The move is expected to open up additional private exchanges, although insiders are not sure all media buyers will follow suit and shun open exchanges completely.
GroupM is pulling its clients from open ad exchanges because chief digital investment officer Ari Bluman says he doesn't want to compete in a "fictitious marketplace."
Bluman is also confident the migration will have a positive impact on the market overall and that other players will follow suit once they catch up technology-wise.
Insiders agree the benefits could potentially allow publishers to better demonstrate value to advertisers, thereby increasing the number of ads as well as the prices on private exchanges. However, they're more cautious when it comes to saying whether they think other media buyers will follow GroupM's lead.
According to Bluman, GroupM has been honing its technology for eight and a half years.
Jonathan Margulies, managing partner at Winterberry Group, which provides consulting services to the advertising and marketing industries, says GroupM is not alone. In fact, many large agencies have been working to support their own programmatic transactions through technology investment and infrastructure, he says.
"They say, 'We want the pipes and the plumbing in place so that when clients want to buy audiences in real time, we can help them do that while still leveraging our buying efficiencies,'" he says.
This news from GroupM makes sense because the group can take some of its programmatic technology and go back to advertisers and say, "We're automated. And we can still help get you in front of the audience you want in real-time, but we'll do it in a way where we take advantage of price floors and ceilings through direct negotiation," Margulies says.
In addition, Margulies says GroupM's decision "reminds the market that programmatic is no longer just about open-market real-time bidding (RTB). It represents the strategic use of data and media technology to get to the right audiences at the right economies and perhaps embolden others on the demand/supply side to continue making programmatic investments that go beyond RTB."
In other words, it's a sign the market is evolving beyond RTB, and adopting a lot of technology and data to suit more specific individual business needs. The market is actively embracing what he calls "higher-order programmatic use cases."
According to Larry Allen, senior vice president of digital media platform Xaxis (a GroupM company that programmatically connects advertisers and publishers to audiences across addressable channels), there are tactics such as prospecting or retargeting where it may make sense for a brand to be in an open exchange. However, the focus is "to drive as much spend through direct deals with publishers as possible."
Allen says the migration won't impact ad spend so much as it will help ensure more dollars go toward the publishers that deserve it most. It will also concentrate media spend among those publishers rather than spreading it across hundreds of thousands of sites. That means publishers that succeed in creating highly engaging content will capture a lion's share of budgets, he says.
Xaxis is in the midst of rolling out its Marketplace product, which the firm says provides first-look access to ad inventory through Xaxis' partners along with the ability to track reach and brand lift. Allen says Xaxis Marketplace has "a large number of comScore 100 publications" prior to launch and he expects other media organizations to follow suit with similar products.
"Yahoo, AOL, and Microsoft are all launching their own private exchanges...they are going direct to ads and agencies and connecting supply to demand," Allen says.
The GroupM move could also prove that closed networks have higher value because they are so targeted.
"You'll find a company is much more willing to pay a lot more money for hyper-, hyper-, hyper-targeted than they would for [a traditional] ad because they can track it and prove the value," says Mathew Sweezey, head of thought leadership for B2B marketing at Pardot, (a Salesforce.com company).
"Smaller ad networks may help provide more targeted exchanges, show more value, and increase their revenue from advertising, which could have a really good effect on publishers and allow them to see more ad revenue," he adds.
The peace of mind that comes with knowing there is less fraud in a closed network could also help increase prices, although closed networks can also limit reach, so the decision depends on the advertiser's goals and target, Sweezey says.
As a result, Margulies says he wouldn't be surprised to see agencies like GroupM migrate to a balance of sorts. In other words, most transactions could run through closed programmatic exchanges with established pricing floors and ceilings, but the agency can still go out to the market when it needs to fill in gaps from a reach perspective.
"In many, many respects, all players are beginning to strategize programmatic approaches that are specific to their needs and those of their clients. Will others follow GroupM and say, 'We have a black and white policy. We don't buy on an open market'? That I haven't seen...but clearly we're seeing the evolution of the deployment of programs from their origins in the auction-based open market RTB world where technology and data are serving much more bespoke [roles]."
In addition, Sweezey notes GroupM's move will be the correct one if it can have more control over where its ads are placed, have less worry about fraud, and keep a better handle on its clients' brands.
"I'm not expecting this to start a run from open exchanges, but instead show an alternative option for many companies," he says. Sweezey notes that it may also have an adverse effect for other players in the ad buying world because open exchange rates may become less expensive if many people find more value in private exchanges.
"This may also mean you'd have more publishers joining private networks if it means they can charge more for their ad inventory," Sweezey adds.
Chris Hansen, president of Netmining, a provider of real-time targeting solutions designed to help marketers understand and reach their audiences online, also questions whether GroupM's strategy will scale. He says it sounds nice, but notes direct buying in programmatic is not where it needs to be and says he's not actually sure it can be done.
He also says it waters down the power of programmatic if GroupM is buying direct and potentially circumventing the market and pricing based on buying power. Much of the efficiency gained by programmatic is lost if pricing is negotiated on clients' and agencies' buying power because it takes the democratization out of programmatic, Hansen says.
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In addition to ClickZ and Search Engine Watch, Lisa's work has appeared in The Huffington Post, The Luxury Spot, LearnVest, MarthaStewart.com, GoodHousekeeping.com, amNewYork, and The Wall Street Journal. She's a graduate of Columbia's School of Journalism.
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