It seems like every week or so, we get to read another headline about a publisher launching a private exchange on someone’s real-time bidding (RTB) platform. Some would have you believe that private exchanges are a technological marvel; the greatest thing for publishers since the printing press. I want to take a moment to deconstruct this mythology a bit. But before I do, and to provide a point of reference (or maybe a full disclosure); the Rubicon Project has launched over 14 private exchanges (we call them “private marketplaces”) with premium publishers. Private marketplaces are a terrific new development for premium publishers in the digital display ecosystem, but let’s clarify what they really are and why they matter.
To begin, what is a private marketplace or exchange and how does it work for premium publishers? The “exchange” aspect is nothing more than the use of an existing RTB platform. Would you expect every DSP and buy-side platform to go out and do an independent integration with each new private exchange? No – these are simply more restricted trading relationships facilitated within an existing RTB platform, wherein the communication between the RTB platform and the RTB buyers are consolidated inside the same communication stream as all the non-private RTB traffic (often called a “consolidated stream”).
The “private” aspect of a private marketplace could be truly private (meaning one and only one buyer can access specific segment or site inventory) if the publisher chooses for it to be so, but this is simply facilitated via a set of controls and a reporting layer that sits on top of the existing RTB platform hosting the private exchange. In sum, private exchanges are real-time bidding relationships between publishers and buyers with more controls governing the trading relationship than would be the case in standard RTB auctions.
What does this all mean? A publisher can launch a private exchange on REVV, the Rubicon Project’s yield optimization platform, in less than 24 hours from start to finish. It might take longer to write the press release announcing the newest, greatest private exchange. So if you read a story about a publisher launching a private exchange (with any of the handful of vendors offering the technology at this point), and access to that publisher’s inventory via that private exchange takes longer than a couple days to go live, you should question whether or not that RTB platform has actually built real technology or just a great marketing program.
Next, let’s talk about why a publisher might want to launch a private exchange. There are many reasons why companies on both the buy and sell sides of our industry would like to see higher percentages of spend flowing through programmatic buying environments. I won’t belabor this topic since other people have covered these in great detail already. Suffice to say; the major themes of efficiency, transparency, control, and effective targeting are driving the buy side of the industry to continue to innovate in an attempt to draw more brand budgets into this environment. Publishers are taking notice, and the savviest publishers are beginning to realize that if budgets are flowing into programmatic environments where a premium sales team can’t access them, there is an incentive to lean into this phenomenon and craft a strategy for accessing these budgets. Programmatic buying creates value for the advertiser, which in turn, if executed well, should create value for the publisher as well.
This is great news for the entire ecosystem. Capturing value for high-quality digital content and experiences obviously benefits publishers and consumers; pulling more budgets online benefits sellers and solution providers throughout the chain. But, as you may suspect, we’re not quite there yet.
One of the current limiters of RTB growth (and in turn, the potential it has to pull budgets online) is the terrible quality of inventory available on the exchanges. Not only is this inventory largely long-tail, unregulated, and often leftover tonnage that ad networks couldn’t sell themselves, but it’s often blind to the advertiser as well. And while RTB offers an unprecedented opportunity to target very specific audiences, advertisers do still care – a lot – about having their brands show up in premium environments.
Another limiter of growth and value for the ecosystem is the reality of exchange incentives. The largest exchanges have been built out to support the owner’s own business objectives: Right Media’s value to Yahoo is largely wrapped up in its ability to monetize Yahoo Class 2 owned and operated inventory and also its ability to help Yahoo’s legacy Blue Lithium network source inventory for their own campaigns. Doubleclick AdExchange serves to provide a large source of inventory and secondary monetization vehicle for Google’s AdSense and Invite Media. Any value these exchanges provide to the broader ecosystem is secondary. The poor state of the exchanges, despite their massive tonnage, has done little to inspire confidence on the part of agencies and brand advertisers.
Regardless, an influx of premium, well lit inventory onto RTB platforms would help drive brand budgets into programmatic buying environments, which in turn will lead to higher yield and better ad quality for the publishers, and so on. Private marketplaces represent a good opportunity for a publisher to dip a toe into programmatic waters while maintaining all the visibility and control they need to feel confident that all business objectives, including risk mitigation, can be met. Most publishers who launch private marketplaces will probably start opening the aperture of demand as they feel more comfortable about leveraging this channel, but “private” is a good place to start.
Now, let’s talk about what a publisher needs in a private marketplace. The concept of “private” is really about control. From a pure yield perspective, if an auction is being managed correctly, most publishers would make more money by allowing more people to bid for inventory. But there are reasons why this might not be the best approach for every publisher. Ad quality, channel conflict, and simply having a sense of control are all important factors that might lead a publisher to launch a private exchange.
As more budgets, importantly brand budgets, move into programmatic buying environments, it will be more important— not less important— to manage your business with a given advertiser across ALL sales channels in a coordinated manner. Other companies in the space have built their platforms in such a way that you are provided some minimal level of control at the agency level, but largely, their platforms are built to aggregate and automate the sale of your inventory to programmatic buyers who aggregate demand.
Think about it this way: as a publisher, do you have a sales person whose job is to call on Accuen or Cadreon? Do you have a salesperson, or even a single regional leader, who has a revenue goal for Omnicom, WPP, or even one of their agencies? Chances are, you don’t. Agencies often span regions and countries, and there are many advertisers represented by each one. Your salespeople have revenue targets for the advertisers in their books of business, and their job is to work with advertisers and their agencies to maximize the revenue from each of those advertiser-level relationships year after year. As budgets move into programmatic environments, you and your salespeople need the ability to sell and negotiate pricing and access to inventory across both paper IO’s and programmatic buys, with the objective of maximizing your revenue across each of these relationships.
At the Rubicon Project we’re facilitating introductions and initiating direct communications between publishers and agency trading desks to set the stage for more dialogue in the future. Publishers need to individually understand the trading desk strategy, the clients they serve, and the people who run them and vice versa. Even when machines are making impression-by-impression decisions, the need for people talking to people will never go away.
So read all articles about private marketplaces/exchanges with a healthy grain of salt (including this one), and be sure to consider private marketplaces within the context of an overall sales strategy that considers all possible channels (especially, but not limited to, direct sales) to most effectively monetize inventory. Private marketplaces are ideal for publishers that want to incentivize their advertisers to increase ad spend in exchange for exclusive access to a premium segment of inventory. Managed well, and with a holistic view of advertiser/publisher relationships in mind, private marketplaces may indeed prove to be a major revenue channel in the future.
It seems like every week or so, we get to read another headline about a publisher launching a private exchange on someone’s real-time bidding (RTB) platform. Some would have you believe that private exchanges are a technological marvel; the greatest thing for publishers since the printing press. I want to take a moment to deconstruct this mythology a bit. Private marketplaces are a terrific new development for premium publishers in the digital display ecosystem, but let’s clarify what they really are and why they matter.