With video ad tech deal activity surging, independent players must decide whether to go it alone, brave the impending volatility of public markets or sell.
Facebook acquired video supply-side platform LiveRail for an estimated $500 million in early July. Yahoo one week later snapped up video distribution platform RayV, which answered some questions about its video content delivery plans, but opened up more about monetizing those assets. And last week, video demand-side platform (DSP) TubeMogul boarded the IPO roller coaster, debuting at a lower-than-planned $7 per share before surging to a peak of $11.50 on its first day trading on NASDAQ.
“The reason we’ll probably see more transactions here is it’s not just three or four big digital companies making the buys – you can predict three or four Comcast-like companies making deals there, too,” said Dave Morgan, CEO of Simulmedia. “Everybody has to have a play in video because that’s the growth engine in digital at this point, in addition to mobile.”
This begs the question: What will happen to standalone video platforms like BrightRoll and SpotXchange?
Mike Shehan, SpotXchange’s founder and CEO, spoke about the evolution of the platform and where its tech will fit in the future.
AdExchanger: Are you an ad server or SSP doing yield management for publishers?
MIKE SHEHAN: We definitely view ourselves as a video ad monetization platform for the supply side – the publishers. But it’s really a combination of components that make up our platform. It’s not just an SSP. It’s not just an ad server. We view ourselves really providing a next-generation ad server for publishers and ultimately, everything we offer is designed to achieve two goals for publishers. One is for them to achieve higher yield. And two, drive down their operational cost as much as possible.
Why?
It’s gone from an ecosystem where our publishers would get a third-party tag and they would choose when to serve an ad to getting a tag from a buyer and that buyer choosing which impression they want to buy. Perhaps it’s an ad network deal that they have and those ad nets are getting the opportunity via the third-party tag. And then you have programmatic – these ad servers that really were built in the 90s saying, “I’m giving this opportunity to this buyer” and if they opt out, they have to go to the next buyer. That creates a lot of challenge around yield and latency.
So our platform allows publishers to work in any capacity in this ecosystem, whether it’s getting a third-party tag from an agency and delivering a guaranteed amount at a fixed price over a specific period of time or giving an opportunity to an ad network with a third-party tag or working with all of the DSPs and agency trading desks out there and giving them an opportunity to bid on the inventory.
It’s really that holistic yield management we’re trying to achieve because there’re too many publishers using multiple systems for their direct-sold inventory, their remnant inventory or their programmatic inventory. If those systems don’t work really well with each other, that presents a lot of problems and creates a lot of costs for publishers. So our goal is really to be the video ad monetization platform for the publisher to handle all the opportunities they’re dealing with on the buy side.
What’s the primary difference between programmatic video and display?
In the video ecosystem, what you’re seeing is that more and more buyers are working directly with the suppliers. In these large, display ecosystems, they’re just looking for everyone possible because they’re trying to drive down the CPA as much as possible. When you’re looking for a specific audience and a specific premium spot, it behooves the buyer to work directly with the supplier. And so I think from a product development standpoint again, what you’re seeing is a much faster adoption of programmatic direct of private marketplaces because the efficiencies we’re bringing to the ecosystem of programmatic is actually allowing more time to be spent actually putting together and executing deals.
We’re seeing a huge rise in buyers and sellers working directly together in a programmatic fashion. I’m not in the display space, so I’m not sure if it’s rising as fast simultaneously, but I see a reason for that in the brand dollar ecosystem because it behooves buyers to work directly with suppliers because of performance metrics they’re trying to achieve for their clients.
Do you have DSP capabilities?
We don’t offer any DSP capability. We have internal tools we utilize to traffic accounts that come to us on an I/O basis and we’re trafficking those campaigns within our marketplace, overall, but those are just internal tools. We have incredibly tight relationships with DSP partners from TubeMogul to DataXu and Turn, and there’s a pretty big lift.
Do you plan to offer DSP capabilities?
First off, we don’t feel like we’re compelled to offer DSP-like capabilities mainly because there’re so many good offerings out there.
The other reason is, we want to have really tight partnerships with these DSPs in open and transparent partnerships. I think when you try to – and I’m not saying it’s a bad strategy – but when you try to do both, to be quite honest, I think a lot of our DSP partners would not be as open and transparent and do as much product development and collaboration as they do today. Today, we are told from numerous DSP partners, that we are either their number one or two supply source and I think it’s because we collaborate so much.
From the publisher’s side, there’s a little bit of wariness that has to occur if they know that their video ad monetization platform is also a DSP. I think they have to understand that there may be some conflict of interest: “Am I getting the most revenue out of all of these DSPs out there if they view my platform as competitive to them?” So it is a tricky space, but for us we feel really comfortable living on the supply side.
Will video consolidation continue, both buy-and-sell side?
Digital video is hot and it will continue to be a focus for a long time. I think it’s really early, still just looking at consumption by devices and connected TV. We are very interested in remaining independent and if we considered strategic partnerships, it would be in a form that would allow us to pursue our vision on the supply side and continue to offer our service so as not to conflict with the buy side.
For us, we see so many growth opportunities. We would like to continue focusing on the supply side, and we hopefully will be able to remain independent, but who knows? If that means we have to go public, that’s what we have to do.
Don’t more digital players want to get into video? AOL did with Adap.tv, Yahoo with RayV. How could SpotXchange serve them?
Hopefully there’s a way for us to power (some of the digital players) too. The option isn’t always to get acquired. I think we’re in a fortunate position, too, since we’ve only raised one round of institutional financing because Booyah [the paid search company from which SpotXchange spun off in 2007] actually funded us to profitability and we’ve been profitable since. We raised one round – $12 million back in 2010 – and that was from a growth equity firm named HIG and they put in a lot of infrastructure to help us scale the business. Beyond that, we’ve been able to maintain profitability and start to accelerate our growth. So we don’t feel a lot of pressure from external investors to say, “Go public or get bought.” I think we’re in a really fortunate position right now.
How much of your business is programmatic, and how has that ratio changed in recent years?
About 65-70% of our business now is all programmatic. Four years ago, it was like 5% maybe. If not zero. Probably about 20% of [programmatic business] is programmatic direct and I’m not really certain how that would further break down between buyers and sellers working together on a fixed CPM, on a guaranteed delivery vs. operating a private marketplace at a second price auction. It may be pretty evenly split, but I would say it’s early.
How many impressions do you serve?
I would say in the US, we’re serving between 4-5 billion (impressions) globally every month. We have hundreds of publishers that use our platform. More and more, they’re using it beyond tapping into the open marketplace. They’re actually using the platform to traffic their direct-sold campaigns or optimizing their ad network demand sources. So that’s where we’re seeing a lot more business, as well. Our open marketplace currently hosts 900 million-1.2 billion of auctions every single day, and we’re auctioning off ads in over 100 countries every month.
As part of our service to the supply side, we offer complete transparency on who’s bidding on their inventory and it’s not just who as in TubeMogul or Xaxis, it’s what brand is bidding on their inventory to offer transparency around bid analytics – how many times did they bid. What was their bid price? Why did they clear it? Why did they win/lose? And what our publishers can then do is action against it.
