Now & Next: Private Marketplaces

Now & Next is a new feature from ExchangeWire Research. In Now & Next, we review the latest research, provide impartial insight and analysis of current trends and provide predictions for the future of advertising and marketing technology. This feature focuses on private marketplaces.

Private marketplaces: the future of premium inventory

Global digital advertising spend reached USD$545.4bn in 2014, with the prediction that this will rise 21.5% to USD$662.73bn in 2018, according to figures from eMarketer. In 2014, 45% of advertising inventory was traded programmatically in the UK (IAB), bringing increasing efficiency to the trading process. Just over a third (35%) of publishers currently trade premium inventory programmatically, according to research from OpenX.

Despite nearly half (45%) of advertising inventory being traded programmatically, the majority (65%) of premium inventory is sold directly by publishers (OpenX). This is primarily because direct trading gives publishers more control over pricing and who buys their inventory, compared to selling in an open auction. Private marketplaces offer publishers all the benefits of trading programmatically, and give publishers control over who purchases their inventory.

The rise of the private marketplace

The use of private marketplaces has grown 112% year-on-year, and now accounts for 40% of all transactions for SpotXchange. Figures from the IAB show CPMs from private marketplaces are 242% higher than those in open markets. In the US, ad spend in private marketplaces is set to grow 30.9% year-on-year to USD$3bn in 2016, accounting for 28% of RTB digital ad spend (eMarketer). Private marketplaces were created to combat publishers’ concerns about trading in open RTB.

In Q3 2015, 12% percent of global spend was transacted through private marketplaces, up from 11% in Q2 (Index Exchange). The number of global PMP impressions rose 17% from Q2, to Q3, with UK PMP spend increasing 230% in this quarter (Index Exchange). Brand spend accounted for 87% of private marketplace spend in Q2 2015, according to figures from MoPub.  

Within open exchanges, carefully created whitelists are used by marketers to ensure that impressions are purchased from a select list of preferred domains. However, due to the number of times inventory can be traded within an open exchange, there is no guarantee that inventory purchased will be of high quality on the target domain. Private marketplaces allow publishers to purchase directly from a publisher, ensuring that impressions are purchased and displayed on the selected domain.

Inside the private marketplace

Setting up a PMP involves brands and publishers talking directly with each other to agree on a fixed price bid in the PMP. Once pricing is established, the publisher must create a deal ID (a system-generated number that is uniquely assigned to each preferred deal) which is then used to identify the deal between the buyer and the publisher.

The use of Deal IDs allows publishers to manipulate floor prices for individual buyers, providing prefered buyers with lower floor prices. Once the Deal ID has been created, the buyer must then go into the DSP, retrieve the deal ID number and place it within their SSP.

Although the rules within a PMP vary from publisher to publisher, there is a hierarchy that plays out across PMPs. Agencies with vast purchasing power can be offered preferred status within the PMP, which entails agencies agreeing a single bid price for impressions for a set period of time. If a preferred buyer bids on an impression, they will win the impression at the agreed fixed price, even if the impression could have gained a higher price in an open auction.

If a preferred buyer doesn’t bid on an impression, it is then passed on to buyers who have agreed to ‘first-look’ terms with a publisher. Each buyer that has a first-look agreement with the publisher will have also agreed to a set bid price, if they bid for an impression this is the price which they will pay for it.

If preferred buyers, and buyers who have first-look terms with a publisher pass over an impression, the impression is then passed onto the private auction within the PMP and will be sold to the highest bidder. If an impression does not gain any bids within a PMP it can then be released into an open auction.

Benefits of using a private marketplace

For both buyers and sellers, private marketplaces offer a wide array of benefits. Firstly, they allow buyers to purchase premium inventory that is not available via open exchanges. Private marketplaces allow publishers to use their first-party data, within the confines of a walled garden, thus the data is within their control. The inclusion of this data leads to higher prices for the publisher, with PMP average clearing prices in the UK 85% higher than in open marketplaces, according to data supplied to ExchangeWire by IndexExchange.

Private marketplaces allow buyers to develop a relationship with publishers, allowing them to be prescriptive in their definition of a viewable impression, correct ad placement and define what qualifies as a payable impression.

Publishers using private marketplaces saw a 93% higher revenue increase - from Q1 to Q2, 2015 - than those using open exchanges (MoPub), demonstrating how personal relationships can be scaled up using a PMP programmatic framework.  

Within open exchanges, publishers have to sell to the highest bidder, regardless of the quality of the ad, and the effect that this may have on the consumer experience. Private marketplaces allow publishers to invite only selected advertisers into the auction, protecting the inventory from unwanted bid wins. Private marketplaces also allow publishers more control over the pricing of their inventory.

The future of private marketplaces

Private marketplaces have seen substantial growth in 2015, driven by the limitations of open RTB. In 2015, PMPs saw triple-digit impression growth from Q2 to Q3 (230%), with double-digit growth predicted from Q3 to Q4 by Index Exchange. Private marketplaces will continue to see strong growth in 2016, as publishers seek to gain the best possible price for impressions.

Private marketplaces are beneficial for both publishers and agencies as they provide more perceived control over pricing for publishers, and more control over inventory quality for agencies. Currently, PMPs vary greatly from publisher to publisher; however, with increasing numbers of publishers offering premium inventory via PMPs, the process to setting up an agreement is set to become more streamlined.

In the UK, in 2015, just 1% of ad spend was allocated through PMPs, compared to 12% in the US (Index Exchange). The UK, has seen high quarter-on-quarter growth in PMP ad spend throughout 2015, and this is predicted to continue throughout 2016.