Ad exchanges are making the quality and power of a publication's brand meaningless. Here's what publishers must do to adapt.
The banner advertising world is close to radical transformation from the influence of advertising exchanges, where ads are purchased based on a real-time auction for the person actually viewing the spot, instead of a general media buy. For agencies, ad exchanges threaten to upend established ways in which digital advertising is bought and created. For advertisers, ad exchanges offer incredible efficiencies and effectiveness. For publishers, ad exchanges are an entirely different story.
While it's a new, easy way to sell inventory, it's another thing (like ad networks and Google AdSense) that commoditizes the media property. With ad exchanges, the quality and power of the publication's brand is meaningless. What matters is the specific audience that's delivered, and that's it. You could be an industry-leading brand that's loved and respected by a large audience or a small blogger hobbyist and it doesn't matter. A user that fits the profile is all that matters to ad exchanges, and publishers get the same revenue from that user no matter who the publisher is.
For small websites, ad exchanges are great: it gives them access to display advertising revenue that they probably wouldn't have been able to get otherwise. But for large publishers, it's yet another thing that's expediting the decline in CPMs (define), since the supply of audience greatly exceeds the demand for advertising. The last thing publishers need is another thing that undermines the economic viability of content sites.
So far, publishers haven't been hit with some of the effects of ad exchanges as they aren't yet the main way for people to buy media. More often, display advertising buys are still driven by media planners who adhere to conventional notions of buying the largest websites in the appropriate comScore categories. But ad exchanges are clearly the future. The economic efficiencies inherent in ad exchanges make them inevitable. The success of Google and Facebook's advertising systems attest to this. Large publishers may initially resist participating in ad exchanges, but as more funds move toward exchanges, publishers will be forced to follow suit.
So, what's a publisher to do?
Many publishers are fighting commoditization by offering tightly integrated, highly specialized opportunities, because this is where ad exchanges and networks fall short. Exchanges depend on standardization, but standardized ad units can be less effective than unique sponsorships, which are tightly integrated with editorial. So it's logical for premium publishers to demonstrate their premium value by offering one-of-a-kind, standout opportunities. Doing this shifts the publisher's role from an advertising vehicle to a partner providing real marketing solutions to clients.
This is the right idea, but the approach comes with big risks - namely, increased costs. Publishers can be so eager to attract blue-chip advertisers that they promise intricate solutions that require an excessive amount of development. Stating the obvious, if an advertiser has $500,000 to spend on a media buy, the publisher shouldn't spend $500,000 to create the custom sponsor integration. But you'd be surprised how often we see the cost of the custom solution eat up most, if not all, of the revenue generated from the ad spend. In these cases, the advertising is effectively free and the marketer is really paying for the custom development effort. A lot of publishers don't realize it, but when looking at the economics of a lot of these custom deals, the publisher looks more like a small Web development shop than a media property selling ad space.
The way out of this conundrum is for publishers to embrace the notion of "standardized" custom advertising solutions. Publishers should be equipped with an arsenal of mass-produced advertising solutions that can be rapidly customized to represent the interests of individual advertisers. They should not be conceptualizing and building new solutions for each RFP (define).
It's just like buying a car - you can personalize it, but only within reason. You can change the color; you can add a ski rack; maybe you can even add a heated steering wheel. But you can't change the shape of the headlights, the width of the car, the design of the logo, or the size of the trunk. The automaker doesn't rebuild its factory to offer customers the exact automobile of their dreams. There are limits, and these save the brand identity. Translated to the ad world, this means a publisher could design a framework that allows basic customization through a CMS, but requires no real custom work. Publishers, identify five unique things that could get an advertiser excited, build it so it's CMS-friendly, and offer it again and again.
Do you have a large repository of articles? Give advertisers the ability to buy a custom editorial section that just takes existing articles and puts them in a new template that matches the advertiser's color palette. Do you have active discussion boards? Offer branded discussion boards that can be about any topic relating to the advertiser. Are slideshows a big deal on your site? Offer topic-specific slideshows with clever ad integration. No matter what your solution, the key is that it uses all the same technology tools. Build up a warehouse of these and train your sales force to repackage these standard "custom" ideas into a unique solution for potential advertisers. Done correctly, your site becomes unique and premium to marketers without a lot of effort.
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Aaron Shapiro is partner at HUGE, the full-service digital agency within Interpublic Group. HUGE, named one of 10 agencies to watch in 2010 by Advertising Age, focuses on helping companies build digitally-driven businesses. At HUGE, he drives digital strategy for some of the firm's largest clients, including JetBlue, NBC Universal, Pepsi, Target, and TimeWarner. Prior to HUGE, Shapiro was founding CEO of Silverpop Systems, the e-mail marketing service provider, a management consultant at Booz Allen & Hamilton, and the founder of a national magazine distributed by Time Warner. Shapiro regularly contributes to industry events and publications and is often quoted in media outlets as a digital strategy thought leader. Follow him on Twitter at @amshap.
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