Simmons Performance Solutions          The Pulse of RTB           A view through the Crystal Cube                         ...
Table of Contents  1. Executive Summary…………………………………………………………………………………………..pg. 3  2. History, Industry vs. Market, & Finan...
Authors    Rufus Simmons                                                                             Sunil Sharma    Found...
Executive SummaryReal time bidding (RTB) in media buying provides scale and efficiency but still has a long way to go inbe...
HistoryTraditionally, advertisers either directly or through agencies bought media placements directly frompublishers. The...
simply traded among independent entities. This is a far cry from real time media, in which publishershave to create conten...
The RTB Crystal CubeRTB’s ultimate goal, like that of any industry, is effectiveness; advertising effectiveness. We believ...
Current View of Real Time BiddingRTB is outpacing the growth of the rest of display media spending;                      M...
Defining the RTB Supply Chain   A straight line static model has been the standard bearer for representing the RTB industr...
of online spending, the supply chain view is necessary at this step in the RTB evolution. It showsa logical flow of availa...
category are just two data points. Thus, the distinction between data and media is blurred foranalytical purposes. It is a...
Dynamic Value Chain RTB ModelThe dynamic RTB value chain model shows how the RTB industry really functions. In spite of th...
To further clarify, technology does not necessarily mean high tech in the computing orhardware sense; though that is gener...
Audiences Are AliveThe word audience is almost clinical, sterile. But we are referring to people, who eat, breath,live, an...
Impact of a Dynamic Value Chain in RTBThe key question: Is RTB better served by a supply chain model or a value chain mode...
Possible Future States: Using the Crystal Cube to Project RTB IndustryDevelopmentCurrent strengths                        ...
efficiency and scale, ad networks are better positioned than DSPs, exchanges, individualpublishers, and agencies.So much f...
Large DSPs may look to develop advanced math in house. Smaller, hungry competitors willlikely to try to outflank them by a...
multi-channel signals, networks can help advance multi-channel RTB, and therefore enhanceRTB’s impact, and ultimately effe...
Looking ForwardA major obstacle to reaching Utopia is innovation fatigue. The companies that are in the bestposition are n...
ReferencesIn depth, single blind interviews with key executives across the supply chain – publishers, support firms, agenc...
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The Pulse of RTB

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An analysis of the evolution of Real Time Bidding and its uses in within digital media advertising. Developed insight and models for industry standards with Sunil Sharma, CEO of InferSystems.

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The Pulse of RTB

  1. 1. Simmons Performance Solutions The Pulse of RTB A view through the Crystal Cube 8/14/2012
  2. 2. Table of Contents 1. Executive Summary…………………………………………………………………………………………..pg. 3 2. History, Industry vs. Market, & Financial Market Comparison…………………………..pg. 4 3. RTB Strategy Space…………………………………………………………………………………………...pg. 5 4. Current View of RTB…………………………………………………………………………………………pg. 7 5. Defining the RTB Supply Chain………………………………………………………………………… pg.8 6. A new RTB Model……………………………………………………………………………………………….pg. 9 7. Impact of a Dynamic Value Chain in RTB……………………………………………………………pg. 14 8. Possible Future States……………………………………………………………………………………….pg.15 9. Looking Forward……………………………………………………………………………………………….pg.19 10. References…………………………………………………………………………………………………………pg.20 The Pulse of RTB Page 1
  3. 3. Authors Rufus Simmons Sunil Sharma Founder and Principal CEO Simmons Performance Solutions InferSystems Corp.Copyright ©2012. InferSystems Corp., and Simmons Performance Solutions, All Rights Reserved The Pulse of RTB Page 2
  4. 4. Executive SummaryReal time bidding (RTB) in media buying provides scale and efficiency but still has a long way to go inbeing truly effective. This paper examines the vectors that the industry is likely to travel along from itscurrent state to becoming a highly effective media buying mechanism.The new world of media buying, in which machines compete in nanosecond long second price auctionsto place billions of ad impressions has now received coverage by main stream media. But by no meanshas this industry matured. In fact, it is not a single industry at all, but rather an interrelated collection ofsub-industries that formulate dynamically depending upon advertising objectives. We examine thesefluid formulations to provide more clarity about the strategy space and optimal strategy selection withinit.Further, the transaction of buying and selling media is no longer executed directly between anadvertiser [represented by an agency] and a publisher. Rather, individual media impressions are boughtin auctions in media exchanges. These impressions are selected from pools of billions. The promise isthat rather than purchasing huge batches of inventory through inefficient offline transactions, RTBenables more economical transactions and superior targeting; resulting in more efficiency at scale.But RTB has the potential to provide a more dynamic impact that exceeds just efficiency and scale.However, like many emerging industries, it is still defining its role within an overall advertising strategy.But unlike many industries, RTB is an ecosystem and its ability to deliver value to advertisers will comefrom how well it can reformulate supply chain components to deliver on different goals in near realtime. Certainly, a value chain is preferable to just a supply chain because each component providesmore value than it costs. But in RTB, the value chain should not be static. In order to achieve itspotential, RTB must be delivered through a dynamic value chain that reformulated at the campaignlevel. In doing so, RTB will need to move beyond just audience data, and be able to simultaneouslyextract and distribute valuable signals from all kinds of variables, such as creative type, ad location,content, context, time of day, day of week, etc.Data is the continuous pulse that feeds life into the ecosystem and provides a means to identify value.But the approaches to dealing with data must be advanced further. Identifying the right datacombinations at the campaign level will enable the right value chain formulations and enable RTB to goto the next level.We introduce an industry design model that identifies areas of value within the industry, and identifieskey levers for more effective RTB advertising. We go on to discuss the four key competencies aroundwhich an ad tech business can be built. Our model demonstrates that the RTB ecosystems pulse is acontinuous flow of data; but that the meaning of data needs to be redefined.Central to the RTB industry’s existence is the ability to deliver the optimal message on the rightimpression, in the appropriate channels, and under the conditions that will result in overall advertisingeffectiveness. As we will demonstrate, the ability to collaborate and bring the right tools to bear at thecampaign level is the key to achieving this. The Pulse of RTB Page 3
  5. 5. HistoryTraditionally, advertisers either directly or through agencies bought media placements directly frompublishers. The system relied on faxes and insertion orders, and was for all intents and purposes thesame across media types – TV, radio, print, and digital. Search advertising introduced a new paradigm,as search algorithms, most notably and successfully Google’s, displayed relevant Web pages andadvertisement based on the users’ search terms and other attributes. And, as Internet usageskyrocketed in the early 2000s, and the supply of display advertising grew, intermediaries like adnetworks emerged to sell the remnant inventory that was left over after the publishers’ direct salesefforts. Since then, media and data exchanges, demand side platforms with algorithms and bidders,supply side optimizers, and other technologies have emerged to turn display advertising into a fullyprogrammatic industry which also includes premium media placements. These innovations have alsoextended into mobile, video, and social.Industry versus MarketDistinguishing industry from market may seem like minutia, but isn’t. The two have starkly differentmeanings economically. A market is comprised of buyers and sellers, and in most cases intermediariesand market makers. An industry is comprised of the supply side of a market, the sellers.This distinction is significant for RTB because the market has traditionally been defined as supply anddemand. In this construct, publishers are considered the supply side, agencies and advertisers areconsidered the demand side, and everyone else is considered to be intermediaries. However, onlyadvertisers are, in reality, buyers. Everyone else is a seller of something. Agencies are, in fact, selling aservice that enhances the ability to buy of advertisers the raw materials, the impressions. That agenciesdo the buying on behalf of advertisers does not change the fact that they are actually sellers of a service.This is why we have not included advertisers in this paper, to convey an analysis of industrialdevelopment.It’s NOT The NASDAQOne popular axiom is that RTB is very similar to the stock market. But this is not really the case. It is truethat media trading looks more like The NASDAQ than the archetypical world of AMCs Man Men TVseries. Yet, while the programmatic, or machine driven, nature of RTB is similar to the financial markets,key dissimilarities outweigh similarities.The most significant difference is that the bulk of stocks are bought and sold by people who havenothing to do with their creation. Once companies make stock available in initial sales, the equities are The Pulse of RTB Page 4
  6. 6. simply traded among independent entities. This is a far cry from real time media, in which publishershave to create content, worry about yield, manage multiple sales channels, learn to use technology, findsignals in data, and deal with a number of other key elements in the production and delivery of valuablead space to advertisers. Likewise, advertisers and agencies must deal with similar challenges to find theoptimal pockets of inventory.Another stark contrast is that stock trading has been developed as a craft over more than a century ofpractice. Traders can make reasonable bets by examining the economic cycle, sector strength, P/Eratios, multiples, and news coverage. In contrast, programmatic media buying is less than 5 years old.Buyers are still figuring out metrics and evaluation.There are other key differences as well. But ultimately, RTB is a high growth, immature market whoseeconomic structure is still nascent. Therefore, while technologies can be borrowed from the financialworld, the real issue in programmatic media is that the industry, the supply side economic structure, isstill under construction. The book is yet mostly unwritten, and we strive to add another chapter.The RTB Strategy SpaceBefore diving into the industry’s current state and potential future development, we will define itscurrent design and attempt to forecast future strategic moves by its participants. We will do this visuallyusing a tool developed by the late R. Jeffrey Ellis, former professor of management strategy at BabsonCollege, and call it the RTB Crystal Cube. Jeff’s consulting, research, and teaching in strategy spanneddecades and included extensive work with some of the leading global companies across industries. Hefound that the companies that succeed consistently do so not by engaging in trench warfare withcompetitors over minutia, but by anticipating the future and aligning strategy with operationalexcellence to find a path to Utopia.The model is based on anticipating the key vectors that an industry is likely to travel along to providemaximum value to consumers (advertisers in this case). There is no shortcut to selecting the rightvectors. It can be done only by immersion into a market’s functions and then using that deepunderstanding to sense the likely future direction. We use market here because anticipating theevolution of buyer needs is paramount for charting the course of industrial development.By definition, this cannot be an exact science. If it were, then everyone would do it and no one wouldhave a strategic advantage, except in scale; and the industry would be static. Our model of the path toUtopia has been created by combining our own experience and knowledge of the space withconfidential discussions with some of the leading executives within digital media. The Pulse of RTB Page 5
  7. 7. The RTB Crystal CubeRTB’s ultimate goal, like that of any industry, is effectiveness; advertising effectiveness. We believe thattrue effectiveness will be achieved by traveling along and maximizing on three key vectors – scale,efficiency, and advertising impact. Advertising Effectiveness Efficiency ScaleAn industry’s true potential is reached when it is maximized on the three key vectors. In this case, whenscale, efficiency, and advertising impact are maximized, we reach the farthest point from the origin [ofthe industry] and have advertising effectiveness. This is Utopia.We have plotted the various participants within the RTB industry onto our RTB Crystal Cube later in thepaper. This shows where specific industry participants are strong and weak relative to full valuecreation, and thus sheds light on possible future strategic investments.But first, we examine how the RTB supply chain functions today, and can function in the future to createmore value. The Pulse of RTB Page 6
  8. 8. Current View of Real Time BiddingRTB is outpacing the growth of the rest of display media spending; Marketingwhile display media spending is projected to increase by 10.5% CAGRuntil 2015, RTB is projected to increase by as much as 66% CAGRover the same span. With this rapid growth, RTB has caught the eyesand dollars of many entrepreneurs and investors, resulting in morethan 250 companies staking out positions in the space. These new Raw Materialscompanies and the increased investment dollars are pushing theindustry to new heights.With the flow of capital into RTB, many analysts are making The traditional oneassessments based on individual company operations and resources. size does not fit allBut to gain a better understanding of how the industry functions, an when it comes toaggregate view of all the players and their interrelations is needed. value chain models ProcurementThe publishers, advertisers, DMPs, DSPs, ad exchanges, ad networks,ad servers, buying platforms, and various optimizers are extremelyimportant; but all industries evolve as a whole system that deliversvalue. Valuable product flow from seller to customer is the mostimportant factor for any industry. But in digital media, and morespecifically RTB, the ability to identify relevant impressions and placethe proper ads with the right messages under the optimal conditions Processingrequires a dynamic delivery system that is campaign specific.When searching for a representation of the industry, one is likely tofind one of the many models which try to stay true to the traditionalstraight line supply chain or value chain models, such as thetraditional liner model presented on the right. DistributionBut the key questions are: What is the central function whichproduces the industry’s value? How is this best represented as amodel which serves the industry? Are the current models valuechains? Can a new model be used to either predict or promptdiscussions on how the industry will evolve? Sales The Pulse of RTB Page 7
  9. 9. Defining the RTB Supply Chain A straight line static model has been the standard bearer for representing the RTB industry. Models like the one in figure one, which was produced by LUMA Partners LCC, have been very useful in understanding the makeup of RTB. It provides an excellent visual representation of the industry’s layout and its fragmented nature, thereby conveying the complexities, threats, and opportunities within the space. However, [we assume that] this model is not intended to be a functional representation of how the industry operates. Yet, it is often misapplied that way. Ultimately the RTB market is not about who is participating, but rather who is paying whom for what. The RTB Supply ChainFigure 1 The current models show how impression sales flow from publisher to advertiser. This process flow makes it a supply chain and not a value chain, which would show how value added activity is added at each step. With the industry growing and attempting to attract a greater percentage The Pulse of RTB Page 8
  10. 10. of online spending, the supply chain view is necessary at this step in the RTB evolution. It showsa logical flow of available impressions and how ads are placed.But can we present a true value chain model which will spur growth and show how value isadded to the supply chain? We believe so.There are three key reasons that a straight line static supply chain model is not the bestrepresentation of the RTB industry.  The central process is not represented; models focus on identifying the sale and not identifying value creation.  Unlike the vast majority of industries, RTB is not only an ecosystem in name, but an ecosystem in the way that it breaths through the flow of data.  RTB and its players are quickly evolving, and with cross platform capabilities, some of the players are changing the flow process from one available impression to the next.Ultimately, RTB works best when the supply chain is reformulated continually at the campaignlevel, and when the basic raw materials, the impressions, are treated uniquely based on theirinherent qualities to deliver value in the form of advertising results at the campaign level.A New RTB ModelUltimately, RTB is still a transaction between a publisher and an advertiser. That it is conductedin media exchanges and marshals a variety of intermediary assets and data does not change itsfundamental nature; the difference is the added scale and efficiency to the transaction. But asmentioned, effectiveness also requires advertising impact.Audience targeting is at the center of RTB. The idea is that rather than Web sites being a proxyfor audience, it is more effective to reach the right audiences across any Web site. But this is anoversimplification.The accuracy and scalability of audience segments is a controversial issue at best. Thetraditional way of categorizing people into audience segment buckets by tracking theirbrowsing history has had limited success in real application. Alternative approaches are beingused more. These include applying offline transaction data, creating custom micro-segments,etc. And, more precision is added when the characteristics of the Web site is taken intoaccount.These more sophisticated approached to data analysis, and signal capture and distribution arebeing made possible by increasingly sophisticated mathematical systems, rather than basicalgorithms. In fact, emerging math systems make it possible to simultaneously look at allavailable parameters as data. For example, the number of ads on a site and its contextual The Pulse of RTB Page 9
  11. 11. category are just two data points. Thus, the distinction between data and media is blurred foranalytical purposes. It is all data, which is a good thing for publishers with high impact sites.Advanced mathematical systems are proving beyond any doubt that inventory characteristicssuch as the number of ads on a page, ad location, contextual category, and URL can beeffectively used to optimize campaign performance without the need for audience segments.When these attributes are combined with audience data, performance increases. However, it isclear at this point that sites are not just a proxy for audience.New mathematical systems can ingest and distribute signals from thousands of parameterssimultaneously. This alleviates the limitation of having to rely upon only one or two types ofdata at the operational level. While this is not intended to be a paper on math, thesedistinctions are important to conveying what we mean by audience. We are not referring to thetraditional “audience segment.” Rather, we are referring to real people who are the audiencesfor advertising messages, and to the more sophisticated techniques being developed to reachthem with the right message, at the proper times, and within the best environments. Thecombined weights of these factors have an impact on effectiveness, and new mathematicalsystems can measure and act on this.In any case, regardless of the distinction, reaching the right audience is still crucial; but not justanywhere. Mathematical analysis clearly shows that ad placements matter.Ultimately, the essence of the dynamic RTB value chain is that it brings to bare the right assetsat the campaign level. The Pulse of RTB Page 10
  12. 12. Dynamic Value Chain RTB ModelThe dynamic RTB value chain model shows how the RTB industry really functions. In spite of thehigh number of intermediaries the industry is still comprised of transactions betweenpublishers and advertisers. The supporting entities, around the outer ring, provide theinfrastructure, data, and math to enable the transactions to be in real time and highly targeted.However, all that is really necessary is included in the core set of middle circles. Essentially, allthat is needed is technology, math, data, and people to facilitate effective transactions.Whether these capabilities are provided by support firms on the outer circle or by the principlesthemselves is of no consequence. Currently, they are generally provided by the support firms.We call the companies on the outer ring support firms and not intermediaries because they arenot in the middle of anything unless they support a transaction in providing greater value, atleast in a rational market. Therefore, only those support firms that can provide significant valuein the areas of data, math, and technology will be part of the broader market in the long run.To be clear, we define data as any parameter for consideration that can be analyzed to makedecisions. Therefore, creative type, ad placement, and audience segment are all data points. Ad Network DMP Creative Technology Ad Optimization Exchange Data RTB Market Math Publisher Advertiser Math Data DSP Provider Data Media Optimizer Buying Technology Platform Creative/ Ad Server Agency The Pulse of RTB Page 11
  13. 13. To further clarify, technology does not necessarily mean high tech in the computing orhardware sense; though that is generally the meaning. We use the broader definition oftechnology, including methods of production to induce better outcomes, such as work flowdesign improvements.But while there are many support firms within RTB with a variety of products, we believe thatthere are only 4 key areas of excellence around which an ad tech business can be built – data,technology, mathematical systems, and people. To reach Utopia, a firm must be able to deliverexcellence in each of these areas to advertisers. That requires collaboration and partnership, asour research indicates that buyers are not satisfied with any single company in all 4 areas. The Pulse of RTB Page 12
  14. 14. Audiences Are AliveThe word audience is almost clinical, sterile. But we are referring to people, who eat, breath,live, and react to their environments. Therefore, advertising has an impact on audiences. Butthe impact changes over time as sensibilities, conditions, competitors’ strategies, and otherfactors evolve. Therefore, yesterday’s strategy may not work today; resulting in the need forconstant data flow and analysis to extract RTB’s true power.The actions of the advertisers, publishers, and audiences are interlocked and have aninterrelated effect on the desired outcome. Building brand equity and monetizing sites are twoprimary publisher goals that drive user activity. Meanwhile, the goal of advertisers is efficacy,whether branding or DR (which are interrelated with a two way causality). This creates the pushupon the audience in the form of advertising. However, as audiences react differently to thesame offers over time, they in turn push back on advertisers with changing behaviors.Advanced math, tech, and data enable advertisers to decode these dynamic patters to deliverrelevant advertisements on appropriate content to the right audiences.Data has been placed beyond the central industry because insight is pulled into this ring basedon the advertiser and publisher goals. The richness of available data is what enables optimizersto create effective targeting rules and is paramount to the ecosystem’s progression. Technologyand math is layered on next because software pulls its information from the data andmanipulates it for effective targeting. Technology is paramount because it allows for theidentification of key audiences and relevant data to be obtained from audience activities andprovides the infrastructure for the bidding process. Advanced math is crucial because it extractsthe new signals that continually flow into the ecosystem, turning them into valuable insights.As mentioned, the orbital ring contains the support firms in the RTB process. Each of thesestrives to perform value added activities in the valuation, buying/selling, and delivery of adimpressions with the right creative(s) to the appropriate people. They are pivotal as a whole,but are still defining themselves and their positions, which is the reason that each arrow of theorbital path flows back and forth. Which of these support a given transaction depends upon thecampaign objectives in a well functioning RTB strategy. Many support firms affect differentphases of the impression sale and placement process. This is also the reason that each has anarrow flowing to and from the central value circles, because various stakeholders can bring animpression request forward for, or place an ad creative in front of its targeted audience.Ultimately, this dynamic flow and interrelation among industry participants creates a valuechain that reformulates for each campaign when all three key assets – technology, data, andadvanced math - are implemented to support the participants. The Pulse of RTB Page 13
  15. 15. Impact of a Dynamic Value Chain in RTBThe key question: Is RTB better served by a supply chain model or a value chain model? Thecurrent RTB supply chain models are important because they show how the industry processesthe flow of impressions from publishers to advertisers. But we must remember that the supplychain demonstrates how revenue is derived, and the value chain defines how value is created.The link between them is that in RTB the supply chain is being reformulated for every mediabuy and thus creating a custom value chain in real time. As the industry evolves, the customvalue chain should become more defined and predictable. The expected consolidation ofstakeholders will force this. But in its present state, there is no exactly defined manner in whichthe end to end process is completed every time. What is most important is that the identifiedaudience value shifts with the goals of each advertiser at the campaign level; and only byacting upon this can RTB become truly effective. These forever shifting goals are increasing theneed for custom, dynamically reformulated value chains.Data Has a PulseThe RTB industry closely resembles a biological ecosystem. Unlike other industries, where valuechains are a product of stakeholders applying some value added activity to a raw material thatis processed and sent through the system to end up at a customer to be consumed anddiscarded, RTBs value is derived from a central audience that emanates a pulse which is theproduct from which stakeholders extract information and target a "receptive audience." Ofcourse, we cannot overlook the advanced processes by which impressions are placed inexchanges for auction, and the advanced technology which enables the impression bids to beprocessed and ads to be placed after applying analytics to the impressions within nanoseconds.But all these capabilities are built around the ability to identify, extract, and evaluate data fromits source. But as mentioned, to overlook the value of reaching the right audiences within theright environments, at the right time, and with the right messages and at the right price leavessignificant opportunity on the table. Therefore, maximum value is created only when allavailable attributes can be quickly and simultaneously analyzed, and the key signals can bedistributed in nanoseconds to bid on the right inventory at the right prices. The Pulse of RTB Page 14
  16. 16. Possible Future States: Using the Crystal Cube to Project RTB IndustryDevelopmentCurrent strengths Advertising Effectiveness DSP Network Efficiency Publisher Agency Exchange ScaleHaving established the operational model for RTB, we can return to our strategic view of theindustry and plot the participants on the RTB Crystal Cube to project likely future moves. Wecan do so by assessing their relative positions to the key vectors – scale, efficiency, andadvertising impact.These positions represent what each of these participants can provide by themselves. Forexample, a DSP can provide buying efficiency using its technology, algorithms, and managedservice teams. But, it cannot provide any scale without plugging into an exchange or a network,which provide inventory at scale. A DSP can certainly work with these partners to provide bothefficiency and scale, but not by itself. In contrast, an ad network that has a buying platform canprovide both because it has an in house DSP and inventory at scale. In fact, when it comes to The Pulse of RTB Page 15
  17. 17. efficiency and scale, ad networks are better positioned than DSPs, exchanges, individualpublishers, and agencies.So much for the death of the network; an objective assessment reveals otherwise. In fact, notonly do networks provide scale through their own inventory and the ability to buy acrossexchanges, but of all the entities plotted, they have the most experience in cultivatinginventory.Certainly, agencies are the most proficient in designing impactful advertising strategies. Theyalso provide some scale in the form of buying power; thus enabling lower prices for givenbatches of inventory.Individual publishers are in the worst position, with a few exceptions like Yahoo, Microsoft, andAOL because of their scale. By themselves, premium publishers have little scale in relation tothe size of the RTB industry and thus are price takers in the absence of yield managementstrategies that can evaluate the non-audience value drivers within their inventory. On the otherhand, publishers have the opportunity to leapfrog legacy optimization systems because theyare just starting to bring these capabilities in house.Possible Future MovesGiven that a number of assets already exist to provide scale and efficiency, such as DSPs andexchanges, the most likely new investments will be in advertising impact. We believe thatadvertising impact will be driven by three key developments:  Better creative creation and delivery.  Redefining data (not just audience segments; but all raw parameters).  Advanced mathematical systems (to capture all signals and make decisions based on the best ones at the campaign level).In relation to these, the key industry participants shown in the RTB Crystal Cube would makethe following future state considerations:DSPs: Excellent at providing efficiency, they do not by themselves provide scale or advertisingimpact. Some have suggested that DSPs will become more like agencies in the future to be ableto provide creative and media planning services. This would likely create tension with theiragency clients, who currently represent the advertisers that they would be going after directly.We believe that a more natural extension of the DSPs role is into scalable performance. Thiswould be different from the execution scale that exchanges provide by aggregating huge poolsof inventory. DSPs on the other hand, could provide impact through more scaled performance.This is where advanced mathematical systems come into play, as this option has thus far beenlimited by math limitations. The Pulse of RTB Page 16
  18. 18. Large DSPs may look to develop advanced math in house. Smaller, hungry competitors willlikely to try to outflank them by acquiring such capabilities and implementing aroundproprietary data assets to retain differentiation and gain the advantage of speed. It is too earlyto tell which strategy will win.Marketplaces (Exchanges): Are likely to continue being the standard bearers of supply sideliquidity. Their monetary incentives lie with providing optimal yield to publishers. This isenabled by proper impression valuation and bidding by buyers. Therefore, we expect thatexchanges will not only invest in supply side yield formulas, but also push for more informationsharing between buyers and sellers, effective data aggregation, and more effective auctionstrategies by DSPs. All of these would result in better yield for publishers and more effectiveadvertisement investments for media buyers.Exchanges are also implementing and refining dynamic yield management systems that wouldadjust price floors on the fly to get better yield for publishers. We believe that this will at bestprovide mixed results at this stage, as these approaches rely upon big data capture anddistribution but grossly lack the sound econometrics and game theory modeling that isrequired. It is a case of running before being able to walk because the market is not developedenough at this stage to predict the probability of action and reaction in a bidding game. A majorproblem with these strategies is that they rely upon reacting to a market whose rationality is along way from being defined. They also rely upon traditional auction theory, which is useful forgaining a basic understanding of concepts for RTB, but is actually counterproductive given themulti-stage, multi-unit nature of RTB auctions.While exchanges provide yield through liquidity, scale, and efficiency, we believe that dynamicpricing systems would work far better if publishers could bring them in house.Networks: As exchanges and DSPs emerged, a “death of the network” hysteria emerged in RTBcircles. While many networks failed, their fate was due to poor business models, often basedaround questionable practices. However, the leading ad networks of today are positioned wellagainst DSPs and exchanges to drive advertisement effectiveness. This is because networksoften provide their own bidding technology (DSP) and own large pools of inventory that can bebid on. While networks don’t have the pure liquidity of exchanges within their managedinventory pools, they can source inventory from exchanges in real time, and therefore sufferfrom no liquidity challenges.In fact, networks pay for inventory up front, and are therefore able to select optimal pools.Further, their existence has always been centered on cultivating and managing inventory. Thisexperience still provides value. Finally, that they buy inventory in bulk allows networks to enjoya cost advantage over DSPs.Leading networks are making significant investments in other channels such as mobile andvideo. By providing pools of inventory across these channels, and aggregating and distributing The Pulse of RTB Page 17
  19. 19. multi-channel signals, networks can help advance multi-channel RTB, and therefore enhanceRTB’s impact, and ultimately effectiveness.Agencies: Have always been able to provide a level of scale through their purchasing power.Agency trading desks centralize work flow for media planners and add a level of efficiency.Those that have purchased and/or licensed their own technology provide greater efficiency. Weexpect that agencies will continue to acquire capabilities that create their own “secret sauce.”They will continue to remain focused on extracting value from first party client data throughexpertise and the implementation of tactical assets across multiple platforms.As depicted in the RTB Crystal Cube with an upward arrow, agencies are now making progressin improving their ability to impact scale and efficiency. They have always excelled in creatingadvertising impact, and are therefore well positioned to gain back some of the control that theyhave lost since the onset of RTB.Publishers: We believe that premium publishers are in the weakest position, and as expected,are scrambling to strengthen their hand. Because publishers lack the scale to be price makers,they must look to do three things: 1) Differentiate their inventory: Many are currently investing on this front with partners such as DSPs, SSPs, and third party data providers, as well as optimization firms providing mathematical systems. 2) Achieve scale: The first iteration of the private exchange was private in name only. But we expect that premium publishers will collaborate with each other going forward to create more premium only exchanges to control inventory allocation and yield. 3) Bring the intelligence in house: The limitation of traditional third party optimization systems is that they are focused on becoming more efficient by reacting to buyer behavior. This approach is fatally flawed because the limitation of most buying algorithms is causing them to ignore the data that can evaluate inventory value – ad location, URL, contextual category, etc. Therefore, publishers must bring sophisticated intelligence in house and demonstrate value to buyers in a way that it can be easily adopted for making objective buying decisions. The Pulse of RTB Page 18
  20. 20. Looking ForwardA major obstacle to reaching Utopia is innovation fatigue. The companies that are in the bestposition are not concentrated in any one part of the supply chain. Certain publishers, supportfirms, and advertisers are making very effective strategic moves, while others are laggingbehind. The common denominator seems to be the vision and the will to invest of seniorexecutives in learning, assets, and people with an eye toward the future.As RTB evolves, the Dynamic Value Chain RTB Model is likely to have fewer orbital supportfirms, as many have overlapping capabilities. We expect that these support firms willconsolidate and pool resources. Most are likely to provide infrastructure, as agencies andpublishers will continue to make investments to bring capabilities in house. This will result inmore consistency in procurement, measurement, and evaluation of RTB activities.Leading technology providers are likely build their businesses around providing crucial,interoperable infrastructure at scale. However, we expect that advertisers (and agencies) andpublishers will improve their ability to glean data intelligence in house with the availability ofadvanced mathematical layers that can extract key signals from proprietary data. Thesesystems will create stronger incentives to capture and organize better data, as theirproliferation will mean that differential value will lie in not only being able to analyze data, butin collecting better data to analyze.The remaining support firms will either provide low cost commodities at scale, or high valueenhancements in niche form. And, we expect the ecosystem as a whole to accelerateinvestment in enhancing the advertising impact of RTB – the uncharted vector on the path toUtopia. The Pulse of RTB Page 19
  21. 21. ReferencesIn depth, single blind interviews with key executives across the supply chain – publishers, support firms, agencies, andadvertisers.Glen Calvert ( January 17, 2012). The Collective Effort to Make The RTB Ecosystem A Better Proposition For Brands. ExchangeWire EMEA, Retrieved from http://www.exchangewire.com/blog/2012/01/17/the-collective-effort-required-to-make-the-rtb-eco-system-a-better-proposition-for-brands/Forrester Consulting/ commissioned by Admeld (February 10,2011), RTB Hits The Main Stream, Retrieved fromhttp://www.admeld.com/download-rtb-hits-mainstream/Ye, Chen, Pavel Berkhin, Bo Anderson, Nikhil Devanur,Real Time Bidding Algorithms for Performance-Based Display AdAllocation, Retrieved From http://research.microsoft.com/en-us/um/people/nikdev/pubs/rtb-perf.pdfAdobe Maximize data insights with web analyticsGridley & Company( December 2010). Ad Exchanges, Targeting & Optimization "From Mad Men to X-Men, Retrieved Fromhttp://www.slideshare.net/Gridleyco/ad-exchanges-targeting-optimization-from-mad-men-to-xmenShar VanBostirk, Christine Spivey Overby, Sarah Tarvorien- Forrester Research ( August 24, 2011), US Interactive IndustryingForecast 2011 To 2016bluekai White Paper: Data Management Platforms Demystified , Retrieved From, http://www.bluekai.com/dmp/Joanna OConnell, Emily Riley, Shar VanBoskirk, Jennifer Wise, and Sarah Takvorian- Forrester Research ( December 14,2011),The Forrester Wave: Demand Side Platforms, Q4 2011Husam Janda- WSI (March 2011), Display Advertising: The Billboards of the Web, Retrieved From:http://blog.wsidigitalindustrying.com/index.php/general/events/whitepaper-events/complimentary-whitepaper-display-advertising-the-billboards-of-the-web/Pubmatic (February 2010) Understanding Real-Time Bidding(RTB) From the Publisher Perspective, Retrieved From-http://www.pubmatic.com/real-time-biddingDoug Winz, iMedia connections( September 18, 2009) Closing the vast agency publisher knowledge gap. Retrieved From-http://www.imediaconnection.com/content/24384.aspAlex Baxter, Digital Media Summit (July 21, 2010). Real Time Bidding and the Ecosystem. Retrieved From-http://www.minonline.com/minsiders/Alex-Baxter/14792.htmlEW News Desk Team(August 03, 2011). Four Reasons for Digital Media Industry Growth. Economy Watch, Retrieved fromhttp://www.economywatch.com/in-the-news/four-reasons-for-digital-media-industry-growth.03.08.htmlKathryn Koegel ( February 27, 2011), Digital Industrying Guide: How Do You Slice and Dice Your Target Audience When Buyingan Ad? Advertising Age, Retrieved From http://adage.com/article/special-report-digital-industrying-guide/digital-industrying-guide-buy-audience-web-ads/149104/Doug Wintz iMedia Connection( September 8, 2008), How to sell your unsold ad inventory. Retrieved from-http://www.imediaconnection.com//content//20616.aspFrost Prioleau, Search Engine Land (Jan 11, 2012),The New Era Of Display: 5 Reasons Search Markets Should Care. Retrievedfrom- http://searchengineland.com/the-new-era-of-display-5-reasons-search-industryers-should-care-106937 The Pulse of RTB Page 20

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