Buying high-quality digital ad inventory at scale is just a little less efficient and more hazardous than most of us would like, unfortunately. For a medium that has become the predominant destination for global consumers, and therefore the primary target for advertisers, it’s something we really need to solve for in order to ensure its ongoing vibrancy and profitability, writes Jason Barnes, Vice President of APAC, PubMatic.
Market forces: what to consider
Google and Facebook, and to a lesser extent companies like Twitter, have done a fantastic job of creating a global ecosystem with incredible reach, seamless trading across multiple platforms, (relative) brand safety, and vast data enrichment capabilities. Thus, they successfully attract a large – and growing – portion of global digital ad spend. Sir Martin Sorrell made this abundantly clear at WPP’s 3Q2016 analyst meeting, stating that WPP expected to spend at least USD$5bn (£4.1bn) on Google ads in 2016, up from the USD$4bn (£3.2bn) it spent on behalf of their clients across Google’s properties in 2015. And all this in addition to the USD$1bn (£830m) WPP spent with Facebook in 2015. Few traditional publishers across Asia see this sort of year-on-year revenue growth, which means that while digital advertising is growing rapidly globally, it’s the search and social behemoths that continue to take the majority of the upside.
Solutions: publishers are fighting back
There are a number of ways to fight back, and many publishers are doing so, although with varied success. Examples include traditional publishers integrating technology as a core part of their business by growing scale through acquisition of other media companies or submitting fully to the behemoths in the hope that they may be able to collect some of their table scraps.
Another approach that’s gaining traction is the publisher alliance, or coalition. This occurs when publishers band together to derive strength from unification. Alliances are springing up across the globe, from Canada to Sweden, France to New Zealand – with one of the most recent being J-PAD, which we launched in October with the Publisher Monetization Research Group (PMRG) in Japan.
Not all of the existing publisher alliances have been successful, however. With that in mind, let’s look at what is needed to succeed:
Scale: All buyers love scale; and most brands want to reach as large and targeted an audience as possible. Fragmentation of the media industry means that brands have to target myriad sites with different ad formats and varying data richness – all without the luxury of effective frequency capping or whitelisting. For an alliance to be a success, and remain competitive, it needs to have significant audience reach – say, more than 60% of the online population – as this is what Google and Facebook will be offering.
Brand safety: Buying media can be hazardous for brands. They target thousands of sites, and can’t always be 100% sure that their ad won’t land somewhere unsavoury. In order to succeed, alliances need to include respected brands that buyers want to target. An alliance between multitudes of middle tier sites with average brand quality is really no different than an ad network (a space with a very uncertain future!). For publishers, brand safety means they can control and restrict who has the privilege of accessing their inventory in order to help ensure that the quality of the ads on their sites matches their brand values and the quality of their content.
Efficiency: Alliances provide both publishers and advertisers with greater efficiencies. For publishers, having a centrally-managed inventory pool means that any additional resources required will be shared between alliance members, or, in some cases, by the technology partner (more on that later). There’s also the benefit of shared knowledge, allowing publishers with expertise in certain areas to assist others whilst also learning more about a variety of topics. For buyers, alliances provide the simplicity of a single bid enabling access to a large and appealing audience, with seamless whitelists, frequency capping, unified analytics and (ideally) shared and enriched audience data to target with. Simple, really!
Leverage: Perceived as a one-sided benefit, since buyers don’t like to pay more for inventory than they believe they should have to, or are used to, paying. The reality is that most publishers feel they are not being paid a fair market value for their inventory, as the creation of original quality content is expensive! The precarious financial situations of both The Guardian in the UK and the New York Times in the US – among the most respected media brands globally – are proof of this. If publishers can create scarcity through an alliance, they can charge buyers a higher price. Scarcity is key here; if a publisher also makes their inventory available through other exchanges and ad networks, then the buyer’s incentive to pay more through the alliance is diminished. I honestly believe that buyers don’t mind paying more if they believe they are getting good value; and for this reason publishers forming an alliance need to provide additional value – whether it be new audience segments, first-look access, domain-level transparency, or unique ad formats. The important thing to keep in mind is that a buyer asked to pay $5 this week for inventory they paid $1 for last week will, no doubt, be a little peeved.
If a group of premium publishers achieves all these factors it will have successfully created a strategic counterweight to the digital giants that are challenging their core business model – and, ultimately, the existence of their brands.
Ingredients for success
In any endeavour it is important for us to understand what it is we want to achieve. The reality, however, is that creating simplicity is surprisingly complex! So, what are the attributes required for an alliance to give itself the best possible chance of success?
A shared vision: This sounds simple enough, but while every company strives for profitability and creating customer delight, the way to get there can vary greatly. It’s important for companies in an alliance to define their shared goal and the path they plan to take to get there upfront. These can be as simple as revenue and yield goals, the types of sites allowed, how inventory is bundled, requirements for adding new publishers, and determining how the alliance will be governed. It’s important not to be too rigid, however, and to ensure these metrics allow for collaborative behaviour.
Commitment and patience: Publishers with a wait-and-see attitude, that aren’t ready to commit fully, are not ideal partners. The decision to form an alliance should be a fundamental part of a publisher’s corporate strategy and, therefore, have a long-term view. The ideal outcome is a shift in the dynamics of the media industry – a goal that will never be realised in the short term. Showing commitment is key, and all participants should signal their intent, either by guaranteeing large volumes of quality inventory, providing people, skills and expertise, or monetary investment such as marketing costs or management salaries. Whilst managing alliance partners is critical, ensuring internal stakeholders in your company maintain commitment and alignment can be equally challenging – and fundamental to success.
Structure: The two most obvious structures for an alliance are a joint venture or a strategic partnership, which may or may not be contractual. No single model will work in every situation, and determining the appropriate one depends on the situation and players involved. A joint venture shows strong commitment because a legal entity is created, implying an ownership structure, shared IP, formalised management and governance obligations based on the country’s laws. The downside is that it can be complicated, expensive and/or difficult to expand or exit. Alternatively, publishers that have a common technology partner can make bundled inventory available simply through a multi-publisher Deal ID without requiring contracts.
Technology partner: The success or failure of an alliance isn’t necessarily a question of the right ‘technology’, but of the right ‘technology partner’. This partner should have a global presence – ideally with a good reputation, must have sufficient integrations in the market in order to ensure maximum buyer participation, and should have multiple buying options such as OpenRTB, private marketplace (PMP), PMP-guaranteed and automated guaranteed across all channels and ad format. These are minimum requirements to ensure that buyers can buy how they choose to. The technology partner’s positioning and strategy should also be considered. Publishers need to confirm the impartiality of the technology partner involved so they can be confident that their best interests are at heart. Typically, technology players that own their own media, or only offer products to the demand side, don’t put the publisher first. Finally, a tech partner with a consultative approach that’s willing to dedicate resources, if necessary, that can also offer meaningful advice will be a true valued partner.
To summarise, there are a number of elements to consider before you choose to invest in an alliance – from environmental factors to structure and developing the right working relationships. For those who pull it off, we have evidence that the rewards are substantial and real value can be created for both publishers and buyers. The result is no less than an ongoing vibrant and open digital media industry.