Embracing Indirect Sales (Part 3 of 3)

In my previous 2 posts on this topic we covered:

1.How marketers and media buyers are shifting budgets to more automated/efficient exchange buying alternatives and spending less via direct publisher relationships

2.How publishers are not embracing this shift and are under-monetizing their inventory because of internal inefficiencies

In this final post I’d like to back up what I’ve been saying with support and research from others in the industry.  To start, I wanted to pull some quotes from Mike Nolet- one of the industry’s top thought leaders.

Mike Nolet = Industry Genius

Mike is the CTO/Co-Founder of AppNexus and maintains a popular blog- mikeonads.com.  In one post he brings up 5 reasons for why he feels “more and more dollars are going to shift from traditional reserved inventory over to unreserved”.  Here they are:

1. Brand advertisers are starting to care about performance.  All advertisers are realizing how much quality matters. More and more brand advertisers are realizing that they can efficiently track performance with online media.  As more inventory becomes available, I expect brand focused advertisers to think of more and more inventive ways to track campaign performance.

2. You cannot reserve inventory and optimize on performance.  Reserving means setting a price before you buy. Setting a price before you buy means that you can’t adjust your price based on how different slices of inventory perform. Although you can track performance with a reserved/premium buy, you cannot easily optimize. Changing pricing will be a manual and slow process.

3. Ad quality differs greatly between publishers. Performance between sites differs greatly. Some sites will literally have 100x the click and conversion rates over crappier sites. Quality impacts price, and this huge differential in price makes it rather difficult to reserve inventory. Tie this with #1 and #2 above and for any advertiser to start buying effectively they are going to have to start pricing based on performance. This means fewer bulk fixed reserved buys and more CPC, CPA and easily adjusted CPM campaigns. Whether or not inventory is premium or remnant depends solely on who the buyer of the impression is, not the actual impression. Hence, fewer reserved guaranteed means more remnant inventory.

4. Optimization technologies are getting better. Optimization technologies are getting a lot of press these days… and it seems that every one I talk to is better than the last. As these technologies improve, the incentive to buy based on performance becomes far more interesting than buying a fixed chunk of inventory at a flat rate — hence, more remnant.

5. User-Gen content is growing like crazy. There’s just a plain shitload of user-gen content out there nowadays. Myspace, Facebook, Youtube, Xanga, Photobucket… shall I keep going? Most of this inventory goes unreserved. Everyone is expecting this to grow more and more.

There is a ton of additional knowledge to be found on mikeonads.com.  Definitely bookmark the site or subscribe to the feeds if you’re interested in learning more.  I just wanted to call out these points specifically to help support what I mean when I speak about the larger shift occurring on the buy side.  Mike touches upon 5 great reasons why more marketers are moving budgets from direct to indirect (or “reserved” to “unreserved” as he says).

Next, I found a great snippet from PubMatic’s blog.  PubMatic is an established player in the yield optimization game and has been focused on solving publisher monetization issues since 2006. I thought this blurb backed up what I’ve been saying about publishers incorrectly assuming there is a conflict on the buy side if the advertiser is buying inventory both directly and indirectly on the same website:

It is not as black and white as it may seem. Branding campaigns should not just be for directly sold premium publishers alone. For instance, the recent campaign promoting Microsoft’s Bing search engine used direct-sold campaigns for brand lift and recall reinforced by a massive campaign with reach and performance metrics that only ad networks can provide.

The silver lining: Publishers can earn money from both Microsoft objectives. Had Microsoft purchased all of the impressions through direct sales forces instead of a combination of both premium campaigns and ad-network campaigns, it likely would have spent less money advertising Bing online and would have achieved far fewer benefits.

There is no argument that in a perfect world premium publishers would have a 100% sell-through rate from their sales forces. However, in a world where sell-through rates are lower, ad networks can provide incremental revenue to publishers by selling a different objective to marketers. Premium publishers should always keep in mind what is best for the advertiser as well as themselves so that both sides can meet their objectives. In this rapidly changing economic environment, publishers need to focus on improving revenue from their first and second ad-sales channels.

Often times when a publisher maintains a block list, they are not keeping in mind “what is best for the advertiser.”  Pepsi isn’t telling them to block their ads- it’s the salesperson who doesn’t want Pepsi running through the ad network.  This is a perceived threat.  It’s also hard as hell to figure out compensation. The sales rep knows he or she should be getting a higher check for those Pepsi ads but the pub often can’t tell exactly how much was spent via the ad network.  It’s too tough to figure out so, to avoid the internal argument/conflict from continuing, sales managers eventually cave to their sales teams and just tells the ad networks not to run certain brands.  Beware of slippery slopes, sales managers!

To close this out, the following bullets come from ThinkEquity’s The Opportunity in Non-Premium Display Advertising report (May 4, 2009).  Focused on the growth sectors of the economy, ThinkEquity provides research and M&A advisory services to industry investors.  There is years of in-depth research backing up these findings:

• We believe that non-premium display is likely to remain the highest-growth segment of online media over the next five years…with growth of 26% to $6.0 billion [in 2010].  By the end of our forecasting period in 2013, we expect non-premium display advertising to account for $11.4 billion in total revenue, representing 34% of total display revenue

• The premium CPM advertising segment has been losing market share to performance-based advertising (typically via non-premium inventory) since 2001, with the share shift accelerating during the past three years.  We believe the shift from CPM to direct response is dramatic

• Increasingly, ad agencies appear interested in creating the ability to aggregate premium and non-premium display inventory in order to perform inventory allocation decisions in real time on the buy side

• Brand advertisers and agencies require a combination of reach and efficiency in purchasing media.  From a practical perspective, finite advertiser/agency resources combined with an inventory procurement process that can be labor-intensive and involve extensive offline communication (e.g., outbound RFPs, inbound proposals, IOs that are faxed back and forth, etc.) necessitate that buyers manage a limited number of publisher relationships

• Concerns over sales channel conflict among some publishers have trumped the evolutionary shift towards increased sales automation and what some would term “commoditization” of publisher inventory

• The premium sales model suffers from multiple inefficiencies, primarily involving inventory management and outsized supply chain costs, that drive sub-optimal monetization and inventory fill

• Variations in inventory quality among large publishers present challenges in terms of sales strategy.  While some publishers have been successful in developing a variety of advertising products carrying varying price points or even differing pricing models (e.g., CPM and CPA), other publishers may fear that selling inventory of lesser quality (which may be viewed by some advertisers as a compelling substitute) via the premium sales channel may reduce pricing strength by commencing a “race to the bottom”

And of course this fear extends across the most high profile/national brands out there.  A publisher may say, “In addition to Pepsi we also can’t run AT&T, Toyota, Coke, Walmart, Sprint, Ford, etc…. we’ve already got sales reps with these accounts and we can’t jeopardize our direct relationships by running these brands through ad networks.”  There’s that slippery slope again.

And what do all of these blocks leave you with?  Once you remove all of the best brands from your ad network ad rotation, not only do your rates/revenues decline, your quality of ads also diminishes.  Publishers hate it when “bad ads” (ugly, flashing, interactive, dancing, teeth whitening, etc.) serve on their sites from ad networks.  Bad ads threaten the user experience.  Well if you keep blocking all of the good ads because there is an outside chance you might get on an RFP list, it doesn’t leave you much to work with at the end of the day.

So to all of my publishers reading this- don’t assume there is a conflict if there really isn’t.  Stop being motivated by sales compensation and ignoring overall yield optimization.  And don’t cut off your left arm to save your right… After all- you’ll need both of them if you plan on lifting your revenue!