Publishers’ constant strive to increase monetisation of their online properties has become more important than ever as online advertiser ad spend last year passed traditional print ad spend. Publishers took the traditional business model of the cost of number of views from print to online, and have made it their premium sales revenue channel. This model derives from a time when print publishers knew how many print subscribers they had (reach) and could get paid (and still do) a fixed price based on factors like colour, size and placement.
As published content has shifted to an online environment, advertisers have been able to start buying publisher inventory based on performance variables. This has enabled them to buy on conversion metrics that often correlate more to the basic purpose of an advertiser – to drive sales and revenue.
However, publishers have up until this point been quite conservative to offer CPCs and CPAs due to the risk involved, even if this is a fast growing and attractive offering to advertisers. On the buyer’s end however, the DSPs (and traditionally Ad Networks) have taken the opportunity (with the aid of advanced algorithms to increase conversion rates) to buy traffic from publishers at low CPM levels, and sell it to advertisers at more expensive CPC levels. Today this “currency exchange” means that part of the revenue margin of a DSP is sophistically hidden from the outside world in the form of conversions from CPCs to CPMs. Maybe it is not all that strange after all; indeed, if I found a goldmine, I would not stand up and shout it out, would you? As Chief Revenue Officer at Admeta, I meet and talk to premium publishers on a daily basis. I must say that this is the best kept goldmine in the industry – it is a well-disguised magic trick that publishers are not aware of. Publishers have been kept calm by not having to take the risk of accepting anything else than CPM, while the DSPs hit gold for every sold impression.
“Where Did my Ad Spend go?”
According to the IAB, in a typical distribution chain through RTB, approximately 50% of an advertiser’s campaign budget is diluted by various middlemen until it finally reaches the publisher. Now, with the right technology resources available, this 50% loss of revenue in terms of distribution cost, would argue for publishers to start thinking about taking control of the technology and bring it in-house.
Who is Holding the Steering Wheel?
Although one might argue that programmatic sales is an effective concept in terms of distribution cost (which I would doubt from what just mentioned above), there are other valuable and important long term factors that a premium publisher should consider.
Through a typical programmatic sales process (through an SSP), publishers lose the control of advertiser relations. This is all because there are 3rd parties involved that are taking care of the sales and invoicing. Imagine in a prolonged scenario where a premium publisher ended up being dependent on DSPs, as the DSPs end up with all the valuable advertiser relations. It is a crucial strategic question that should be on the agenda for premium publishers who are determined to keep control of their powerful brand among their advertiser clients.
Another fact about programmatic sales is that the advertiser’s loyalty in this environment is low to nonexistent, meaning that impressions are cherry-picked across thousands of publishers’ inventory. Therefore, the probability that the advertiser will come back to buy from a specific publisher again is quite low since a DSP’s primary goal is related to finding the lowest price.
The majority of most SSPs’ recent response to this has been to release direct sales functionality. However, the Direct Deal functionality still struggles with the risk of putting high quality audience data in the hands of a 3rd party – the DSP – to enable the transaction. One possibility to tackle this would be to sell non-premium or unsold inventory directas Cost per Click [CPC] or Cost per Acquisition [CPA]. By doing so, a completely new source of revenue is reached, as it offers this as up-sales to existing premium advertisers, and/or through a new segment of advertisers, such as e-commerce for instance.
So How Does a Publisher Solve This Equation?
One might wonder how to solve this dilemma. Well, a good start would be to not involve third parties but focus on first-party sales. Furthermore, sell directly in a private ad exchange to specially invited advertisers, controlled by the publisher.
In practice and to sum it up this would mean:
- Cut middlemen and value advertiser relations by direct sales
- In order not to cannibalise premium this should be sold as CPC and/or CPA
- Bring optimization technology in-house to maximise uplift and minimise risk
Let´s be frank. The programmatic arena as it looks today is built by and for the buyer side. Having said that, programmatic deals absolutely fill a purpose and my prediction is that it will grow at a fantastic rate the next coming years to come. However; premium inventory owners have the possibility to create the secondary premium layer in between existing premium sales and programmatic sales. This secondary premium layer however, must be sold, controlled and run on the publisher’s conditions in order to establish good eCPMs together with good fill rates.