Last Thursday, BMO Capital produced their 3rd annual Advertising & Marketing Services Conference which took place at the Grand Hyatt in New York City. An extensive schedule of public and private companies presented their ideas, products and services which included a panel discussion with MediaBank CEO Bill Wise, [x+1] CEO John Nardone, AppNexus CEO Brian O’Kelley and MediaMath CEO Joe Zawadzki. Moderated by this writer, the group exchanged their views on BMO analyst Dan Salmon's Digital Marketing Hub thesis (see PDF) and the digital ad tech business, in general.
The four panelists did not disappoint the crowd which was comprised of public markets investors who were trying to guess, if not understand, the next big moves and trends that may affect their investment plans.
Among the highlights of the panel was in response to a question about how the sell-side - represented by companies like Yahoo! and Aol - is addressing the bias toward buy-side innovation in the digital ad tech ecosystem. To begin, Wise and O'Kelley squared off: Wise seeing buy-side innovation providing demand players one-sided advantage; and O'Kelley seeing his real-time ad platform and Microsoft Exchange partner (and investor) finding new success for publishers.
WISE: "I always like to start off by stating a couple of facts - that all the innovation has gone in to the demand-side ad targeting space has not been proven that it can increase yield or revenue to major publishers and the supply-side of the business which kind of proves out the fact that too many intermediaries are taking too much margin. So, a lot of the efficiency that is created on the demand-side is not flowing through to the principals of the business."
O'KELLEY: "That's not true. That's definitely not the case. As I told you outside, Microsoft is seeing that the exchange has produced higher CPMs and higher yield than their premium salesforce."
WISE: "OK, so we've proven that Microsoft's sales team is ineffective and AppNexus isn't."
The crowd was entertained.
And then, Wise continued.
WISE: "The reality is that if you talk to major publishers whose primary revenue channel is the direct sales channel, they are not seeing any of the benefits of all of the solutions that we are talking about today. Part of that could be their concern around cannibalization of their own salesforce and what it will do to overall price. A lot of them aren't playing in the remnant side of the business. And, I think that's where we all need to head with the Digital Marketing Hub is … right now it's focused on the remnant side of the business and it needs to be more marketplace designed that goes across both the premium and remnant sides alike."
MediaMath's Zawadzki played the role of the peacemaker as he entered the discussion:
ZAWADZKI: "I think both are right. The pendulum has to swing in digital marketing with fair regularity and lately [it's] been very focused on the demand-side whereas five years ago it was the suppliers' chain. So I do think it's the case now that marketers are seeing transformative gains. Marketers are crossing that 10x ROI threshold which is why there is so much activity. They're not necessarily playing nice and sharing. Some publishers are maybe not seeing the benefit. But markets do tend to make it more rational(…)"
Zawadzki went on to add that he saw a leveling of the playing fields coming and that publishers would increasingly see the benefits of innovation in the space in next couple of years.
[x+1]'s Nardone concurred and offered his view on the sell-side challenge today:
NARDONE: "[The] pitch of efficiency hasn't really come to the premium markets yet as we're just starting to see private exchanges get meaningful traction and Google has sponsored private ad slots, etc. So the efficiency opportunity for the premium side of the business is just starting. But, on the counterbalance of that, what's happened on the demand-side is that we on the demand-side have had way more information than the supply-side does in terms of the relevance to our [clients' campaigns.] But data and information tends to flow both ways, one of the things we found is that premium inventory really does matter. Context matters. Quality of inventory does matter. The problem is that the publisher can't see how much it matters to us so we have an unfair advantage right now. That won't last very long."
AppNexus O'Kelley took the baton and responded to Nardone and the panel with insights from AppNexus platform and Microsoft Exchange sell-side results:
O'KELLEY: "That's not universally the case. That's the case with the majority of the RTB and exchange integrations as it exists today. Again, in order for our partner Microsoft to get excellent yield, they're actually looking into that dataset and understanding what it is that is driving yield. [Microsoft is] sorting out efficiency for their marketer and agency partners without having to compromise yield on their side because you can pretty much calculate by watching how people bid and how they operate, where the underlying bid and ask should come out."
After a brief explanation of how a second-price auction works, O'Kelley offered more results:
O'KELLEY: "What we see, across our platform as a whole, the average CPM is between 50-60 cents but the gap to the first price is another 30 cents. In other words, bids are significantly above the actual transaction prices. And so that's indicative of what Joe said - that there's not very much demand in most cases so people are seeing bid gaps. (…)"
With these gaps, O'Kelley argued that the demand-side has had a distinct advantage, but he believed that "In the next 12-18 months we'll see a major difference in what the supply-side has in the RTB space."
No rest for the digital ad tech ecosystem. Bring on the next innovation.
By John Ebbert