My discomfort with programmatic is driven by its similarities with the business model of legacy ad networks. The former was built on the premise of mistruths and arbitraging.
By definition, arbitraging means someone is overpaying, someone else is underpaid, and the guy in the middle is overselling. Ad networks did this by using premium publisher logos to sell ad buys and then used garbage inventory from inferior Web sites to fulfill them.
Programmatic open exchanges operate under a similar premise (but with auction pricing). Every exchange claims to have “premium sites” — but on a percentage basis, premium publisher ad impressions make up a sliver of a fraction of the overall impressions bought. I don’t care how much data lipstick is applied, when an ad shows up in muddy waters, the value of the impression made with a consumer is murky.
Conversely, a high percentage of the ad creative that runs through open exchanges is like cheap suits. These ads bring down the value of the premium sites that wear them. So this lipstick-on-a-pig problem goes both ways.
In 2006, I wrote an article aimed at premium publishers titled “Just Say No To Ad Networks.” I still believe that today, and would apply it to open exchange revenue.
Private marketplaces and programmatic direct (or reserved) elevate this conversation and keep the mud out. This programmatic sub-segment, however, makes up a relatively small amount of the programmatic buying growth reported, but could move closer toward its potential if premium publishers agree to participate.
Premium publisher participation in any of these forms of programmatic is driven by an ongoing problem plaguing them: excessive amounts of inventory. If publishers didn’t have this problem, programmatic wouldn’t be a solution.
If, as a premium publisher, 80% of your inventory is sold direct, you are passing on programmatic offers the way VCs pass on most investment opportunities. If 80% of your inventory is unsold, you are grabbing whatever deals you can get your hands on.
Even with viewability and bot traffic accounted for, excess inventory will continue to be a problem, so premium publishers will have to decide which programmatic game to play.
The best thing a premium publisher can do is be in a position with programmatic of taking it or leaving it.
So how to do that? By increasing direct sales sell-through of ad inventory at higher CPMs.
Impossible in this marketplace, you say? Not really, you just have to sell against conventional wisdom.
Premium publishers can increase sell-through at higher CPMs if they sell their most valuable ad products to advertisers directly, and for free.
Pre-roll ads: free.
Podcast audio ads: free.
Native/branded content: free.
Sponsored content sections: free.
Social amplification: free.
Creative services: free.
The catch: These low-supply, high-demand products are free only when X number of ad impressions at Y price is purchased.
I have always believed in this strategy of taking the most valuable asset you are selling to advertisers, and making them buy ad impressions to get it. That way I sell more of what I have the most of, and lose nothing in the process, because my high valued items are still driving revenue.
The fear of “Why buy the cow if the milk is free?” is unfounded here. This is more akin to Starbucks selling a whole lot of coffee by giving entrepreneurs a free place to work with a great Internet connection. The more customers rely on the free work space, the more coffee they buy — and prices can continue to rise for a black cup of commodity.
Until another pricing metric takes hold, premium publishers are saddled in the ad impression sales business. They have to continue to try new ways to increase sell-through of the impressions they sell direct. It’s the key factor in how well they make out playing the programmatic game.
by Ari Rosenberg, Featured Contributor
Ari Rosenberg, Founder, Performance Pricing Holdings, LLC
Courtesy of mediapost