A Brief History of Digital Ad Buying and Selling

A major challenge facing professionals just getting started in digital media buying or selling is understanding how all the different pieces work together. To make matters more challenging, digital media buying and selling has gone through a tremendous evolution during the past five years.

This summer, I want to provide an overview of this evolution by briefly discussing the paths that our industry has taken and to point out the significance of the newer approaches and methodologies that have been put in place to make the distribution of ads more effective and, frankly, profitable.

Like any type of business, it’s important to understand that online display advertising is a numbers game. Advertisers wish to reach the greatest number of consumers for the least amount of money, while publishers want to maximize the money they can make selling ad space on their sites.

For publishers, profit is driven by a need to maximize the number of paid ads that appear on their Web pages every month. However, unlike traditional media, online publishers have no way of knowing the actual number of impressions that will be available to sell to advertisers during any month, since this is based upon the ongoing number of site visits during that time.

On the other side, advertisers are looking to reach the greatest number of people for the least amount of money. All have finite budgets and all are looking to maximize their advertising’s impact by limiting the number of wasted impressions that end up on sites or pages not relevant to reaching their target audiences.

Traditionally, (within the past decade!) the majority of digital advertising exchanges between publishers and advertisers was based upon direct sales. Advertisers who wanted to get the word out would approach publishers directly and buy inventory from them. This approach, which is still very active today, allows advertisers to pick and choose those sites that do the best job of reaching the advertiser’s target audiences. However, it also often means entering a highly competitive marketplace (for example, reaching those consumers who are in the market for a new car) and increased CPMs (define). While these publishers may cater to the target audience, the price of entry makes ad space expensive and the impressions available to any single advertiser limited.

Negotiations for ad placement on these pages can be fierce. Not only are publishers able to sort their inventory into different selections based upon the popularity or relevancy of the pages that ads would appear upon, but advertisers also often need more granular control over where on those pages their ads run. This leads to further negotiating points such as determining whether an ad was positioned “above or below the fold” when it ran, different pricing for different ad sizes, and what the pricing difference was for ads that ran at the top of the page vs. those that ran at the bottom of the page.

For smaller publishers, the main barrier to entry was the lack of a dedicated sales staff who could directly sell available inventory. Bottom line – if advertisers don’t know you’re there and ready to sell to them, they generally don’t come knocking. As an additional challenge, small publishers often had limited inventory to offer, which made them less appealing for larger campaigns.

However, as the idea of audience targeting took hold, many advertisers understood that their target audiences were those frequently visiting the smaller and generally more theme- or topic-based sites. Still, for advertisers looking to reach a target audience, generating 50-plus separate campaigns with dozens of small publishers can be a logistical nightmare.

This need by both publishers and advertisers led to the creation of the first ad networks. Ad networks allow smaller publishers with available inventory to pool all of their available impressions together so that ads can be placed on any of the sites in the network based on ad sizes and inventory availability.

While this approach allowed smaller publishers to enter the advertising game, it often also meant that the ads running on those sites were less relevant to site visitors and generally resulted in lower click-through and interaction rates. Equally challenging for advertisers is that they have very little control over which sites their ads appeared.

This lack of advertiser control and transparency also often meant that some publishers were able to sell less valuable inventory for the same prices they received for their primary inventory. But it also meant that advertisers who were getting poor campaign results had no way of knowing how to optimize their future media buys.

The ad network models also meant that the same publisher might have two very different pricing models for the same inventory on the same site depending on when it was sold. For example, inventory being sold directly to an advertiser may go for $20-plus per CPM, but that unsold inventory on the same pages may go for as little as $1 CPM through remnant inventory sales.

Fortunately, as we will discuss during the next few months, the creation of ad exchanges, buying groups, real-time bidding, and demand-side platforms has contributed to making the buying and selling of ad space more effective and profitable for both sides. It has also brought with it new challenges, which we will discuss in part two of this series.