February 29, 2016

Shady Markets Rob Publishers Of Value

Originally posted on AdExchanger.com

If you’re selling your home, the asking price is driven largely by multiple listing service data all real estate agents subscribe to.

If you’re selling stock, the market ticker is a click away.

But if you’re a publisher, you’re often in the dark when it comes to the value of your video content. If you partner with the wrong vendor, that’s where you’ll stay.

An Obvious Conflict Of Interest

A middleman representing both buyers and sellers has an obvious conflict of interest. Yet some publishers choose to overlook this conflict of interest and work with a combined demand-side platform (DSP)-supply-side platform (SSP), often citing the need to “lock in” a relationship with advertisers.

On a recent outing to look for a new home, I encountered a similar conflict of interest. Our agent showed my wife and me a home listed by the same company. Even before we set foot inside, we were asked to sign a waiver acknowledging the conflict of interest.

As a buyer, I understood that any offer we made on that home might not be in our best interest. I also understood that every home is unique and that if we wanted that particular property, we’d have to abide by whatever constraints the seller had put in place. But I signed because I knew we could have our agent show us the rest of the inventory on the market, regardless of her firm’s relationships.

But what if the seller’s agent said only buyers represented by the same firm could bid? That would be great for the middleman, but a seller would never make that deal because limiting the number of potential buyers puts an artificial ceiling on price. And yet, that’s exactly what happens when a publisher works with a DSP/SSP because they want to “lock in” a relationship. That might make sense for banner inventory, where the supply is abundant and the pressure to fill requires exclusive demand-side relationships, but online video is different.

For one thing, programmatic plays a ubiquitous role in online video, so buyers and sellers have already established an open marketplace capable of shedding light on price, regardless of relationship. More importantly, quality online video inventory is scarce and demand is growing, which underscores the need for publishers to extract a market price that reflects that maximum number of bidders.

Why Publishers Overlook The Conflict Of Interest

Perhaps the most understandable reason for overlooking an obvious conflict of interest is the need to address reporting discrepancies. In theory, an all-in-one stack solves the very real problem of reporting discrepancies because the same tech on both sides of the deal should generate the cleanest data.

But publishers are in the business of selling inventory for top dollar, not digesting discrepancy-free reports. It’s a problem that can also be solved by working with the right vendors and holding them accountable.

When a publisher chooses reporting over price discovery, what they’re really saying is that they’ll take less money as long as they don’t have to fiddle too much with spreadsheets. That would be laughable in real estate and heresy on Wall Street, yet online publishers that tolerate dark markets call it the cost of doing business.

Bias In The Tech Can’t Be Overcome

Despite the obvious conflict of interest and dubious payoff of a DSP/SSP, many publishers insist that, somehow, the tech is neutral. It’s not.

The mission of a DSP is to help advertisers find the best audience match at the best price. Advertisers use DSPs because different targets have different values. If you’re Toyota, you’ll pay more to find a customer who has expressed a high level of purchase intent versus someone who only loosely matches the target audience. DSPs are designed to find those targets, assign preferences based on real-time market conditions and execute media buys that apply all relevant data.

An SSP has a very different mission. They are engineered to help publishers optimize the balance between maximizing CPMs and fill. By their very nature, SSPs challenge the preferences that are in the DNA of a DSP, because whereas the former strives to raise the price and sell out on inventory, the latter is selective on inventory and price-sensitive. It’s illogical to believe that an all-in-one solution could serve both masters because where those two powerful tools meet in opposition is precisely where the market price is discovered.

Why Does The Demand Side Care About Publishers?

Advertisers need strong publishers with sustainable business models. If advertisers are trying to buy audience, they can’t get very far working with publishers that are struggling to produce quality content. More importantly, advertisers and publishers alike benefit from an open market where buyers have widespread access to inventory. A successful campaign isn’t the cheapest one – it’s the media buy that delivers the best inventory while maximizing the advertisers spend.

In the context of an individual transaction, the demand side’s interests aren’t aligned with publishers. In fact, they’re in opposition to each other. But the interests of both sides do align around eliminating shady markets that mask the real price and hide valuable inventory. If a publisher’s partner doesn’t give them access to all buyers in the market, there’s something shady about that relationship.