In the column, "Network Margins and Advertiser ROI," I asserted that ad networks are entitled to a premium in exchange for delivering value to their clients. The column elicited a fair amount of commentary, both positive and negative. I'd like to address a common refrain from those comments: ad networks aren't transparent, and that lack of transparency hurts clients.
First, let's be clear that most networks disclose the sites on which they deliver media. Of the 70-plus networks using my company, a real-time ad platform, I can't think of a single one that doesn't actively curate the list of sites and domains it will work with. Networks invest extraordinary effort in this because they know the consequences of a misdelivered ad.
However, networks often refuse to share the exact composition of a media buy within the site list they've agreed to with the client. They believe that if the campaign performs well and only runs on approved sites, they've done their job. Does that hurt clients?
Only eight people in the world know how Thomas' makes those nooks and crannies in Thomas' English Muffins. On the package, though, you can see the ingredients and the nutrition information. That's a great way to think about an ad network: it needs to be nutritional (quality inventory) and taste great (perform well). By the way, those English muffins are in a transparent bag.
A similar debate has played out over the past few years in the hedge fund industry. I recently read Michael Lewis's book "The Big Short." He talks about the hedge fund managers who predicted the crash of the mortgage market and developed strategies to take advantage of it. They would research each group of mortgages, find those that had the highest likelihood of foreclosure, and then bet against them. When the market crashed, they made billions of dollars.
So what did they tell their investors during the process? They explained the market landscape, the rationale for their strategy – but they didn't share their actual strategies. If they did, every other hedge fund could copy exactly what they were doing and ruin the strategy.
Ad networks face exactly the same problem. If an ad network, after months of testing and scouring the Web, discovers a site that performs three times better than anything they've ever seen – do they have an obligation to make that public? I sure hope not.
Warren Buffet is known for his transparency. You can get up at his shareholders' meeting and ask any question you want, and he will respond frankly to these questions. But he won't tell you the company he's about to go buy - you'd just go buy some stock in it yourself before he does, driving up the price he'll have to pay.
Let's not confuse transparency with altruism. Make sure your ad network gives you enough insight to make you comfortable – but don't expect them to share their secret sauce.
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Brian O'Kelley is the CEO and co-founder of AppNexus, an advanced ad platform specializing in real-time advertising. Widely considered a visionary in the field of online media, Brian created the first successful ad exchange as CTO of Right Media (acquired by Yahoo for $850 million in July 2007). Prior to Right Media, Brian was CEO of Netamorphosis, an early social networking and e-commerce site for events and venues. Brian was also an early innovator in real-time personalization and real-time ad optimization at LogicSpan, a consulting and technology integration firm, and later co-founded Cetova, a Web-based reporting and analytics platform for enterprise financial systems.
While earning a computer science degree at Princeton University, Brian started a Web design firm, building an open-source e-commerce engine used by more than 100 companies. Brian is an active partner at Grape Arbor, an angel investor group. Since its founding in 2006, Grape Arbor LLC has made investments into more than a dozen technology companies.
June 18, 2013
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