Whats Not to Like About Selling Pork Bellies
I just spent the last 2 hours scouring the web on anything I could find on the first shoe to drop since Wenda Harris Millard warned the whole indsutry at the most recent IAB “We must not trade our advertising inventory like pork bellies..” Thats not forget that Millard was most recently head of ad sales at Yahoo where ads ARE traded like pork bellies (at places such as panama and rights media exchange).
It appears that ESPN (crown jewel of Disney) has decided to boot out all ad networks in order to keep them (ad networks) from selling ESPN online advertising inventory. Disney itself control a sizable amount of premium inventory and I’m sure it is looking at this experiment very carefully as a model for the rest of its properties. Some in the industry are even taking a broader view, expecting reverberating ramnifactions across all top publishers. Of course, this is not new . . many in the industry has been beating the drum for ages. For sure, as MediaWeek contents:
Two sides have formed—those who want to protect traditional, direct selling of premium content brands and the math-loving crowd that favors automation and data. The math lovers make the traditional sellers nervous.
So how did we get into this mess in the first place?
Well . . . you take an industry accustomed to direct selling for most of their media inventory (TV, Radio, Cable, OOH, Print etc) and you throw them in the middle of the digital revolution led by geeks crunching numbers - obsessed with optimization and efficiency - and you get as much FUD as SAP and MSFT has ever generated together. Added to this, you have inherent time sensitivity of a perishable inventory AND the real time nature of online ad serving - making selling/buying online ad inventory almost like a game of chicken. (or prisoner’s dilemma).
There is nothing inherently wrong with Ad Exchanges and Ad Networks. In theory, premium inventory that drives advertiser success WILL eventually be priced at a premium (with thus implied efficiency). But unfortunately the pre-conditions for that simply doesnt exist - and will probably never be. First of all, a significant portion of the online inventory (premium and “remnant”) must be available to the ad exchange in order to truly aggregate supply and demand for efficient pricing. Secondly, perhaps even more unlikely, some sort of measurement must be available to truly value and account for the the “premiumness” of online inventory beyond clickthroughs.
What we have today is an “arbitrary” definition of premium inventory sold through direct sales force at a huge premium while remnant inventory is sold through ad networks at a huge discount. For whatever reason - ad inventory is artificially bifurcated between the head and the tail - there is no “body,” no middle ground. Furthermore, many publishers have not succesfully segmented their online inventory due to the mis-guided application of offline inventory management strategies to their online inventory. (buy one ad space direct for $30 CPM on week one; buy the same ad space through adsense for $1 CPC on week 4) causing channel conflict as well as artificial downward pricing pressure on the most desirable ad spaces (most likely the ESPN experience).
So whats the solution? I believe in ad networks, but I believe in the evolution of the current model . . .
The pricing decision MUST go back to the publisher - be it manual acceptance perhaps augmented rules based decision support (maybe a little bit of automation).
Inventory can no longer be exclusive to a particular channel or network- ie multi-channel sales strategy for single ad space to create true competition thus price efficiency (ad “exchange” is trying to solve this particular issue somewhat).
Maintaining the process efficiency of ad networks while bring more transparency to availability and pricing (but not clearing)
Lastly, publisher must learn to bundle inventories (and other alternative pricing model such as “subscriptions” and “taxes”) and services to targeted advertiser segments in order to truly allow for price discrimination. And ofcourse, ad networks much evolve to support publisher’s increasing SKU’s and pricing models.
. . . and as usual, easily said than done.