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What a difference two years makes. When the Rubicon Project launched in
2007, the ad network marketplace was in the midst of a dramatic growth spurt.
Networks were cropping up around an infinite number of audiences (women-
centric, sports-centric, etc.), sales models (cost-per-action, cost-per-click, etc.)
and offering various kinds of targeting (behavioral, contextual, etc.). These 300
networks fulfilled a very specific need back then: to help publishers sell all the
inventory they couldn’t sell on their own, and sell it fast.
There wasn’t much transparency, and many publishers and advertisers were
burned by poor quality ads, lackluster campaign performance and arbitraged
CPMs.
MARKET REPORT
• Sales channel conflict: the idea that networks were essentially competing with
a site’s internal sales team, and often selling the inventory at too cheap a price,
which led to…
• Inventory commoditization: the inherent value of a publisher’s content (and
audience) got lost amid the push to make it easy to buy a high volume of
impressions as fast as possible
Meanwhile, advertisers were concerned about “blind” buys that offered no insight
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into the quality of content their brand messages were running against. These
factors led to predictions that advertisers and publishers would stop working with
ad networks en masse. But that didn’t happen.
In fact, huge publishers like Turner and MTV Networks decided to focus on vertical
ad networks, going so far as to launch their own hyper-targeted, mini-networks.2
Some advertisers even committed to increasing their ad network spending by as
much as 75% in 2008 versus the previous year.3 Clearly, the challenges plaguing
both advertisers and publishers were not enough to keep them from utilizing the
dominant distribution channel of ad networks.
We also saw an increased willingness from publishers to not only work with, but
also optimize their ad network relationships. In Q208, we had 1400 publishers; by
the end of the year we had optimized websites for more than 2100. That’s growth
of 150%, which brought with it a 300% influx in optimized impressions. Working
with both publishers and ad networks, we observed two trends emerge over the
course of the year:
MARKET REPORT
• More transparency: the most successful ad networks were ones that allowed
advertisers to be very specific with the inventory and audience they wanted to
reach, let publishers exclude certain kinds of ads, and could pinpoint when a
given ad ran for either side. While the issue of channel conflict kept (and keeps)
publishers from permitting transparency around their site names, programs
like Rubicon Certified Inventory™ allowed ad networks to give their advertisers
exactly what they wanted while keeping publishers happy, too.
• A shift to audience-based buys: instead of targeting users by keyword (or
context), advertisers are actually buying publisher audiences; this is a data-
driven shift, as networks (and publishers) have invested in technology that
captures, classifies and packages their audiences for advertisers.
A Maturing Industry
We think those are signs that the online advertising marketplace matured
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significantly in 2008. Another healthy sign is that deals and partnerships were
driven by less hype and backed by more intelligence. In terms of investments,
there were none of the billion-dollar deals that became the hallmark of 2007.
That’s partly because of the credit crunch and ensuing financial crisis, but also
because the Google/DoubleClick, Yahoo/Right Media deals, et al. have yet to
produce solid returns on investment.
Meanwhile, the confusion about what networks do and why they’re necessary
has been largely eliminated. Advertisers are now familiar with which networks
MARKET REPORT
to turn to when they want to reach a specific audience, and publishers know
which networks can get them the most bang for their buck (or, in the case of
large and premium publishers, especially, how to leverage the Rubicon Project to
optimize ad sales through multiple ad network relationships). But there are still
fundamental pain points that publishers are struggling with:
• Channel conflict hasn’t gone away: deal terms between networks and
publishers have definitely become more transparent, but there’s still the risk
that a buyer will be able to bypass a publisher’s own sales team for a network
that is selling the same inventory on the cheap
• Media waste: inefficiency in the marketplace leaves publishers in the lurch.
Even when they work with ad networks, ad impressions go un- or under-
monetized (like empty airplane seats) when ad networks themselves
have more inventory than they can fill with their advertiser relationships.
Publishers and ad networks need a solution that aligns available inventory with
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value. The publishers just need to know how to leverage it more effectively to
maximize their yield.”
Key Takeaways
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CPMs in the first quarter were down, but much of that had to do with seasonality.
In some verticals, we saw same-site revenue rise steeply versus the last quarter
of 2008, even as CPMs dipped dramatically. Overall, revenue grew across the
entire marketplace of premium websites powered by the Rubicon Project’s
infrastructure.
There’s no denying the impact that the economy has had on display ad sales, but
MARKET REPORT
there are indications that one of the biggest factors keeping many publishers from
monetizing their content (at least, at the rates they need to stay in business) has
been poor inventory management.
When the ad network boom first began, the consensus was that there were only
two types of inventory: premium impressions publishers could sell through their
own direct sales teams, and then anything else their in-house team couldn’t
monetize, which was branded “remnant.” The model was simple, but clearly
unsustainable, because it wound up commoditizing a significant percentage of a
publisher’s inventory.
“The notion of remnant inventory is a horrible and ridiculous,” said Jim Spanfeller,
president and CEO of Forbes.com. “Every interaction on a browser is the same
fundamentally. Just because we haven’t sold it doesn’t mean it’s less valuable.”
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But what if the network’s “remnant” Cosmopolitan inventory was worth more
than $1.50/CPM? What if the units were behaviorally-targeted, and reached
visitors reading Cosmopolitan’s “Get a Great South Beach Body” article, right
after they’d come from checking out vacation packages on Expedia.com? Wouldn’t
those impressions be just as valuable — if not more so — than the $20/CPM
homepage ad?
This newly defined class of “secondary premium” inventory is only slightly less
valuable than premium, guaranteed ad units, but as an industry we’re still limiting
ourselves to thinking in terms of just two categories: premium and remnant. That
needs to change. Why? Because as William Morrison of the San Francisco-based
investment bank and research firm ThinkEquity noted in his recent report, The
MARKET REPORT
Every publisher that lacks a smart channel management strategy to address the
different types of guaranteed and non-guaranteed inventory is leaving money
on the table. Similarly, if they aren’t supporting publishers in effective channel
management, ad networks and other demand sources are contributing to media
waste and revenue loss for themselves, their publishers, and ultimately their
advertisers, too. A better understanding of inventory types and how to manage
them can make this market a more efficient and lucrative one for all players.
Below are some loose definitions of the three types of display inventory:
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cross-site integration. Typically sold via direct sales team with placement
guarantees, premium inventory comes with a higher CPM, a higher rate
of exclusivity and a locked-in time period during which the campaign is
guaranteed to run — meaning not every advertiser that wants it can get it.
• Secondary premium: This is the merchandise that Louis Vuitton or Gucci sells
at Bloomingdale’s, for example — it’s still high-end, but aimed at a broader
market, with a lower price point.
This is standard “display ad” inventory; it can come with some placement
guarantees (i.e. the first few impressions per visit, a well-crafted above-the-
fold unit, or a tightly targeted audience segment) and can be sold by the site’s
direct sales team or through a premium audience representative. Publishers
should be getting higher CPMs for this than they are typically getting from
most ad networks today.
• Non-premium: When the Louis Vuitton handbags or Gucci suits don’t sell in the
boutique or at Bloomingdale’s, they’re sent to an outlet. This is where shoppers
can get designer goods at a steep discount; the caveat is that they have to put
up with some inconvenience (it still has the same quality; it just may be out of
season, for example.)
MARKET REPORT
These are the impressions that a publisher couldn’t sell, which is sometimes
why it’s called “remnant” inventory. Advertisers running on non-premium
inventory may not be able to target the exact dates when their campaigns will
run, or where (which sites, sections, above the fold, etc.), but non-premium
placement is still running across the same high-quality inventory from top-
notch premium publishers, sold at a much lower price point than premium
or secondary premium. This is also where certain ad networks can add
tremendous value, because they can bundle and target these impressions in a
way that’s attractive to advertisers.
So how much revenue are publishers (and the industry as a whole) missing out on
by not driving the most value out of their secondary premium inventory? About
$6.5 billion in incremental revenue in the U.S. alone, according to ThinkEquity.9
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advertiser effectively, so they need to think about the ones they can service
better than anyone else in the market — the ones who want to buy couture at
the boutique — but then also about who to partner with so that they can still
generate revenue from other advertisers. So, who’s their Bloomingdale’s? Who’s
their outlet store?”
MARKET REPORT
In some instances, it makes sense for publishers to have their own “outlet”
offerings, such as a non-guaranteed or performance unit for the in-house sales
organization; whereas for other segments of inventory or audience, partnering
is the best strategy. In talking to hundreds of publishers every week, we’ve seen
that it can be dangerous for the same salesperson to sell both the “right off
the runway” and “outlet” inventory. Correctly managing sales channels across
different inventory types, both internally and externally, cycles revenue more
effectively to a publisher’s sites, as well as through the entire online advertising
ecosystem.
That’s the perfect segue into the issue of sales channel management. Publishers
that do it well have been able to find the best partners to sell their premium,
secondary premium and non-premium inventory, at the best prices. Time Inc.,
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for example, brought in $245 million in digital ad revenue last year10 — beating
out rival publishers like Conde Nast and Hearst — because it has a well-evolved
channel management strategy.
MARKET REPORT
Time’s in-house sales team can sell advertisers custom sponsorships on sites
like Essence.com, RealSimple.com, or Fortune.com; but the publisher’s Time
Digital network lets advertisers buy campaigns across categories (like lifestyle or
financial news) and audiences (women, or people that live in the West). Time also
works with outside ad networks to give brands access to pure reach (CPM or CPC-
based campaigns) when necessary.
“Ad networks buy inventory today from companies like us at pennies on the
dollar,” said Kirk McDonald, president of Time Inc. Digital, in Advertising Age.11
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“We’re going to take the same impressions that today we’re getting pennies on
the dollar for, and get dollars for those.”
“They were able to grow their digital business because they managed their sales
channels effectively,” Batson said. Publishers are also increasingly bringing in
senior team members that liaise between sales and operations to handle channel
management. But those publishers are the exception. It would be better for the
industry if they became the rule.
Channel management doesn’t just pertain to personnel; it also includes the tactics
that publishers use to sell their inventory. As we’ve seen, targeting — whether
it’s behavioral, contextual or search re-targeting — has helped infuse previously
unsold inventory with tremendous value. In that same vein, we’ve found new
revenue opportunities to help publishers maximize the value of both their
secondary premium and non-premium impressions – audience extension and
audience representation.
Audience Extension
MARKET REPORT
With audience extension, publishers are tapping into the power of their peers to
extend their audience. For example, a newspaper brand like The Washington Post
might have a limited amount of financial-based inventory in a given month — let’s
say about six million impressions worth. If a financial services advertiser wants
to do a 10-million impression buy, The Post could lose out on that revenue. But
if it can “borrow” four million more impressions from Fortune or The Economist
(and split the revenue, of course), then it can fulfill the advertiser’s campaign
requirements and drive revenue goals.
It becomes a win-win-win: the financial brand gets its message out, The Post
adds more revenue to its bottom line, and since the “borrowed” inventory has
been carefully targeted, the newspaper is most likely selling Fortune’s or The
Economist’s secondary premium inventory at a better rate than if either publisher
had sold it as remnant on its own.
“The technology has reached a point where publishers can unlock their audiences
like never before,” said Raleigh Harbour, the Rubicon Project’s VP of business
development. “Historically, they’ve always sold based on their brand or by site;
now, they can actually sell based on audience or intent. At the same time, the
buyers’ appetite for audience has started to grow; sophisticated publishers are
realizing that they can generate more revenue by tapping into fellow publishers’
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audiences than they could with just their own endemic site traffic.”
Ad networks, exchanges and sales channel partners like the Rubicon Project are
all helping to facilitate this audience extension process through automation,
since it’s not practical for publishers to spend time trying to handle the setup,
deployment and payment reconciliation of these inventory-sharing deals on their
own.
Audience Representation
• They’re too niche (and don’t have enough reach to fulfill a brand’s needs on
their own)
• The brand is only comfortable working directly with a select group of on or
offline media partners
• The brand may not have much (or any) online advertising experience
MARKET REPORT
Katz Media, for example, is a spot radio and TV advertising company (an offshoot
of Clear Channel) with 120+ years of experience selling media both to major
international brands and smaller, local businesses. This experience has helped
Katz’ sales team build strong relationships with advertisers, many of whom are
new to running ads online. So Katz developed an offering called Katz 360, which
includes display, mobile and radio inventory. Through audience representation,
Katz can increase the reach of its display campaigns by pulling in premium
secondary impressions from various publishing partners.
“Agency needs are focused on reaching very targeted, relevant consumers for
their brands as the migration of advertising dollars towards digital channels
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accelerates,” said Brian Benedik, President of Katz 360 Sales. “The ability to
segment specific audiences for these advertisers is an essential value proposition
for today’s sales agents. At Katz 360, our Audience Representation business
lives through multiple digital platforms and our new display advertising audience
offering is an exciting development. There is a real need for the secondary
premium display market to evolve, and our Katz Audience Representation
business provides national brands and local businesses with behavioral and
contextual solutions across a host of Web publishers.”
Q1 Vertical Performance
As expected, CPM rates in the first quarter dipped significantly. This was in part
due to seasonal pressures (post-holiday budget adjustments typically lead to 20
to 30% rate dips from Q4 to Q1), but also due to the overall impact of the global
economic crisis at the start of the year.
But as in previous reports, we maintain that CPMs alone do not provide a holistic
view of the overall health of the display market – you need to examine revenue
and traffic performance as well. Both same-site and all-site comparisons for the
period demonstrate significant traffic and revenue growth amidst lower CPMs.
The negative impact of the economy affected CPM rates, but revenue continued to
outperform the previous quarter.
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A year ago, we were very optimistic with our first market report. We maintained
that ad networks were valuable, necessary and that they’d continue to
proliferate. And that they did. There were around 300 networks in existence in
early 2008 — now there are more than 400.12
And while it’s true that we’re in the midst of an economic crisis that has forced
consumers and advertisers to cut spending, the fact remains that many of those
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advertisers are shifting significant portions of their budgets to the Web. For
example, Century 21 slashed its TV ad budget by nearly 70% over the course of
2008.13 Now, it’s focusing on using digital media like unique banner ads, an online
radio show, and the newly ubiquitous Twitter, to generate both awareness and
sales leads.
“We are seeing an ongoing secular shift from traditional to online media as
marketers recognize that ad dollars invested in interactive media are effective at
influencing consumers and delivering measurable results,” said IAB president and
CEO Randall Rothenberg, in the organization’s year-end 2008 spending report.14
The cash crunch has forced advertisers to spend wisely, and we’ve already noticed
a shift to more performance-driven display ad deals. “A large percentage of the
campaigns we’re seeing are focused on performance,” Harbour said. “They may
be brand advertising deals on paper, but the networks and publishers that can
demonstrate higher performance — be it through a direct response like a click,
or some back-end engagement metric — are the ones that are getting the most
repeat business.”
MARKET REPORT
While online advertising has certainly matured significantly since the Rubicon
Project’s founders decided to tackle the inefficiency in the market, challenges
remain. Dollars and inventory are still fragmented, and automation across sales
channels throughout the industry has been limited.
Publishers, ad networks, audience sales reps, and other industry role players
need a core infrastructure in place to ensure transactions are efficient, effective
and safe across all online sales channels. Issues like ad quality, click fraud — and
yes, channel conflict — require technology and expertise to protect publishers’
brands. Transactions need to be optimized for the best channel opportunity, for
the greatest effect on revenue, and efficiency is more important than ever when
billions of ad transactions are running through systems daily.
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the Rubicon Project is working to tie the industry together in the belief that
safe and efficient transactions benefit everyone in the value chain — from the
consumer interested in traveling to Miami, to the premium-branded travel
advertiser and everyone along the way — especially publishers seeking to optimize
their advertising sales. We are eager to see what the next two years will bring.
MARKET REPORT
15 Source: Rubicon Project proprietary data and comScore March 2009 Page 15
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Footnote Index
1. ClickZ - Advertisers Overwhelmed by Online Network Choices, Says Study http://www.
clickz.com/3625532
5. paidContent - Online Ad Network Adify Sold To Cox For $300 Million Plus Earnout
http://www.paidcontent.org/entry/419-online-ad-network-adify-sold-to-cox-
communications-for-300-million-plus
7. paidContent - LucidMedia Gets $8.8 Million Third Round, Launches Ad Net http://www.
paidcontent.org/entry/419-lucidmedia-gets-88-million-third-round-launches-ad-net
14. IAB - Internet Advertising Revenues Surpass $23 Billion in’08, Reaching Record High
http://www.iab.net/about_the_iab/recent_press_releases/press_release_archive/
press_release/pr-033009
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