PubMatic has made its excellent report, distributed to attendees of its Ad Revenue 2009 Conference on October 8, available to all. Beginning on book page 36/pdf page 39 and running more than 20 pages is “The 2nd Channel Ecosystem,” a special section that I researched and wrote.
AdRevenueReport_PubMatic
Originally published on Right Media Blog
http://www.rightmediablog.com/blog/2007/04/20/what-keeps-you-up-at-night/
What keeps you up at night?
By Bennett Zucker
April 20th, 2007
It’s a good question to try to answer now and then, especially if you like your zzzzzs but you’re heaving too many late-night ohhhhs.
Here’s a shot at what might be troubling you if you’re responsible for sales executives calling on agencies and advertisers for ad dollars. Brood on these for a bit and we’ll deliver some insomnia relief later.
1. Unsold and undersold inventory.
It’s 3:00am and you’re reliving yesterday’s heart-pounding snatching of defeat from the jaws of victory. There you are, proudly presenting your record-breaking performance at the quarterly review. You know things are heading the wrong way when the CEO and CFO glance knowingly at each other. It falls to the finance guy to call you out:
“Why the hell are we paying ad serving fees higher than the revenue we earned on more than half a billion ad deliveries?”
2. Sales productivity.
Toss, turn … Maybe assigning one full-time rep to sell excess inventory to ad networks wasn’t such a great move. The CFO wouldn’t have cared as much if we weren’t also paying sales commissions on those deals. But he has no idea how hard it is to keep salespeople.
They all want to sell the same easy deals on the home page and section fronts. They all sell the same targeting parameters, sponsorships and rich media slots. And they leave me with tons of available inventory they say only the networks will buy.
How can I keep all my salespeople focused on selling the value of my site and audience when I have all this leftover inventory to get rid of?
3. Operational inefficiency.
Toss, turn … Then the CEO wants to know why, with all this unsold inventory, we turned away a great new advertiser and underdelivered others. He asks what we’re doing wrong? The marketing guy was a big help, telling the CEO that he delivered the users and new inventory I asked for, so he’s clear of blame. I start telling them about high-frequency impressions nobody wants, but they tune out and move on.
I ask my ad ops group for recommendations. “How about firing any sales exec who sells inventory that’s already sold?” gets the most high-fives.
Toss, turn … 3:45am … Might as well get up and start working on the problem. But where to begin? We’re making the calls, winning awards, expanding the audience, creating new products.
We need better sales training in the basics, that’s for sure. This is advertising, people. Do we understand our prospects’ marketing objectives and what they want to accomplish with their online advertising? Are we making the match between that and the value of the audience we deliver?
As for the leftover inventory, is its value really different from what we are already selling successfully? Are there tools that can help us uncover the value, bring more potential buyers to the table, and get them on board easily?
What about these ad exchanges I keep hearing about? Maybe there’s something there. Can a couple hours sleep and a couple of phone calls fix what’s ailing me?
Earlier this year, Matt McAlister uploaded pages from the January 1998 prototype issue of The Industry Standard, the late, great, fattest magazine of Web Bubble 1.0. See the pages here
On this page, Michael Tchong worried about whether online advertising was flattening out when, toward the end of 1997, it was looking as if web advertising would not attain its first $1-billion dollar year after all:
“Although the industry had hopes of topping $1b in sales this year, it now looks like revenue may reach only $870 million. Are advertisers growing disillusioned with the benefits of Net advertising?”
The Standard, meanwhile, grew fat and happy, throwing legendary parties from rooftop to rooftop, coast to coast. At Real Media (later to become 24/7 Real Media) we contributed to the fun with 2-page magazine spreads and web ads that showed the little Real Media people jumping from a right-rail ad to the “attractor” banner at the top. Below are some I dug up for this little retrospective.
All the “action figures” in these ads were Real Media employees. We had fun doing the shoots and seeing ourselves in ads on bus shelters and billboards in New York and San Francisco in those good old dot-com days. Alas, the agencies we worked with – Mezzina, Brown in New York and Lot21 in San Francisco – are also gone. 
Several years ago I started a list of alternative terms for online ad inventory that I used in presentations when we first introduced the Right Media Exchange. It was part of a larger effort to persuade publishers to think about the importance of having a real strategy for non-premium inventory.
It was simple when the world of website ad inventory was divided between premium and non-premium. The language has evolved tortuously to fulfill the industry’s impulse to redefine anything simple so that it appears to be much more complex and, therefore, presumably, more valuable.
The online advertising ecosystem now includes ad exchanges and marketplaces, yield optimizers and creative optimizers, buy-side platforms and data exchanges, and numerous intermediaries who serve other intermediaries. Not content to feed from the existing language pool, each new organism in the ecosystem spawns its own new language, better to describe why it deserves greater prominence.
A notable coinage used by William Morrison and Robert Coolbrith of ThinkEquity in their excellent report, “The Opportunity in Non-Premium DisplayAdvertising,” inserts a new layer of website ad inventory called “secondary premium.” This strikes me as a rate card distinction, not some previously undiscovered form of inventory found living in the cracks between premium and non-premium. Here’s the ThinkEquity view:
By any name, there’s no denying that publishers are creating more and more inventory that they can’t monetize easily without a lot of help from networks, ad exchanges, and yield optimizers. One of the latter group, PubMatic. has introduced “2nd Channel,” which I believe nicely encompasses and describes anything that isn’t in the premium sales team’s sweet spot. (Disclosure: I’ve consulted for PubMatic.) Here’s the rest of the lineup, organized roughly according to the context in which the terms are typically used:
A non-premium display ad by any other name? 2nd Channel
This is pretty subjective, of course. I’d love to see a neat, descriptive term such as “2nd Channel” replace the mish-mash of differences without distinction represented by the list in the right-hand column. Keep it simple, and focus on the goals of improving user experience, advertiser performance, and publisher yield.
Nice post by Andrew Chen about the proliferation of ad networks and the surprising success of several that have sold for very high multiples. He summarizes it this way:
My overall lesson from all of this is that a lot of times, people view things as “winner take all” and sometimes it is that way – but in this case:
mature industry + real revenue + adjacent space heating up
= huge outcomes for everyone
I think this is true, but it’s probably cyclical and there’s bound to be a lot of consolidation ahead. True, thanks largely to MySpace, YouTube, Facebook, et al, total ad inventory available has skyrocketed. True, no single network or handful of networks can meet 100% of this growing demand. And true, multiple pricing models and targeting technologies help to make this a market for the multitudes.
But consider some of the pressures working against “huge outcomes for everyone.” Various estimates put the total number of operating online ad networks in the hundreds. Yahoo’s Right Media Exchange and nascent others can accommodate all of them – but only for as long as they contribute real value to the marketplace. Better targeting, better optimization, better something is required for establishing a niche, staying in business and succeeding.
Without the exchanges, there is almost literally no hope for dozens of these networks. Media buyers are humans, and they are in short supply as it is. There is simply no way for them to add another thirty phone calls and meetings to every day to give serious attention to every network that wants their business.
Ultimately, there can and will be “a number of” winners. That number will probably be closer to 20 than 200, however, due to basic Darwinian principles. Some reasons why this is so:
1. The largest contributors of inventory to ad networks already work with 10, 20, 30 or more networks. It’s a big, ugly, inefficient process in which networks pass ad impressions back and forth, up and down a daisy chain or waterfall, depending on your metaphoric predilections. As in a beauty contest, there can only be one true winner, and that’s the number one network in line. Ad impressions get stepped on many times, the way poppies get reduced to heroin and then to a street mix that’s cut time and again before it hits the “user.” (At last, an excuse to relate web users and drug users 
2. Conversely, the hundreds of ad networks are all selling the same media placements. They are all offering every known and quite a few imagined forms of targeting, but they all base their targeting decisions off the same limited data set – primarily context. This is true of contextual ad networks and of behavioral networks that rely on context to define behaviors or interests.
In the end, individual networks won’t win simply because inventory is growing and they’re bigger and badder in getting to the best of it first. Media placement, context-based targeting or some new spin on optimization don’t matter that much. With apologies to my publishing colleagues, that’s the commodity end of the business.
Advertisers need a better, more predictive and accurate data source to drive much more value through the media value chain.
Compared with a year ago, which are you buying (or selling) MORE frequently, LESS frequently, or about the SAME?
- ACTIONS? – such as cost per action, acquisition, click, lead, order, etc.
- AUDIENCE? – behavioral segments, demographic targets, etc.
Ask any buyer or seller and you’ll hear variations on familiar themes.
For example, an analytics director for an ad agency in London who is buying actions less frequently says there are simply “too many conversion attribution challenges and distractions.” On the other hand, this buyer finds that “data and targeting are getting damned interesting, and the results are justifying greater investments.”
Meantime a counterpart at a US agency says, “Actions are prominent for us because everything is an action – a visit to a website, even if they don’t click, can be tracked and measured. Clicks, obviously, are actions. Sweepstakes, call center (pay per call), orders, conversions, leads, etc. are always a part of my goals. That is how I plan. Not to an audience, but to an action – and who is most likely to perform that action. Not take an audience and then try to fit the action to the person. THAT is the difference between marketing offline and marketing online.”
Will actions prevail, or will audience? Or are the lines between branding goals and metrics and direct response blurring into the long-sought new entity – branded response?
Q: When does “sold out” mean “plenty of inventory available”?
A: Almost always.
Herein lies the dirty little secret that will continue to drive online ad prices down over time for all but a fraction of the highest value branded inventory. In February 2007, Right Media presented findings of an Insight Express survey conducted among about 100 small, medium and large publishers, with representation by directors, VPs and higher from sales, operations, administration, marketing and editorial.
This slide shows that, on average, only 52 percent of total inventory on respondent sites is sold by the site’s own sales staff. Another 25 percent goes straight to networks. Respondents also said they used more than one network, with 43 percent using four or more ad networks to monetize their inventory.
Download the deck here: How Publishers Think About, Manage & Monetize Non-Premium Inventory.