“Private Exchange” is probably the only buzz word in the industry right now without a TLA. That’s almost a crime considering the huge potential they offer to both publishers and advertisers. Much has already been discussed about their proposed value prop for publishers—greater control over inventory prices and ability to dip their toe into the RTB world while still controlling which advertisers buy inventory, to name a few—however I think the real potential lies in what it can do for advertisers, which is to finally scale RTB, making more high quality inventory accessible via RTB & through DSPs.
Before we jump into the potential value for advertisers, it’s worth noting just how much private exchanges and their inception point seem like a bit of a call back to vertical ad nets. For those new to the game (or just feel like a brief trip down memory lane), just 3-4 years ago, as a response to the growing cartel-esque control ad nets had over publisher’s remnant inventory prices, many top tier publishers (& media conglomerates) pulled their inventory from 3rd party nets & instead began siphoning it into their own vertical ad nets. These vertical ad nets ensured full control over inventory prices while also having the scale needed to draw greater funds from endemic advertisers. Advertisers’ response to this was largely positive. It allowed them to dedicate more funds to semi-transparent buys from client-familiar named sites & away from fully blind ad nets (remember when scale was synonymous no transparency- ha).
Starting to sound familiar? Fast forward to late 2010, as ad exchanges are picking up speed one large hurdle continues to lie in their path to ecosystem dominance – the lack of a high volume of quality inventory. I’d think it’s safe to assume publisher’s resistance to dumping their inventory directly comes from their mid-2000s experience with ad networks. In come private exchanges, offering publishers the aforementioned value prop and list of inventory controls. (And yes, this completely skips over the yield management & original SSP option of publishers cherry-picking exchanges & price floors accordingly.)
Let’s be honest, to an advertiser, none of these publisher side inventory controls really matter. As long as the advertiser isn’t offering a bait-and-switch with free ipads and will bid competitively, they’ll be white-listed to run on the private exchange. Advertisers can then line up these private exchanges in their DSP right alongside the public inventory sources.
And that’s where the fun really starts. It’s not just about the dynamic pricing against the high quality inventory, but what can be done with that inventory from a scaleability & data overlay perspective. All of the site audience segments that advertisers have built up through their DSP can now be overlayed across these private exchanges. It’s the ultimate convergence between high quality pixels & cookies. (Yes advertisers can also overlay 3rd party data buys, but with the increasing number of publishers offering these data overlays on site-direct buys, I question how much of a value prop it really is for an advertiser.)
It’s this type of additional scale coupled with quality that will hopefully drive additional advertiser funds through DSPs and into the RTB ecosystem. And the use of “hopefully” is intentional- as two things still need to happen: 1) more & enough publishers need to have private exchanges to make this truly scaleable for large advertisers, and 2) the media needs to actually perform, specifically to convert at a higher rate than on the public exchanges in order to offset the incremental increase in CPM.
There’s also of course a large ancillary benefit to private exchanges- less sales reps and by extension operational efficiency. A few months ago a handful of people on the ad network side joked that advertisers wouldn’t be receptive to private exchanges as it meant they’d have more dashboards to log into and more reps to deal with. In truth it’s the exact opposite, as at least for the time being there are only 2-3 tech companies facilitating these private exchanges and regardless, the advertiser will (and should) only be able to access them via their DSP. It’s safe to say that if there comes a point when advertisers need to log into a variety of platforms to access exchanges & inventory (more than they currently do), than this entire model has failed.
Granted a nice chunk of the preceding 4 paragraphs is merely the hopes of an eager advertiser looking out into an industry landscape where the technology has managed to outpace the quality of the inventory it supports. The reality is only time will tell if private exchanges are able to draw out the quantity and quality of inventory needed to fulfill advertisers demand & meet performance needs. If 6 months from now we’ve significantly increased our DSP spend with a large portion going to private exchanges, I’d say some real impressive progress has been made and private exchanges deserve their own TLA.
Sara Livingston will be speaking at OPS: Markets NY on May 19.
“Private Exchange” is probably the only buzz word in the industry right now without a TLA. That’s almost a crime considering the huge potential they offer to both publishers and advertisers. Much has already been discussed about their proposed value prop for publishers—greater control over inventory prices and ability to dip their toe into the RTB world while still controlling which advertisers buy inventory, to name a few—however I think the real potential lies in what it can do for advertisers, which is to finally scale RTB, making more high quality inventory accessible via RTB & through DSPs.