Today's column is written by Esco Strong, Director, Marketplace Strategy at Microsoft.
If you’re a publisher managing a sizable direct-sold, guaranteed-delivery display ads business, you’ve almost certainly been tempted by the prospect of squeezing a few more dollars out of your business by optimizing your guaranteed and non-guaranteed demand sources as a single, unified supply pool.
The pitch is relatively straightforward: rather than having reserved campaigns sit “first chair” and gobble up all of the impressions they want ahead of downstream demand, instead allow “discretionary demand” to pick off some of those impressions where they are willing to pay a premium above and beyond the reserved rates. One key assumption here is that the “cherry-picking” can be done in a controlled manner such that enough inventory will be left over to fulfill the volume guarantees of the reserved buys.
While I have little doubt that technology in our industry today can tidily solve for the problem of meeting the delivery guarantee in this situation, our focus really should be on the question of the long-term effects on the brand businesses and the quality of the inventory that they will receive in this scenario. One challenge is the lack of “expressivity” – or targeting parameters - of brand buys.
For example, some brand buyers purchase these campaigns as a proxy for a demographic distribution of users that is representative of the population at large. Others may buy these groups of reserved impressions as a proxy for clicks, and may find them to be more effective at generating clicks in general or from a more diverse set of users than they may otherwise achieve via CPC-model buys where targeting will be used.
Another class of brand buyers are those seeking an implied concentration of a particular type of user or demographic segment, particularly in brand buys that are contextually targeted to specific types of content. Context also plays an important role in defining state of mind, and may be useful in helping marketers reach users at a particular point in the purchase cycle, such as awareness or consideration.
Ultimately, two basic components – the inventory mix, and the reservation against it – provide the necessary materials that create the value proposition for these buys, and while the reservation is quantifiable to the seller, the expected inventory mix is oftentimes neither apparent nor something that can even be inferred from other sources of information.
By contrast, most “spot market” demand is incredibly expressive (targeted!) today, by virtue of the capabilities afforded by real-time bidding (RTB) and cookie syncing. Impressions are targeted against a host of different parameters that are often combined to specify a highly granular type of user, behavior, user state, or all of the above. These buys are telling their buy-side platforms exactly what they’re buying and what they’re willing to pay in order to skim the cream off of remnant supply pools and get a hold of just the stuff they’re looking for. Interestingly, while the bid price is made apparent to publishers, the targeting is not, which poses an additional challenge for someone trying to manage optimization across these demand channels and predict the effects that RTB buying would have on reserved inventory mixes.
My colleague Mark Hall developed what I consider the best analogy for this situation, which is to equate the inventory to a “fruit salad” example. Brand buyers are buying a healthy mix of inventory – a fruit salad of users and impressions – that sometimes varies by the specific buy (think “berry fruit salad”, “tropical fruit salad”, etc.), but always contains an implied mix of certain types of fruit.
Similarly, we discussed how brand buys aren’t highly expressive with their goals – some of which may vary between buyers – and the analog here is that the fruit salad appeals to different types of customers as well. Some buy for the mix of overall fruit, some for the blend of tart vs. sweet, some for an implied quantity of certain types of fruit they like (despite others that they are less interested in or may even outright dislike), etc.
Spot buyers, on the other hand, are the proverbial “cherry pickers” of this example – they are specifying only the fruits they want, and buying them up at higher prices than the average price-per-fruit of the fruit salad buyers. However, an interesting thing happens along the way: as more and more of the “cherries” are plucked out by the spot buyers, the fruits that are left over begin to change the composition of the remaining fruit salad. A balanced mix of fruits suddenly becomes very acidic when melons, for instance, are removed from the mix and the tartness of strawberries and pineapples remains.
It is important to recall at this point that it is very difficult to surmise the composition of remaining fruit salad that would be acceptable to brand buyers, since they have likely not expressed it as part of their buy. Given this challenge, it seems incredibly risky to expose the “fruit salad” of brand buys to the cherry-picking of spot demand in any voluminous way, as the long-term implications are possibly severe. The typical response here is to point out that there are protections in place whereby spot demand can only pick off impressions where it is able to outbid reserved demand, which typically have relatively high CPMs. However, if brand buyers were to eventually shy away from placing their reservations against some of these campaigns due to the shifting mix, it would undermine this safety net as more and more inventory would begin to go towards spot buyers, who would then be able to lower their bids and continue to win as the brand buys (and their CPM benchmarks) evaporate. Therefore, it seems central to publishers’ interests to protect the constitution of their brand buys as the cornerstone of their revenue pyramid, even if there are opportunities to squeeze a little bit more revenue out of their inventory.
One last question that begs asking is whether the adverse selection described earlier isn’t already occurring amongst just the reserved campaigns – irrespective of any spot market considerations – and therefore possibly isn’t as big a concern as we might think. While it is true that the potential exists for inventory mix shifts amongst reserved buys when some are more expressive than others – behaviorally targeted audience segments, for example – this is typically done within the controlled environment of direct sales and the publisher’s ad server, and is gated by considerations such as sales force activity, natural and self-imposed limits on the availability of this type of inventory for sale, and analysis behind the scenes that a publisher may be running against these buys. The primary difference here is that the publisher remains in control of the buys and is completely apprised of both the target and the pricing. This is in stark contrast to RTB buys where the publisher knows only the price the buyer is willing to pay – a moving target that changes impression-by-impression – and is unaware of the targeting behind that bid.
One thing that I love about this industry is that where there is opportunity, it seldom takes long for new products to fill the void. And in this case, a revenue opportunity exists that many publishers are in desperate need of and will find too irresistible to pass up. The plumbing is there in several quarters to turn the spigot and let the short-term dollars come in, but I am reminded of the words spoken by author Eric Ries of “The Lean Startup” fame at the recent AdExchanger Human Centered Automation conference, where he stated that our technology is now at a point where we can do and build just about anything we want, but the question really is whether we should.
In this case, the question of whether publishers should be comfortable making large changes to the composition of their brand campaign inventories without first truly understanding those customers’ expectations seems imperative to answering Mr. Ries’ question.