Behind The Velvet Rope: Private Marketplaces Suffer Growing Pains

private complaintsThere’s a long line outside the club – but once you get past the bouncer, there’s no one to dance with.

Problems of supply and access have plagued private exchanges even as they grow increasingly popular. There are many reasons for this: Those who want to transact privately using programmatic "pipes" may find little to buy. The technology to access them can be finicky. And some advertisers are experiencing sticker shock when they see the difference in CPMs between these new channels and what they once paid in open exchanges.

“In theory, private marketplaces are great,” said a trading desk specialist for an agency who asked not to be named because he had not received approval to speak. “They offer access to premium inventory but with the benefits of programmatic. But when it comes to execution, it's a laborious process and the technology is still developing.”

Despite the hassle, most of those AdExchanger spoke to expect a greater share of inventory to be transacted privately. As that increases, some of the growing pains should ease.

Both buyers and sellers have expressed interest in growing private deals, which include both programmatic-direct and private marketplaces. These types of direct-to-site deals offer brand safety and other quality assurances for buyers, and higher CPMs for sellers.

Marketers surveyed by AdExchanger Research hope to spend half their digital media budgets on programmatic guaranteed and private marketplaces in the next 12 months. On the buy side, GroupM’s Ari Bluman has gone so far as to say that all inventory should be transacted privately a year from now.

But in the meantime, the industry has struggled to get over hurdles related to the lack of scale in the marketplace.

Lack Of Inventory

Seeding supply in the private marketplace environment is still a work in progress.

“There’s very little scale to these private exchanges still. It’s really hard to deliver substantial budgets against them, compared to the scale on the open exchanges,” said Eric Bosco, CEO of the full-service DSP ChoiceStream.

“People were so excited when [private marketplaces] came out,” said Ryan McConville, SVP of business development at mobile platform Kargo. “But the Deal IDs don’t work. Agencies buy one out of 20 impressions. The big publishers are getting frustrated that these direct Deal IDs are wasting inventory and not making things more efficient.”

Part of that stems from advertisers cherry-picking inventory from within the private environment.

“If there’s a CPM of $9, and you only want to cherry pick from the top 10% of the publisher’s audience, then it shouldn’t be $9 anymore. You need to bid higher to get that 10% and have a stronger chance of winning that more limited target pool,” said Matt Prohaska, CEO and principal of Prohaska Consulting.

The buy side is aware that accepting a small percentage of impressions can jeopardize private marketplaces.

“If you set your bids too low, the publisher will see you are passing on too many impressions and will cut you out of the marketplace,” said a specialist on a trading desk.

But bids may be low because of an advertiser’s KPIs.

“You are constantly walking a fine line between balancing publisher and client expectations,” the trading desk specialist continued. “The pricing is tricky because some publisher still demand rates akin to direct buys and you also have to set up bids that clear the price floor.”

Even at AOL, a gigantic publisher and technology platform, intense targeting can winnow away inventory.

“If you want to do a run-of-network private marketplace deal with a large-scale publisher, you should be able to get an appreciable amount of inventory. But if you want to remarket, geotarget, frequency cap and daypart, you could take 5 million impressions and end up with 50,000,” said Doug Boccia, SVP of revenue and strategy for Advertising.com, which sells nonreserved inventory for AOL properties as well as across a broader network.

Highly targeted campaigns in private marketplaces often don’t perform well. Not being able to scale a campaign hurts KPIs, said the trading desk specialist.

The Publisher’s Stake

Private deals are supposed to give publishers better CPMs than they get in open exchanges. But they still have lower priority than direct deals negotiated and transacted using the old methods. And if an advertiser doesn’t buy impressions set aside for it, the deals waste time and reduce competition in the open exchange.

Because private marketplaces aren’t as profitable for publishers as direct buys, they’re not eager to spread word when they’re a success. “We can have a high win rate on a premium publisher, and frankly, we’re not allowed to talk about it,” said Louis Moynihan, VP of business development at Demandbase.

Demandbase, a B2B marketing automation company, purchases inventory on behalf of its advertisers, who often leverage display advertising to shorten long enterprise sales cycles. Moynihan has found private exchanges perform well for his clients, but he can’t get enough scale.

“At the end of the quarter, the inventory goes down as publishers are selling through their own sales force and taking RTB off the table.” said Moynihan. “I’m more than willing to compete with them. I’m offering to outbid them, and internally they won’t let me.”

Even with these troubles finding publisher inventory, Demandbase has seen private/preferred deals go from 1% of total spend in Q3 2013 to 30% of total spend now. Impression levels have gone from 4% to 16% in the same time frame, “which proves we are willing to pay more for them too,” Moynihan said.

While not as lucrative as "hand-sold" deals, private deals may be a way for publishers to gain back some leverage. Exchanges, with their second price option rule, keep prices down, not up. A publisher on the open exchange who received a $1 CPM bid and a $10 CPM bid receives just $1.01 from the highest bidder. Private exchanges have higher floor prices designed to bring up those minimums.

Bringing reliable supply into the private marketplace is one way to have private marketplaces succeed.

“They need to get [advertisers] into the fold on a flat CPM, and then give them value and predictability and volume,” Monynihan said. “Once [publishers] have an economy of multiple advertisers, then you can start pushing rates on them, because you’re proving to them that you have above-the-fold placements, viewability, etc.”

The trend of publishers leveraging their first-party data could improve private marketplaces, giving advertisers more than just retargeting data to act on.

“Part of this [problem of lack of inventory] stems from the fact that the majority of exchanges are used for direct-response purposes, and the No. 1 tactic is retargeting,” Prohaska said. “When you’re only looking at the bottom of the sales funnel, there aren’t 20 million people doing that. You need to be able to find the inventory,” through better exchange and leveraging of data.

Private Marketplaces Are A Brand Play, Not A Performance Play

Open exchanges were colonized by direct-response clients who needed low CPMs in order to meet ROI goals.

But those same advertisers, dabbling in private marketplaces, have found that the math doesn’t add up. Sure, there’s site transparency, but “publishers feel they’re worth a price point that from a performance ROI doesn’t make sense,” Bosco said.

Private marketplaces are best suited to advertisers who aren’t driving such hard acquisition goals. The high CPMs in private marketplaces make it difficult for those brands to make their campaign goals, even if the quality is higher.

For private exchanges to work, they have to find business not from open exchange buyers, but from those interested in brand awareness campaigns and with softer KPIs.

Brands are already proving themselves willing to play in private marketplaces because they combine the efficiency of programmatic with brand safety and high-quality contextual placement.

“Our client base is not as concerned with CTR, but total engagement,” said Moynihan, of Demandbase. “And it’s not about price, it’s about getting the right targets to website. That’s more brand buying than direct-response buying.”

Knowing where their brand dollars are going may make advertisers smarter about how to place them. “Trading desks are going to start using the RTB technology to create brand-like KPIs, and scale the revenue into it, which will then allow them to buy more private deals,” he predicted.

It Takes More Time

Open exchanges allow advertisers to buy across a wide range of sites without having to work with an ad network or generate an IO for each of the thousands of sites their ads might appear on. Private deals are a step backward into that world.

Private marketplaces and programmatic-direct require striking terms with each publisher all over again, moving backwards into the world of dozens of time-consuming, one-to-one relationships.

While open exchanges are almost democratic, private deals create obstacles that favor the heavy hitters, such as global holding company trading desks, that have the time and clout to scale Deal ID and wire up hundreds or thousands of private networks.

As a result, brands looking for an agency may be swayed by knowing the agency has already done the legwork to establish preferred relationships with major publishers. Or brands may be deterred from bringing programmatic buying "in-house."

Selling through private exchanges requires more work on the part of the publisher, too. “Publishers think they can put their inventory on the shelf and it will sell itself. You have to do work to let people know,” Prohaska said.

The Ad Tech Problem

There are software bugs, and then there’s a lack of investment. Private exchanges suffer from both.

The launch of Google Direct Deal, “the most forward-thinking private exchange at the time,” according to Moynihan, was “riddled with bugs." Since January, it’s been working fine, he said, and today can scale without a problem.

Worse than bugs is a lack of investment altogether.

For technology companies, it’s a chicken-and-egg question. Investing in technology that few people use doesn’t pay off, but the reason few use it may be that the technology is immature. Once upon a time, a “lot of DSPs wouldn’t touch this with a 10-foot pole. Now they’re all doing it, seemingly, and I’m calling foul on it,” Moynihan said.

A lack of knowledge can make it hard to figure out whether a problem is caused by glitches or human error. Prohaska recalled overseeing the launch of a private marketplace for a large publisher. His team first blamed technology when a campaign dramatically underpaced, delivering just $16 on its first day.

Thirteen people worked to figure out why the platform was only bidding on a small fraction of impressions. As it turned out, the agency had added in a targeting overlay at the last minute, making it impossible to fulfill on the campaign. As frustrating as these experiences are for early adopters, as more people do private deals, such complicated rollouts will decrease.

DealID, which is the key that lets an advertiser unlock special inventory and pricing, has also been prone to technology issues.

Issues with accessing inventory at scale can come down to “a publisher-by-publisher scenario. It might have to do with how publishers cascade or waterfall, the platforms they’re using to clear inventory or maybe in some instances the publisher has a particularly high sell-through rate,” Boccia said.

The Future

“The whole industry is in the first or second inning maybe,” said CEO Greg Mason, of the publisher Purch.

As private or preferred deals become more popular, many believe private exchanges could gradually overtake the open auction. But for that to happen, campaigns need to get up and running seamlessly in the first place.

“The market for private marketplaces is still young, and there is certainly much improvement required to make them truly efficient for media buyers,” the trading desk specialist said. When the technology and workflow does develop, “we will see even more budgets shifting toward this space.”

1 Comment

  1. Some points within this article somewhat muddy the facts:

    1) When comparing Private Marketplace vs. Open Auction volume, you must compare the individual publishers inventory for both. Open Auction will obviously give a buyer more scale because buyers are purchasing across multiple sites, but when comparing the available inventory on a single publisher site, a buyer will receive a significantly larger amount of inventory via Private Marketplace than what is available within their own Open Auction because of "first look' and the ability to win an impression at a lower rate than an Open Auction buyer may have been willing to pay for that same impression.

    2) Offering inventory within a Private Marketplace is never a waste of inventory regardless of a low fill rate as it delivers after all eligible guaranteed campaigns. The same bid request can be sent to multiple PMP buyers at the same time. If the highest CPM defaults or passes on a bid request, it can still be purchased by another PMP buyer using a different Deal Id at at the same or lower CPM.

    There is no negative consequence for the publisher when a buyer defaults in a PMP other than if the same buyer would have been willing to buy the same impression within the Open Auction. If all private marketplace Deal Ids pass, it becomes available in the Open Auction. If no buyer chooses to purchase the impression in the Open Auction, it would not have been filled by the ad server regardless (if the open exchange is the last opportunity to deliver an ad within a waterfall). If a publisher could have sold that same impression through direct channels, it would have already done so.

    This is not to say that a higher PMP fill rate isn't ideal, it should always be the goal of a publisher to encourage buyers to increase bid response rates on PMP.

    Reply

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