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5 important memes for the digital advertising industry


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5 important memes for the digital advertising industry

  1. 1. Five important memes for the digital advertising industry By Eric Picard, CEO of Rare CrowdsThis is an “open source” deck: My license request. If you improve any of these slides,please send them to me. If you use any of these slides, please attribute them to me. Theseslides have all been presented publicly in the
  2. 2. 2011 IAB Data on Advertising Online Advertising Revenue, 2011 Display-Banners 22% $6,974,000,000 Video 6% $1,902,000,000 Mobile 5% $1,585,000,000 Display Sponsorship 4% $1,268,000,000 Rich Media 4% $1,268,000,000 Online Classifieds 8% $2,536,000,000 Search 47% $14,899,000,000 Lead Gen 5% $1,585,000,000 Email 1% $317,000,000 Total $31,700,000,000 2
  3. 3. Expected Growth in Advertising Global Online Advertising Spending (2006-2015P) 100 91.0 90 80 75.2 70 63.4 60 54.7 $ Billions 50 47.4 41.1 40 37.0 37.4 33.2 30 27.2 20 10 0 2006 2007 2008 2009 2010 2011P 2012P 2013P 2014P 2015P U.S. Online Advertising Spending (2006-2015P) Non-U.S. Online Advertising Spending (2006-2015P) 40 60 56.7 34.2 35 32.7 31.2 29.9 50 30 28.9 28.0 42.5 25.5 25.7 25 24.1 40 $ Billions $ Billions 32.2 19.2 20 30 24.7 15 18.6 20 11.8 13.1 10 11.5 8.0 9.1 10 5 0 0 2006 2007 2008 2009 2010 2011P 2012P 2013P 2014P 2015P 2006 2007 2008 2009 2010 2011P 2012P 2013P 2014P 2015P 3Source: AM. Mindpower Solutions Research, August 2011
  4. 4. Meme 1: Power Base in Advertising Ecosystem has shifted due to Media Fragmentation (Buyers drive the market)Seller Dilution• Before 1984 <20 Media Channels, and few publishers per channel• By 2005 this had doubled to 40, but with the Internet, the number of publishers has significantly increased per channel• Amount of inventory in the market has exploded• Huge competition between publishers for dollarsBuyer Concentration• ~6,000 Advertisers control >80% of ad spend• In last ten years media buying has consolidated – now most dollars flow through 6 Agency Holding Companies worldwide• Media Agencies control the market – and drive technology adoption 4
  5. 5. Huge and Fragmented Ecosystem Worldwide – Approximately 6,000 Advertisers account for >80% of all ad spending (~5,000 in US account for >90% of US ad spending) Most of the WW ad spend controlled by 5 major agency holding companies (6 with Dentsu) Omnicom WPP Interpublic Publicis Havas12 holdings from $30M - 10 holdings from $30M - 20 holdings from $4.5M 10 holdings from $2.8M 4 holdings from $20.3M $1.33B Annual Billings $1.32B Annual Billings - $1.44B Annual Billings - $1.01B Annual Billings - $528M Annual Billings Hundreds of vendors across thousands of implementations, and thousands of internal IT solutions – few of which communicate with each other Media ownership rolls up to approximately 60 companies WW – with thousands of holdings Advance Publications American Media Inc. Belo Corporation Bertelsmann AG Cablevision CanWest Global Cisneros Citadel Broadcasting Clear Channel Comcast Community Newsp. CBS Corus Entertainment Copley Press Cox Enterprises Cumulus Media Dow Jones Corp. Emmis Entercom Fisher Freedom Gannett General Electric Hachette Filapacchi Hearst Hollinger Journal Register Knight Ridder Landmark Lee Enterprises Liberty Group Liberty Media Lin TV Corp. McClatchy McGraw-Hill Media General Media News Group Meredith Corp. Morris News World News Corp New York Times Pearson Primedia Pulitzer Reed Elsevier Rogers Scripps Sony Corporation Sinclair Standard Radio Stephens Media Time Warner Tribune Company Viacom Vivendi Universal Vulcan Inc. Walt Disney Washington Post Young Broadcasting 5
  6. 6. Media Fragmentation Changes Power Base 1977 20126,000 HundredsAdvertisers Publishers 9,000 6 Millions Advertisers Agencies Publishers $750B Google Search & Contextual >500,000 1 >400,000 Advertisers Google Publishers $6B 6
  7. 7. Media Fragmentation 7
  8. 8. Media Fragmentation 8
  9. 9. Meme 2: Market Complexity is driving automation to decrease cost ofmedia buying, selling, and managementHuge revenue drop between offline and online• Almost one hundred percent revenue drop from traditional to digital distribution for media companies• Huge complexity in managing media sales in digital (ad operations, RFP Response, etc…)Agency Compensation based on hours spent, not value provided• Because most agency compensation comes from billable hours, they have not invested in workflow automation• Media fragmentation is causing this model to break – digital media amplifies this: agencies can’t hire enough bodies to do the work• Market complexities need algorithmic and compute intensive solutions to further growth – agencies need to change their game 9
  10. 10. Buy/Sell Process – Today for premium Sales Executive Sales Planner Ad Operations Account Manager1. Buyer decides what web sites to buy 32. Buyer and Seller negotiate deal3. Hand off to internal teams for workflow 54. Buyer ad ops sends Inventory ads to publisher Campaign Availability &5. Seller ad ops inputs Management Reporting Billing Reservations ads Workflow (Sales Tools)6. Buyer reviews results, compares reports, compiles7. Seller sends bill to buyer 7 48. Buyer reconciles the 2 bill and pays Media Campaign Media Planning & Management Reporting & Billing & Research Buying & Trafficking Analytics Reconcilliation Tools Workflow Workflow 6 1 3 Associate Media 8 Media Buyer Associate Media Buyer Ad Operations Buyer Billing Coordinator
  11. 11. Publisher revenue against inventory Hand Sold Sponsorships Hand Sold Premium Inventory Hand Sold Audience Targeted Inventory Targeted Inventory sold via Ad Exchanges Remnant “Wholesale” Inventory sold to Ad Networks Display Ads, Video Ads, Mobile Ads, and SocialMedia Ads are all sold this way. Packages are madeup of inventory from each layer in the ‘layer cake’. 11
  12. 12. Meme 3: Market inefficiency has created arbitrage opportunityExisting buying processes leave lots of unsold inventory• Only a minority of existing inventory is managed by a ‘direct’ human sales force• Sell-through of any human sales force follows a similar curve – leaving a significant amount of inventory unsold• Traditional Ad Network model is to take risk on inventory by procuring ‘wholesale’ from publishers and selling to buyers• Now with Ad Exchanges, networks can procure in real-time – a model designed by default to reduce risk• Agency model has begun to adopt the ad network model – with trading desks 12
  13. 13. Advertising Ecosystem Impression / Dollar FlowFLOW OF AD SPEND (US) FLOW OF ADVERTISING IMPRESSIONS (US)Percent Dollars Captured (in yellow) Percent impressions 5% 25% Large 65% 20% Publisher (Direct Per Impression Price Drops Reserved “Premium”) Agency** KeepsADVERTISER 75-90% AUDIENCEAd spend Keeps 25% 10-25%100% Large pub 40% Publisher 40% (Remnant) Exchanges, Aggregator* Keeps 20% DSPs *** 25% 40-80% Keeps Keep 10-20% 10-80% (may include Small-Med 5% multiple (May include 35% 35% multiple Publishers vendors) vendors) Keeps 25% 20-60%* Includes: Ad Networks, SSPs, Private Exchanges, and Ad Rep Firms Note: Ad Servers, Yield Management Systems,** Includes: Media Agencies, Creative Agencies, Trading Desks Analytics, DMPs, etc… Take out about 8-10% of spend*** Includes: Ad Exchanges and DSPs in total as they pass through the ecosystemThis slide represents Display, Video, Mobile – based on Rare Crowds Analysis of Marketplace
  14. 14. Meme 4: Consolidation is about to happenHundreds of vendors in the ad tech ecosystem• Each sector has significant number of competitors• Probably not enough ecosystem scale to support more than 3 vendors per category• Consolidation will happen quickly once it startsUltimately there will be between 1 - 4 large platform ‘stacks’• One will be Google• The others will be some subset or consolidated mix of the following: • Yahoo • SAS • Microsoft • • Adobe • Experian • IBM • Accenture • AppNexus • Ebay • AOL • Rubicon Project • Facebook • Pubmatic • Amazon • Etc… 14
  15. 15. The Google Stack Ad Networks Ad Sense Google Other Display Data vendors Network Companies Advertisers Publishers Ad Invite Google DFA Advertising AdMeld DFP AdSenseWords Media Platform Ad Other Agencies AdMob Vendors Mobile Google / Doubleclick Ad Exchange 15
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  18. 18. Meme 5: Were just at the beginning of the digital revolutionTraditional Media is transitioning to digital distribution• Tablets are the biggest driver we have ever seen of transition from consumption of media (especially print) to digital delivery• Connected Televisions are another huge driver of digital consumption• This includes Xbox, Roku and other set top boxes• Different media are good at different things, we’re still trying to determine what new media types are good at• Until we can drive revenue to traditional media companies closer to what they get from traditional, they will intentionally slow this transitionWe have significant upside across the board for display, mobile, video and social – Search will continue to grow too!• Display advertising is a good catch-all for most media types• Display is easily broken down into two large buckets: Brand and Direct Response• Direct Response in display inventory that sits high in the purchase funnel will always sell at a very low price (low yield for publishers)• Better sell-through in display through increased efficiency of the buying and 18 selling process will drive brand adoption
  19. 19. Purchase Funnel to Advertising Vehicle You should I love my Sony = Appropriate / Effective Sony = I Need a Who has the HD Radio, I also buy a Sony makes Sony vs. Quality & Sony HD best price on want other Sony HD Example: HD Radio HD Radios Philips Prestige Radio Now! Sony HDR? Sony products! Radio! Impression Vehicle Category Brand Brand Brand Purchase Purchase Retention Customer Volume Awareness Awareness Consideration Preference Intent (Customer Loyalty) Advocacy Huge TV Huge Radio Huge Newspaper Huge Out of Home (Billboards) Very Large Magazines Large Online Display Medium to Direct Mail Large Small to Mobile Medium Advertising Small to Web Site Medium Small Search Small Email Medium Online VideoTiny (potential Word of 19to ‘catch fire’) Mouth / Viral
  20. 20. Purchase Funnel to Display Advertising Volume & CPM Low CPM High CPM Category Brand Brand Brand Purchase Customer Customer Purchase Awareness Awareness Consideration Preference Intent Retention Advocacy High Imp. Volume Low Imp. Volume 20
  21. 21. One Advertiser - $20M Budget & Target Avg. CPM Allocations Category Brand Brand Brand Purchase Purchase Retention Customer Awareness Awareness Consideration Preference Intent AdvocacyBrand Focus $11M $3M $.75M $.25M $15.00 CPM $18.50 CPM $14.50 CPM $11.00 CPM $.5M $1M $3M $.5MDR Focus $0.20 CPM $0.50 CPM $30.00 CPM $18.00 CPM $90 CPA $90 CPA $90 CPA $90 CPA 21
  22. 22. Other platforms are focused on limited market segments Category Brand Brand Brand Purchase Purchase Retention Customer Awareness Awareness Consideration Preference Intent AdvocacyBrand Focus High High Med. Med Yield Yield Yield Yield Low Low High HighDR Focus Yield Yield Yield Yield 22
  23. 23. Search focuses on Direct Response near the Purchase Category Brand Brand Brand Purchase Purchase Retention CustomerAwareness Awareness Consideration Preference Intent Advocacy 23
  24. 24. Display Marketplaces focus on DR advertisers
  25. 25. Industry must take a holistic view 25
  26. 26. Creating a virtuous cycle on yield 26
  27. 27. Brand vs. DR by inventory and revenue Brand $$ Brand Display DR $$$ Paid Search DR ¢ DR DisplayInventory allocation of Online Advertising Ball Size Represents Proportional Revenue aswithin the purchase funnel in 2012 of 2012 27
  28. 28. Mobile has huge upside especially with tablets! DR Display Mobile Ads Brand Display Paid Search (includes Video and Rich Media) Ball Size Represents Proportional Revenue as of 2012 28