The Overcrowded Display Ecosystem: Is The Pie Big Enough?

My previous articles examined the display 2.0 ecosystem and how to maximize its effect in conjunction with search.

And as I write this column, India-based digital ad network Komli’s acquisition of Admax is top of mind. This purchase, designed to help Komli beef up its presence in Southeast Asia, is also significant given that Komli acquired Aktiv Digital last year. So what’s going on here? Is this acquisition one off or is it part of some bigger consolidation going on in the industry?

There are two parts to this theme:

1. Size of the prize
2. Product/market evolution

First, let’s consider the size of the prize.

This relates to the overall market size for display advertising. The market size of display in Southeast Asia and India is estimated to be around US$200 million to $250 million. This includes standard banners, rich media, and other unconventional formats.

Google with its display network is by far the biggest network with majority share. Then, there is Yahoo and MSN Network, and top local publishers like Star in Malaysia, Detik in Indonesia, Rediff & Indiatimes in India – these have reasonable share of the market.

Ad networks are estimated to be between 20 percent to 30 percent of the market. This is in line with a standard digital media plan where networks are allocated 25 percent of the budget. (I can imagine digital agency planners nodding their heads here. Though I do have lots of questions on “standard” digital plan for different clients but that’s for another day). This means that the ad network market size is about US$50 million.

Now consider that market is split between local and regional players. India alone would have more than 10 networks. Similarly, Indonesia has its own local networks and it goes for Thailand. On top, there are regional Southeast Asian networks such as Innity, Admax (now part of Komli), PixelMedia, and Interactive Hub. Then, there are solid international networks such as Tribal Fusion with a significant presence in the region.

You get the point. The numbers just don’t add up. It’s not a viable marketplace for so many ad networks anymore. So, consolidation has just started and you will have many more along the way.

The question though is “Why now?” After all, the market is still growing at healthy rate of over 20 to 25 percent.

This brings me to my next point: product/market evolution.

To understand this, lets look back on the history of display advertising. Back in the ’90s, most publishers used to work on the direct sales model. That led to the emergence of the representation model where agencies/resellers used to sign up top local and international publishers and market a portfolio of sites. This is still prevalent in many markets across Asia. But, the Internet is big and there were hundreds and thousands of publishers who had no resources to invest in sales/marketing but wanted to monetize this inventory.

Ad networks were born to solve the problem of fragmented inventory and help publishers monetize the inventory by aggregating and segmenting inventory that could be used by clients. They did it quite successfully and built a business around a hefty 40 to 50 percent revenue share model. However, there were two fundamental problems:

1. Lack of technology to optimize the performance for clients and yields for publishers.

2. Business model: publishers want to maximize revenue while clients want to reduce costs. There is an inherent disconnect between these two goals of ad networks, thus a bit of conflict. Ad networks failed to manage this in a transparent way.

Thus, ad exchanges were born; they are supposed to be the marketplace where buyers are sellers can find a solution to this issue in a transparent way. Exchanges also brought in technology to optimize campaign delivery and thus became the source of inventory for performance advertisers. Ad networks also started relying on exchanges to buy and sell inventory for their clients and publishers.

This worked well for the short term and lots of networks were essentially playing on arbitrage until publishers started realizing they were really getting a raw deal. Because exchanges work in open marketplaces, a lot of poor quality inventory was being infused into the marketplace. It didn’t help that ad networks were operating as blind entities and advertisers had no visibility about where campaigns were getting exposed.

So we come back to same problem. How does one intermediary manage the interest of publishers and clients at the same time? And this too, in a transparent way. How do you ensure that publishers are maximizing yields while clients get the maximum ROI from their investments?

Markets have a way to figure out solutions to these problems. Smart entrepreneurs spot a business opportunity and come up with innovative ways to solve a market problem.

It turns out two different set of intermediaries emerged: supply side platforms (SSP) and demand side platforms (DSP). Essentially, two sides of the same coin – similar technology plays but applied to two different sets of customers. SSPs are focused on helping publishers maximize yield. DSPs, on the other hand, are engaged with the demand side and work with clients and agencies to drive performance for campaigns.

On the face of it, the display advertising ecosystem seems extremely complex with so many players and similar propositions. But really every entity is playing its part to make the system more effective.

We will continue to see lot of action with ad networks either building or acquiring technology platforms. For instance, Google acquired Invite Media, a demand side platform in 2010, and Komli recently launched a real-time bidding (RTB) platform. Similarly, ad exchanges will face some heat from SSPs going forward.

Obviously, as the trend plays out, some will win and others will consolidate with other players. It shouldn’t be hard for you to see that.

a. Ad exchanges and SSPs have a similar proposition.

b. Ad networks and DSPs have a similar proposition.

This would imply, over a medium term, SSPs are next-generation ad exchanges and DSPs are the new generation ad networks.

At the moment, they all co-exist in the eco-system. Each is trying to clearly define its position and hold on to the market shares. The size of the prize in Southeast Asia and India is not big enough at the moment. And, size does matter in this business. If an intermediary has the right platform and builds the critical mass, the probability of success increases exponentially.

It is time to strike when the display space is still red-hot. And if didn’t I mention it in the first place, this space is hot, hot, hot!