Same Turkey, New Knife

A few years ago, ad technology banker Terence Kawaja gave a groundbreaking IAB presentation entitled, “Parsing the Mayhem: Developments in the Advertising Technology Landscape.” Ever since then, his famed logo vomit slide featuring (then) 290 different tech companies has been passed around more than a Derek Jeter rookie card.

While the eye chart continues to change, the really important slide in that deck essentially remains the same. The “Carving up the stack” slide (see above), which depicts how little revenue publishers see at the end of the ad technology chain, has changed little since May 2010. In fact, you could argue that it has gotten worse. The original slide described the path of an advertiser’s $5 as it made its way past the agency, through ad networks and exchanges, and finally into the publisher’s pocket.

The agency took about $0.50 (10 percent); the ad networks grabbed the biggest portion at $2 (40 percent); the data provider took two bits (5 percent); the ad exchange sucked out $0.35 (7 percent); and the ad server grabbed a small sliver worth $0.10 (2 percent), for a grand total of 64 percent. The publisher was left with a measly $1.80. The story hasn’t changed, and neither have the players, but the amounts have altered slightly.

While Kawaja correctly argued that DSPs provided some value back to both advertisers and publishers through efficiency, let’s look ahead through the lens of the original slide. Here’s what has happened to the players over the last two years:

• Advertiser. The advertiser continues to be in the cat bird seat, enjoying the fact that more and more technology is coming to her aid to make buying directly a fact of life. Yes, the agency is still a necessary (and welcomed) evil, but with Facebook, Google, Pandora, and all of the big publishers willing to provide robust customer service for the biggest spenders, she’s not giving up much. Plus, agency margins continue to shrink, meaning more of their $5 ends up as display, video, and rich media units on popular sites.
• Agency. It’s been a tough ride for agencies lately. Let’s face it: more and more spending is going to social networks, and you don’t need to pay 10 percent to 15 percent to find audiences with Facebook. You simply plug in audience attributes and buy. With average CPMs in the $0.50 range (as opposed to $2.50 for the web as a whole), advertisers have more and more reason to find targeted reach by themselves, or with Facebook’s help. Google’s nascent search-keyword-powered display network isn’t exactly helping matters. Agencies are trying to adapt and become technology enablers, but that’s a long putt for an industry that has long depended on underpaying 22 year olds to manage multi-million dollar ad budgets, rather than overpaying 22-year-old engineers to build products.
• Networks. Everyone’s talking about the demise of the ad network, but they really haven’t disappeared. Yesterday’s ad networks (Turn, Lotame) are today’s “data management platforms.” Instead of packaging the inventory, they are letting publishers do it themselves. This is the right instinct, but legacy networks may well be overestimating the extent to which the bulk of publishers are willing (and able) to do this work. Networks (and especially vertical networks) thrived because they were convenient – and they worked. Horizontal networks are dying, and the money is simply leaking into the data-powered exchange space…
• Data providers. There’s data, and then there’s data. With ubiquitous access to Experian, IXI, and other popular data types through third-party providers, the value of third-party segments has declined dramatically. Great exchanges like eXelate give marketers a one-stop shop for almost every off-the-shelf segment worth purchasing, so you don’t need to strike 20 different license deals. Yet, data is still the lifeblood of the ecosystem. Unfortunately for pure-play segment providers, the real value is in helping advertisers unlock the value of their first-party data. The value of third-party data will continue to decline, especially as more and more marketers use less of it to create “seeds” from which lookalike models are created.
• Exchanges. Exchanges have been the biggest beneficiary of the move away from ad networks. Data + exchange = ad network. Now that there are so many plug-and-play technologies giving advertisers access to the world of exchanges, the money has flowed away from the networks and into the pockets of Google AdX, Microsoft, Rubicon, PubMatic, and RMX.
• Ad serving. Ad serving will always be a tax on digital advertising but, as providers in the video and rich media space provide more value, their chunk of the advertiser pie has increased. Yes, serving is a $0.03 commodity, but there is still money to be made in dynamic allocation technology, reporting, and tag management. As an industry, we like to solve the problems we create, and make our solutions expensive. As the technology moves away from standardized display, new “ad enablement” technologies will add value, and be able to capture more share.
• Publisher. Agencies, networks, and technologists have bamboozled big publishers for years, but now smart publishers are starting to strike back. With smart data management, they are now able to realize the value of their own audiences – without the networks and exchanges getting the lion’s share of the budget. This has everything to do with leveraging today’s new data management technology to unlock the value of first-party data – and more quickly aggregate all available data types to do rapid audience discovery and segmentation.

The slide we are going to be seeing in 2012, 2013, and beyond will show publishers with a much larger share, as they take control of their own data. Data management technology is not just the sole province of the “Big Five” publishers anymore. Now, even mid-sized publishers can leverage data management technology to discover their audiences, segment them, and create reach extension through lookalike modeling. Instead of going to a network and getting $0.65 for “in-market auto intenders” they are creating their own – and getting $15.

Now, that’s a much bigger slice of the advertising pie.