DoubleClick Exchange Could Make Friends and 'Frienemies'

Call it another case of co-opetition in the online ad industry. DoubleClick hopes to partner with ad networks in its new Advertising Exchange venture. However, by aiming to recruit publishers to devote inventory to the exchange, the company could be taking directly from the networks reliant on publishers’ otherwise-unsold space. The more direct competitors for the ad management firm are the existing exchange operations that — as of yesterday — swim in waters occupied by a far larger and more connected fish.

The Advertising Exchange uses an auction-based system in which publishers set a minimum or reserve price for their inventory and media buyers bid on inventory that meets specific targeting criteria. DoubleClick’s current relationships with hundreds of Web publishers, advertisers, agencies and ad networks poise the firm for success if the exchange model takes off.

The online ad industry will “hinge on the exchange model in the next few years,” said Forrester Research Senior Analyst Shar VanBoskirk. Marketers’ experience using paid search bidding systems with Google’s AdWords have already familiarized them with ad exchanges, she said.

However, VanBoskirk believes the company stands to take away relationships networks have with some publishers, or at least reduce the amount of inventory publishers offer to networks. On the flipside, an exchange gives advertisers an incentive to shop for media at a singular marketplace rather than buying directly from each seller, or network.

“I actually think that [competition] might be a good thing,” continued VanBoskirk. “Maybe it will actually clean up the ad network clogging that’s going on.” She echoes a lament often heard among advertisers and agencies: mainly that there are too many ad networks doing the same things.

Eric Porres, partner and COO of Underscore Marketing, wondered if DoubleClick’s exchange could “be an opportunity for the networks,” if the networks find value in buying inventory through the exchange and then selling it back to advertisers. Along with Havas’ Media Contacts, Underscore is among the companies testing the system, set to launch officially in Q3. The New York Times yesterday reported AOL’s Advertising.com is also testing the service, but DoubleClick would not confirm the ad network’s involvement. AOL is one of DoubleClick’s largest publisher clients.

Advertisers using the exchange can set rules that automatically alter bid prices according to how well inventory is performing. Integration with DoubleClick’s ad platform allows them to employ the same data they use for ad management within the new exchange. In addition, the system gives companies a “single point to facilitate those financial transactions between buyers and sellers,” said Scott Spencer, VP of product management for DoubleClick’s Advertising Exchange unit, which originated about a year ago.

Publishers want to maximize ad revenue, so a top priority is to sell all ad space available for the highest amount possible, which is what DoubleClick’s exchange aims to do. Similar exchanges already exist, including AdECN and Right Media, of which Yahoo owns 20 percent. AdECN charges a flat fee to ad networks in the exchange while Right Media takes a cut of each transaction from ad networks and publishers. According to Rubenstein, DoubleClick will take a to-be-determined share of revenue from publishers for each transaction, which will be “the same across the board.”

The fact that DoubleClick’s new offering is integrated with its ad management platform sets the company apart from other exchanges because publishers already using DoubleClick could get a more comprehensive view of their inventory, and both publishers and marketers could readily link other platform components to exchange buying and selling.

“There are certain efficiencies from a reporting standpoint,” said Porres. Using an exchange could also be helpful when advertiser clients obtain incremental budgets. “It’s potentially an effective way to find a place for those dollars efficiently,” he added.

DoubleClick got its start as an ad network, but the company insists there is no relation between its previous network business and the new exchange operation. “We do not see this as competing at all with networks. We see this as a complementary tool for them to use,” said Michael Rubenstein, VP and GM of DoubleClick’s new unit.

Some have also argued that if DoubleClick is acquired by a large media firm such as Microsoft, or simply a Web giant like Google, publishers may think twice about their relationships with the ad management company. Reports of an imminent acquisition of DoubleClick have spurred much speculation about the company and the ad management industry as a whole. DoubleClick would not confirm or comment on acquisition talks.

In the end, said Underscore’s Porres, the pricing transparency enabled through the exchange could appeal to advertisers. “If an advertiser is comfortable with the network model, it will be comfortable with the DoubleClick model,” he said.