The Three Things You Need to Know About “The State of the Sell Side” and What to Do About Them

Last week at AdExchanger’s Programmatic I/O conference, Catherine Oddenino of AdExchanger Research presented the results of a survey she fielded to hundreds of digital publishers.

The topic of the survey was “The State of Programmatic Selling” and sought to determine the specific challenges, benefits, attitudes, and approaches to programmatic selling in 2015. The topic was timely as ever – publishers have entered a new phase and are arduously working to innovate and improve their programmatic processes, offerings and advantages.

Frankly, programmatic hasn’t always been easy for (or on) publishers. In the ad network days, publishers’ remnant inventory was sold off cheaply and ad networks scraped the frosting from the sale, yielding publishers very little insight into demand and very little revenue. But demand was different then. Demand simply wasn’t as hungry for programmatic deals.

Today, the buy side is ravenous for a wide spectrum of very specific types of programmatic placement (e.g. viewable, guaranteed, data layered) and is willing to pay premiums to reach these audiences. What’s more, publishers now realize they are in a position to deliver real ROI to advertisers, and advertisers are eager to reach and connect with publishers’ precious audiences. Competition for the good stuff is significant. I believe that the programmatic power balance is tipping back to the publishers’ side.

This isn’t to say publishers can sit back and relax. Quite the opposite. It is still as incumbent as ever upon publishers to attract demand – by nature, there can never be sustainable demand without attractive supply. In order to determine how publishers can maintain their edge, let’s take a look at Oddenino’s high-level findings and compare them to Index Exchange marketplace data.

Finding #1: The open exchange is not dead.

This one is important for a number of reasons. The open exchange was slammed last year for serving as a haven for bot-ridden sites, which made big advertisers anxious and confirmed some of their initial reservations towards programmatic.

As a result, these significant spenders explored private deals, but the way most private deals are set up today make it difficult for the big brands to achieve scale in their media buys. So, we’re in a position right now where the open exchange is a crucial market for small advertisers without connections to premium publishers, and for big advertisers that need scale to make use of their massive budgets.

Index Exchange Marketplace Observations:
After much prophesying last year about the imminent doom of the open exchange, we see that open programmatic trading in the US market is very much alive and sees significant spend quarter over quarter. [i]

It is true, however, that those numbers are shrinking, albeit slowly. In Q2 2015 91% of Index Exchange US marketplace spend was traded in the open exchange while in Q3 2015 that number shrunk slightly to 90%. Interestingly, the numbers are completely different in Canada where 40% of spend is transacted through private marketplaces.

Index Recommendations:
There are concerns in the industry about inventory quality and the health of open markets, but the data show the open exchange of programmatic media is a type of trading that isn’t going away anytime soon. Advertisers and publishers both need it. However, we think industry participants should embrace the following practices:

  • All programmatic marketplaces must raise the barrier to entry to the open exchange.
  • Exchange must thoroughly screen any publisher that applies to sell in its marketplace.
  • Advertisers should determine which exchanges the long tail publishers they’ve bought from work with and how stringent those exchanges’ policies are for admittance.

The open exchange will continue as a source of ad revenue for premium publishers and mid-sized publishers alike. Over time, we expect to see growth in the private marketplace channel (especially for the premium publishers who can command significant programmatic spend from large advertisers), but it’s still a necessary market for publishers to garner revenue today.

Finding #2: Big advertisers love private marketplaces.

Over the past year, private marketplaces have grown in popularity as publishers use them to sell premium inventory in controlled environments. They provide publishers and buyers more control and yield publishers higher CPMs than the open market.

Oddenino suggests that big advertisers gravitate toward private marketplaces to wield their larger programmatic budgets in premium environments. But for smaller advertisers, they’re less accessible and less attractive.

Index Exchange Market Observations:
Our marketplace data confirms that big advertisers do spend significantly within private marketplaces, which shouldn’t come as much of a surprise. The top ten private spenders within the Index marketplace in Q3 2015 were Unilever, SlingTV, Target, Kimberly-Clark, eBay, Allstate, Kellogg’s, Ally Financial, and American Express.

With the exception of SlingTV, these brands are household names. A handful of these top private spenders have also made headlines for their programmatic maturity.

However, in Q3 2015, 6,343 deal IDs were used to transact programmatically in Index Exchange. This means that although big brands are responsible for a significant portion of private marketplace revenue, long tail advertisers participate in private marketplaces too, and it’s not just a boy’s club for the big brands. Long tail advertisers do have access to private deals and leverage them in similar ways to the big advertisers, just on a smaller scale.

Index Recommendations: Publishers who are concerned about shrinking open exchange revenue and don’t have much access to private demand should consider banding with similarly sized publishers to sell in private conglomerates.

This trend is common in younger programmatic markets where publishers want to provide enough value to demand partners, but might not have enough inventory to sustain private marketplaces of their own. For example, the Canadian Premium Audience Exchange coalesced in order to provide 40 agency and brand buyers access to a host of premium inventory from the largest publishers in the market.

What this burgeoning trend confirms is that interaction and cooperation between competitive entities is critical for the continued growth of the programmatic market.

Finding #3: Vendor complexity is going to get worse before it gets better.

No programmatic conference is complete without a few references to the insanely cluttered vendor landscape in which we’re all working. Oddenino shared this perspective from her research and posited that vendor complexity is still on the climb.

She believes that most publishers are now working with multiple partners as a means to increase revenue. We believe that vendor complexity is indeed a concern for publishers wading into the programmatic world, but publishers who have embraced a part-programmatic sales strategy for some time now are actually becoming one-exchange partner houses.

Index Exchange Market Observations:
Publishers have been slower to find their programmatic autonomy. For years they were very much beholden to buyers’ needs and strategies. They also struggled to realize success from the programmatic channel, so they relied on myriad partners to sell in a spray-and-pray type way.

Today, publishers exert more control over the sales process and recent programmatic innovations have given them back some power. Publishers are more sophisticated programmatically, which has affected the way they consider, elect, and work with their technology partners.

Index Recommendations:
Publishers should consider changes to their ad stack in addition to incremental improvements. For example, in the last six months, a number of publishers have integrated with Index Exchange through a header tag. Between Q2 2015 and Q3 2015 the amount of spend through header-tag based auctions grew 15%.

Publishers have embraced header tag programmatic integrations for a number of reasons, including decreased latency, improved visibility for buyers of publisher inventory, and reduced technical complexity in how auctions are run. Most publishers would tell you the biggest benefit is increased yield, which is accurate: during Q3 2015 header tag CPMs outperformed non-header CPMs by 42% in private marketplaces and 154% on the open market.

As more publishers integrate with their exchange partners through a header tag, the process and new set up will highlight and deepen the major differences between exchanges. Implementing a header-tag requires a good deal of heavy lifting from web development, which some, but not all, exchanges will help significantly with.

Header tag requires a level of closeness between exchange and publisher, which isn’t necessary in tag-based environments. Also, performance differences between exchanges emerge when integrated in the header. Exchange partners compete side-by-side and are not influenced by the price floors that are common in a waterfall setup.

So, while vendor complexity may worsen for publishers in the near time, header tag is catalyzing a survival of the fittest moment for ad tech providers, which will shrink the ecosystem over time.

[i] For more data on the Index Exchange marketplace, contact us for a copy of the most recent Index Exchange Quarterly report.

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