SpotXchange, a video-marketplace operator focused on the supply side, has seen revenues from Real-Time Bidding exceed 50% of the total dollars it takes in from clients – up from 5% just two years ago. But as CEO Mike Shehan plots the company's future, the focus on RTB is just phase one. The next phase -- the bigger phase, as Shehan and other video ad-tech companies are hoping -- is for greater spending from "programmatic direct."
"In the coming years, I could see almost 100% of our inventory being bought and sold programmatically on our platform" Shehan said. "That would include RTB and those campaigns bought/sold on a fixed-price, guaranteed-impression basis that use programmatic as the infrastructure to traffic the campaigns. It's early days for programmatic direct, but we see it dominating the media-buying process in the coming years."
Those companies all appear to be creating some form of end-to-end video marketplace that caters to both buyers and sellers. Many of the other players focus on serving the demand side, working with agency trading desks and marketers. LiveRail and SpotXchange, for example, lean toward the publisher services side.
As companies explore different paths, all in a bid to capture what is expected to be a flood of dollars emerging from the growth of TV/online video convergence, the idea of what it means to serve sellers or buyers or to work on the demand side will be tested. While most observers expect video-ad spending to continue to grow about 40% this year to roughly $4 billion, the rising tide isn't likely to support everyone and consolidation is expected.
Asked about the relevance of a video SSP -- as opposed to a more general Supply-Side Provider, such as the ones typically offered by Rubicon Project, PubMatic and Google's AdMeld -- Shehan, along with agency executives and publishers, said video is different in both substance and style and warrants a separate set of services and tools. For one thing, SpotXchange's business model is very simple: It charges publishers a percentage of the revenue generated through the company's platform. It also charges on a CPM basis for ads trafficked and yield-optimized by SpotXchange, but sold directly by the publisher.
"At the end of the day, video advertising is a very different ecosystem from the display one," Shehan said. "Until I started looking into display, a vast majority was direct-response, bottom-of-the-funnel kinds of spending. It's still mostly about cost per action and much less so about branding."
Demands for transparency are much more acute for video-brand dollars than for direct-response display placements, Shehan argued. A fairly regular debate about display is in the area of transparency and verification. While display can rely on conversion metrics to show whether or not an ad achieved the desired reach, it's harder to determine with branding.
As he considers potential ad-tech partners, Rich Routman, chief revenue officer of video-heavy Sporting News, said video SSPs can best leverage the media mix for a variety of different platforms and goals.
"Marketers and publishers require a different set of tools to satisfy those demands," Routman said. "When you look at video-ad buys, you would want someone that sits next to TV ad budgets. And that's not going to be the same person who sits next to general display. For one thing, TV marketers don't want to be lumped in the race to the bottom of display. It makes sense to create and maintain walls between the two."
For one thing, video SSPs primarily buy against Nielsen's Online Campaign Ratings and comScore's rival Validated Campaign Essentials, which come close to the gross ratings points that are familiar to television media buyers. That narrow focus also provides comfort to publishers.
Given that agencies support acceleration of programmatic buying for greater efficiency and targeting capabilities, there is also a recognition of the need for video SSPs – at least for right now, said Mike Brunick, SVP for programmatic buying at IPG's Magna Global.
One reason is that it's getting harder and harder to reach "light TV viewers," i.e., younger and more affluent consumers who are much more enamored of their mobile and tablet screens than anything else. Online is viewed as a way of extending the reach of marketers who need to show their ad at a specific place and time on TV – thereby capturing the regular TV watchers – while using online targeting to net the time- and place-shifted viewers.
"What TV/online video convergence and programmatic means for us is that the more opportunities there are to be able to buy into fluid markets, the better," Brunick said. "One of the hurdles in getting to a fuller programmatic model in video more quickly is that there are very few companies focusing on the seller. There was some initial thinking about programmatic being about the demand side going to screw the sell side. But that's not going to work. And that's where the validity in the SSP model stands."
What agencies want, and what Shehan said video SSPs can give them, is a clear focus on driving yield optimization, which encourages publishers to open up more valuable, reserved inventory to programmatic channels.
"If a marketer wants to buy an audience of left-handed car drivers in February, that's a very labor-intensive thing for a sales organization to do," Brunick added. "Without SSPs, it's impossible to do that."
SpotXchange client RealGravity, a video publishing and syndication service owned by cable channel producer Scripps Networks Interactive, has used the video SSP for a year, said Luke McDonough, RealGravity's co-founder and CEO, who credited it with delivering higher yields as promised,
"The amount of premium video inventory has increased over the past year, and that's because publishers are seeing higher yields," McDonough said. "There are a lot of different kinds of providers in the video and display space, but using SpotXchange makes a lot of sense. Unlike display, there are a lot of limitations, from the types of video players to the demand for Nielsen verification. There are specific kinds of implementation, hosting and reporting that are unique to video. And video, for us, is about branding, so it's essential that we get the amount of reach in the time frame that an advertiser wants. It's much more precise than a general display buy."
Publishers like RealGravity and buyers like Magna said they do not want to have to work with 25 platforms to strike a deal in five years. Shehan acknowledged that challenge to the video SSP model, but said it's one that some companies -- those that try to be all things to both sides of the selling table -- face to a greater extent.
"We are not a complete end-to-end solution and we have no plans of becoming one," Shehan said. "It's very difficult to operate in an environment to serve both buyers and sellers equally. And conflicts of interest are natural. For example, we have 22 integrated RTB bidding customers at this moment. If we started to operate a series of agency trading desk tools, partners like Turn and TubeMogul would likely – and rightfully – view us as a competitor and thereby limit the amount they spend with us. We see this model as working perfectly and growing quickly."
He added that the model will remain valuable especially as TV and online video, along with mobile and tablet screens, truly converge. Over the next few months, the company will increase its attention on the mobile video space.
SpotXchange also is in the process of staffing up. Last summer, the Denver-based company employed slightly more than 60 people. It's just shy of 100 employees now and expects to hire another 15-20 people by the end of 2013.
In the meantime, Shehan is not interested in taking the IPO path blazed by Tremor and YuMe, in part, "because we haven't been through four rounds of funding and we don't have to worry about impatient investors," thanks to the fact that SpotXchange was an outgrowth of the company Shehan previously co-founded in 2001, Booyah Networks. Booyah, a search engine tech-services provider that is still SpotXchange's sibling, spun out the company in 2007.
Last month, Allen Klosowski, formerly the head of mobile and social media strategy for Digital First Media's 75 daily newspapers, was hired as SpotXchange's VP of mobile and connected devices. Though the mobile-advertising space in general – and the RTB mobile space in particular – is relatively small versus the wider digital marketplace, Klosowski said now is the time for a company like SpotXchange to prepare for increasing growth, rather than play catch-up later.
"Next year, the connected-device space alone will be a $1 billion business," he said. "It's growing very quickly. The current mobile-video spend is small, but it's fastest growing and inventory is expanding rapidly. People winning on mobile look different than winners on desktop Web, much the same way video is different from display. We're all learning and preparing for what's coming."