spectacularly misinformed pieces) about Yahoo's intention to spin off its ad technology business. This has prompted the likes of Adweek, AllthingsD and Business Insider to ponder over the fate of Right Media. Much written, but no real insight.

What would a Yahoo! ad tech spin off look like? There are a few possibilities here:

1. RMX is sold off with its current client base, but without Yahoo! inventory

2. RMX is sold off with all of its current client base and most importantly, the tier 2 inventory Yahoo puts in there

3. Yahoo looks for a new ad server for tier 1 inventory, and inevitably moves tier 2 into that ad server’s exchange stack

4. OR a combination of 2 and 3: keeping tier 2 inventory in RMX whilst selling tier 1 through a different ad server

Let's look at option 1, shall we. If RMX is sold off without Yahoo! inventory it becomes a lot less valuable. What are you buying? While there is still demand for cheap, traffic, this is surely not a sustainable asset to take on. Even when RMX is fully RTB-enabled, the long tail traffic flowing through RMX will become less sought after over time as the display channel wakes up and moves beyond cheap traffic driving use cases.

What about option 2? If Yahoo! keeps its remnant/tier 2 inventory in RMX, and it becomes fully RTB-enabled, then this becomes a lot more appealing to potential buyers. Even before Yahoo! started moving to RTB, it still represented a large chunk of the exchange supply pool. But again the question you have to ask is what would the likes of Appnexus, Google and the SSPs be buying? Remnant inventory that they can monetise, as well as a lot of other assets might not necessarily be that valuable over the long term.

Option 3: It is not inconceivable that Yahoo! will look to migrate ad servers that can interoperate as a native ad server for direct and an exchange mechanic for indirect. If this is to be the key requirements for Yahoo!, you would struggle to look beyond Google or Appnexus fulfilling this function (although the Google route is likely to be a long, DOJ pending process).

Let's be honest here, option 4 is unlikely. In an environment where publishers are increasingly moving to a form of holistic yield management, it is perhaps short sighted to separate different classifications of inventory into different ad servers.

Only two real options for Yahoo!

Really there are only two options here for Yahoo!: either it gets a new ad server for tier 1 and 2 inventory; or it seeks an alternative solution for RMX to better monetise its remnant.

If we look at the latter option, we can assume the reason the likes of Rubicon and Pubmatic have been mentioned as potential suitors is because they are both clearly capable of monetising remnant inventory – it’s the cornerstone of their respective businesses.

These are all neat options, but the thinking on the Yahoo! startegy has been typically one dimensional from industry observers and Yahoo! itself. ExchangeWire believes that some left field buyers (although they just don't know it yet) will get into the race to buy RMX. What if the responsibility of replacing RMX was not handed to a fellow supply side player? Why not look to the buy-side? Couldn't a buy side operator execute Yahoo's "requirements" just as well?

How could the buy side replace RMX?

The sell side vendors provide a function that connects supply to demand and works to monetise that supply as effectively as possible. However, why couldn’t someone on the buy side do this? The buy side of course act to minimise the cost of accessing media - but there are some companies who enrich inventory enough to make it more valuable, beyond the standard outlets on the demand side.

Let's look at two potential buy-side vendors who could get into the RMX race.

What if Criteo was to become a player in the RMX game?

Could Criteo take on the responsibility of monetising all of Yahoo! tier 2 inventory? Probably not. But then Criteo’s global spend is huge. It delivers greater yields to the majority of its publisher base because of the way it enriches the impression with audience intelligence. Could Criteo take first look on all of the inventory, used what it needed, then passed the rest into a separate supply pool, powered by a DSP perhaps? This is possible. There would be user experience challenges to safeguard against, but giving monetising responsibility to a network like Criteo, who have a globally scaled real-time infrastructure might not be as mad as it sounds.

Could Xaxis become the biggest buyer and seller of inventory in the exchange eco-system?

In the same way Criteo could help better monetise remnant inventory, could the likes of WPP/Xaxis do a deal in the same vein? There would be political ramifications to this. But again, Xaxis have/are developing a global audience platform and certainly have enough demand to help fill the impressions. It would not be able (or even seek) to monetise every impression but could the world’s largest buyer soon become a major seller? Why not spin off a separate supply platform? Powered by their vast data sets? Give itself (all of its campaigns) first dibs on inventory before they place the rest onto this ‘exchange’? Is this ever so different to what happens now with most publishers? They select what they want for tier 1 campaigns and then pass the rest into exchanges? What if Xaxis became the go-to partner for Yahoo! tier two - and then ultimately created a tier 3 classification of Yahoo! inventory for everything Xaxis did not have a need for. Its unlikely to happen. But as the industry inches its way towards the end-to-end stack nirvana, it would be fascinating to see if a huge buyer like Xaxis could become a powerful sell-side player in the same instance.

How does anyone afford upwards of 600 million for Yahoo's ad tech business?

The price tag could be a massive hurdle for both of these companies. Yahoo is allegedly looking for between 500 million and a billion dollars for its ad tech business.

Certainly Criteo does not have this amount in cash. But there is the possibility of Yahoo taking some equity in Criteo before its likely IPO next year. With an alleged 400 million annual run rate Crtieo is in a great position to go to market. And Criteo more so than any demand-side vendor is demonstrating a strong competency in managing yield for its partner publisher. All good reasons to consider a deal.

The Xaxis acquisition could be a little bit trickier. Agencies don't like spending money on ad tech. It's a fact. The last big acquisition by an agency was the 700 million dollar plus deal between 24/7 Media and WPP - and it hasn't really set the world alight. The one thing that makes this deal interesting is the buying muscle of WPP. If Xaxis was to make a move, the deal would not be in cash, it would probably be in buying commitments. A deal like this would likely annoy a lot of Yahoo's exisiting agency clients, but it is likely that Xaxis would sell any unused tier 2 Yahoo inventory to other trading desks anyway.

It is unlikely that any buy-side vendor, given the price tag, would enter the race for RMX. But then Yahoo might have to look at all options given the legal toxicity of a potential Google deal. The Admeld deal took nearly 18 months to clear DOJ approval. A Yahoo-Google hook up could easily be bogged down for years. Maybe this will be the impetus for a number of buy-side vendors to start talking to Yahoo! about what its plans are for its unwanted ad tech business unit.