Rethinking Holistic Revenue Optimization: Stop Tweaking, Start Transforming

jaywrightThe Sell Sider” is a column written by the sell side of the digital media community.

Today’s column is written by Jay Wright, an executive at Infinitive.

Holistic yield management and revenue optimization have been hot topics du jour in digital advertising.

Everyone’s talking about them on the sell side, and there’s a sense of excitement because some publishers have found decent revenue gains in a few targeted areas. For instance, many publishers have generated millions of dollars in revenue by programmatically selling the relatively low-value inventory that previously went to waste.

That’s all to the good, of course, but I’m not sure it’s really revenue optimization. Publishers are merely focusing on improving the small percentage of revenue that typically comes from remnant. To some degree, this is about semantics. Many times when people talk about holistic yield management, they are usually talking exclusively about moving RTB or programmatic up the priority chain for selling more than just remnant inventory, which may even include header bidding.

It’s true all of these are ways publishers can squeeze a bit more revenue out of their inventories. But to my mind this is hardly holistic in the sense of balancing competing objectives and having clearly defined long-term goals. And while they might improve revenue at the margins, current efforts certainly don’t optimize long-term revenue streams or address the largest potential growth opportunities.

So the question becomes, how do publishers expand their efforts to seek revenue gains of 30% or more?

The fact that truly holistic revenue optimization requires addressing formidable challenges helps explain why few publishers are doing it. Better metric definition, improved product design, clearer waterfall priorities and stronger strategic alignment across the entire organization are the steps that can make a real long-term difference.

A Stubborn Focus On Revenue

It is telling that “revenue” is the most pervasive metric in all of digital advertising, as if one giant number should guide all activities. Of course, increasing revenue drives every businesses goal, but it makes for a lousy KPI. If more is always better, it’s not an optimization exercise. It assumes that more sales always lead to more revenue or higher profits.

The reality is that the right pricing models could actually mean that fewer sales produce more – and more profitable – revenue. Similarly, fewer ads on the page may result in higher revenue when pricing strategies are optimized and it leads to users consuming more content. A clear understanding of the constraints involved and a system to measure and manage them is critical to moving past the “more is always more” conventional wisdom in our sector.

When choosing the right KPIs, organizations must define the right denominator, one that is aligned to constraints or revenue drivers, rather than only revenue. The airline industry’s relentless focus on revenue per passenger mile is a good example. The airlines’ objective is not to sell every seat no matter what, but rather to maximize revenue for each flight, based on a clear understanding of the trade-offs of price and sell-through. Accordingly, a sold-out flight will sometimes be the best way to maximize revenue; in other cases, a half-full but more expensive flight might do the trick.

Consider The Trade-Offs

In the digital ad space, the focus should be on maximizing yield, not on simply selling more ads or pursuing larger deals. The KPI might be revenue per page views, user sessions or another metric. The key point is to choose one that can be used to evaluate the trade-offs.

Defining ad sales strategies based on clear priority waterfalls is a crucial step in the revenue optimization process. It is important because every ad sold on a property comes with an opportunity cost of another ad that might have been placed there. Thus, publishers must assess the value of each sale in terms of yield. For instance, careful analysis may find that sponsorships may not boost yields, even if they might be worth selling for other reasons.

In general, the highest-yielding products should be moved up the waterfall, with the lowest-yielding products moved down. This might sound like common sense, yet many publishers never evaluate which products have the highest yield. This should be evaluated regularly since significant change may occur over the course of a year or more. Waterfall prioritization is not a “set-it-and-forget-it” situation.

Don’t Forget The User Experience

Sales strategies must also take into account the intersection of content and product strategies with the user experience. It is important to remember that content is the reason publishers can sell advertising. Ad placements that users find intrusive may lead them to consume less content, which can lead to a decrease in available ads. Here again, less may be more. The question essentially boils down to whether the incremental revenue gains of placing a few more ads on a page, most of which will be sold at deep discounts or perhaps not meet viewability standards, are worth the cost to user experience (UX), including page load times, higher abandonment rates and fewer pages consumed per session.

To find the optimal balance, publishers should consider enhancing current A/B testing procedures to include revenue generation metrics, as opposed to simply measuring click-through rates. Better user profiling could also inform design and UX decisions in ways that balance revenue and engagement metrics.

Even organizations that define the content and products that drive quality revenue must rally others around that vision. This organizational alignment may be the hardest part of holistic revenue optimizations. Given new metrics, strategies and waterfall priorities, salespeople must understand why some sales may not be worth making and incentivized accordingly.

Further, there must be a plan to mitigate sales channel conflict among RTB, programmatic, remnant, partner and any other channels where publishers are trying to monetize content. Leadership teams must be prepared to establish governance on the rate card – with clear policies and parameters that everybody in the sales organization agrees to live by. Editorial and design teams must develop the content and experiences that the most valuable users are looking for and which justify the optimal ad prices.

Again, the organizational and strategic work is not easy. That’s why some organizations are satisfied with the revenue uptick that comes from selling remnant through programmatic channels or header bidding. It can be executed by a small team of people empowered to make small-scale changes that largely don’t challenge any broader organizational barriers. But such work is essential as it sets the stage for breakthrough gains in both margin and revenue.

Publishers should not overlook any incremental gains in generating revenue. Done right, programmatic, header bidding, private exchanges and the like can certainly add up to large gains. But that could be simply scratching the surface for true optimization or a holistic approach. Unfortunately, in many organizations “yield” means trying to get paid for the leftovers after direct sales, and “optimization” equates to shifting around delivery goals so existing sales deliver in full.

There is much more valuable fruit to be captured further up the tree, but only if publishing and digital media organizations are prepared for the hard work of climbing up to reach it. This is important work that must be addressed strategically because getting it right is essential to the business.

Follow Infinitive (@InfinitiveRocks) and AdExchanger (@adexchanger) on Twitter.

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