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May 27, 2015 1:39:00 PM

Avoiding another RTB Unicorn

 Part 2 of a series on programmatic market transparency.

In part 1 of this series, we outlined the three conditions that we see as necessities for the programmatic marketplace to remain in balance for years to come. For a refresher, here are those conditions:

  • Data needs to equally feed buying and selling. Buyers and sellers alike must be able to access and leverage the right data to guide good decision making and accurate valuation of each user  -- especially as the user (not devices or sites) has secured its position as the key driver to all online advertising.
  • The use of technology must be balanced. Until recently, the buy side has had an overwhelming advantage in technology (and as a result, it's use of data). The resulting imbalance in insights and pricing has left sellers lacking confidence and unwilling to commit the brand-quality inventory buyers crave to programmatic.
  • The extraneous margin-eating tolls that stand between buyer and seller must be removed from programmatic transactions. These tolls prevent sellers from capturing the true value of their inventory, maintaining sustainable businesses, and they reduce performance of buyer investments.

Now let's look at the first condition and how it improves with equivalent transparency between buyer and seller.

Transparency facilitates data-driven buying and selling:
When buyers and sellers have access to the right information at the right time, they can not only optimize individual impression auctions, but also build long-term relationships over programmatic pipes that benefit both seller (long-term revenue stream) and buyer (quality & predictability). Just as buyers seek transparency from sellers to maximize ROI, sellers must have transparency from buyers and exchanges to obtain optimal outcomes.

The goal here is optimal commerce for both sides to insure the long-term health of the ecosystem. This is not an “us” vs “them” world. Without collaboration, buyers will only have Google and Facebook left to buy from because sellers won’t be around much longer if they don’t know the value of their users. As Ben Thompson of Stratechery nicely states:

"ad inventory is ever-increasing, which means the rates for an undifferentiated ad spot are ever-decreasing; the best way to combat that trend is through better ads, better placement, better targeting, and better measurement." Read more here

As we all know, if both sides are trading on good information, there is a much higher likelihood of achieving the "betters" stated above. The condition of buyers bidding anonymously is a recent and temporary phenomena brought about by exploiting "seams". The problem is that programmatic buyers have possessed all the power, particularly in performance oriented deals, and some are growing addicted. Until RTB came along, sellers have largely always known who buyers were...insertion orders required it.  But they not only knew who the buyers were, they knew the interested parties (think bidders), this allowed them to assess demand and inventory value. Importantly, buyers also knew how much they were paying and who was getting the money. Yes, there was some noise in the numbers (ad-serving fees, etc.), but the majority of the buy was going to the seller. While overhead of IO’s is unsustainable, the needs of the different parties for information exchange remains. 

The RocketFuel flame-out teaches us much about what happens when there is complete imbalance of information. Recently, buyers and sellers got smart about data (reducing the imbalance). Publishers grew aware of exploitative buying against their inventory and agencies and brands grew aware (and angry!) of the exorbitant rates they were being charged (debunked with data analysis). The RocketFuel model relied on information asymmetry. It was good while it lasted, but wasn't sustainable.

When you look at any mature and liquid marketplace (Wall Street comes to mind) you realize that effective marketplaces can't persist over the long term without information symmetry (or something closer to it). We are now at a point in our market’s maturity where equal transparency is again a requirement, otherwise the "better ads" mentioned become another RTB Unicorn.

Topics: Programmatic, RTB, Digital Publisher, transparency, adtech

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