"Data Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today's column is written by Jeremy Hlavacek, vice president of operations and strategic partnerships at The Weather Company’s WeatherFX Data Unit.
Yield is the lifeblood of digital publishers.
The primary business goal of all media owners involves finding the perfect balance between price and volume to generate the most revenue. This process has become more advanced and complex with the rise of programmatic transactions. Scientists, algorithms and technology platforms do everything possible to help publishers find the perfect sweet spot by tweaking their CPMs and fill.
But while there has been improvement in the precision and science of yields, one can’t help but wonder about the big picture. Are there structural issues at work here? Perhaps.
The Prisoner’s Dilemma
This classic game theory framework may describe everything from business situations and economics to psychology and human behavior.
The prisoner’s dilemma goes like this: Two gang members go to jail. If they remain silent, each will receive a one-year prison sentence for a lesser charge. Police offer each prisoner the chance to go free in exchange for testifying against his partner, who would receive three-year sentence. But there’s a catch: If both prisoners testify against each other, they will both receive two-year sentences.
Without the ability to coordinate, each prisoner makes the rational decision to testify against his partner to avoid jail time. But while trying to save themselves, the prisoners end up with an outcome that is worse (two-year sentences) than if they had cooperated and kept quiet (one-year sentences). The prisoners pursue their own rational self-interest, but their choices worsen their outcome.
The Prisoner’s Dilemma And Digital Media
In a world where media is increasingly purchased programmatically, publishers may find themselves prisoners of the system.
The dilemma: “Now that our inventory sits on exchanges next to thousands of competitors, we need to price aggressively to win bids. Since we need to make as much or more revenue than we did before, we must create more inventory.”
But isn’t everyone else doing this? And what is the net result? More supply and lower CPMs.
In this scenario publishers are effectively working together to lower their own CPMs while littering their sites with ads. Taken to the extreme, this feedback loop ultimately starts to looks like a “race to the bottom.”
At this point, many publishers start screaming expletives and blaming everyone from buyers to trading desks to tech partners. But given that the programmatic genie cannot be put back in the bottle, a better approach focuses on solutions. Here are a few ideas:
Working together to fix pricing would be great for publishers, but would also be collusion, which is illegal. But why can’t there be more communication from industry organizations about what truly constitutes a premium publisher? All sellers are not created equal so there’s no reason for all to appear that way in exchange marketplaces. The buy side is still very concerned with quality and context -- just look at the number of endemic buys that still take place -- and to date, policing in the exchange space has been mixed at best. The need for a cottage industry of safety and quality vendors designed for exchanges speaks to that fact. A better designation of what constitutes a premium publisher in exchange marketplaces is desperately needed.
• Be Different
In a highly competitive market, a publisher must stand out from the pack and earn value. There are any number of ways to be different: leverage unique data sets, implement native ads, develop compelling content strategies and rethink deals and monetization strategies. Publishers need to embrace their brand and value proposition without living in a self-imposed bubble of narcissism. It’s a competitive world out there, so go see what your rivals are doing and think hard about how you’re different or better.
• Find Pressure Points For Buyers
The more a publisher can understand where they have and don’t have leverage, and where it can be created, the better. The clear trend around agency buying operations is to be “bifurcated” or have two distinct groups: data-driven, programmatic buyers who are all about performance and scale, and strategic groups that look for unique and ownable brand opportunities. Publishers need to think about how their assets map to these objectives and how to maximize yield from those two very different conversations. For the programmatic teams, the answer is lots of data, large scale and cutting-edge technology. For the strategic groups, the answer is uniqueness, brand alignment and blocking competitors.
Programmatic can be problematic for many publishers, but it’s only getting bigger and more ingrained into buying and selling operations.
My advice: Understand the risks, but embrace the possibilities.
As it turns out, great minds think alike. An observation of how the Prisoner's Dilemma relates to programmatic marketing has also been advanced by Troy McConnell at Audience Fuel. Here is McConnell's take -- and another set of possible solutions. Mike Nolet, CTO and co-founder at AppNexus, also explores the Prisoner's Dilemma in this YouTube clip (following the beat box intro).