Unless the regulatory process is somehow speeded up in the case of Google’s latest acquisition of Admeld, the estimated $400 million deal that would add a new publisher-facing service to Google (NSDQ: GOOG) display/exchange business is at least several months away from actually being completed. That said, the announcement earlier today will surely speed up efforts by Google’s competitors, whether its display advertising leaders like Yahoo (NSDQ: YHOO) and AOL (NYSE: AOL), to expand their supply-side efforts, or Admeld rivals like The Rubicon Project and PubMatic.
In a post on its blog, media investment bank Luma Partners, which represented Admeld in the deal, points out some of the basic implications of Google’s acquisition: “Real time media buying is real and valuable. There has been some debate of late regarding the RTB phenomenon – whether it is a fad or a long-term shift in the market and whether it adds real value. This acquisition should squelch that debate – as we point out in the SCIENCE-ification of Media presentation, there’s no going back.”
I had a recent conversation about ad exchanges with AOL’s Ned Brody, president of AOL’s B2B businesses, which includes managing the company’s display relationships with outside publishers through Advertising.com and its other ad tech units. He mentioned that one publisher, who spoke for many, had identified RTB as “a race to the bottom” not real-time bidding. Many publishers are reluctant to participate in RTB, because they feel it tends to drive down prices of their inventory. Companies like Admeld, Rubicon and PubMatic exist, in part, to help allay those fears by promising to protect publishers’ ad yields.
Publishers’ Frenemy?: Given Google’s breadth in display, one generous theory is that it will be able to offer publishers better deals through the Admeld exchange. But Google has tended to be regarded as a “frenemy” at times, a view that has softened on the part of ad agencies with the addition of Invite Media as Google’s DSP.
“Google’s purchase a validation of the ad exchange space,” says AppNexus CEO Brian O’Kelley. “If you look at Invite, that purchase was driven by Google being frustrated by DSPs’ inability to get significant traction with the ad agencies. So Google figured, it would do it themselves. On the publisher front, Google felt it wasn’t getting its own penetration there and that Admeld was more successful and that’s the reasoning behind the acquisition and be able to build on that.”
So that leaves two questions for publishers, O’Kelley says: are they comfortable with Google as their primary monetization partner? If so, Google wins. “I can’t believe that after putting so much effort behind buying Admeld, Google doesn’t have the market research to suggest they wouldn’t get Admeld’s publisher clients.”
Publishers and perception: But a number of sources on the publisher and ad network side think that Google will have a tough time initially convincing publishers that it is not operating a closed system with Invite at one end, Admeld at the other and the Google Ad Exchange in the middle. “Publishers are going to be very concerned and will walk away — assuming they can,” one ad network source said. ” You can argue publishers will have to work with Google because they are so reliant on them for driving traffic and technology. How do they say no? And publishers need to be concerned that Publicis Groupe, the largest buyer, does not just get closer to Google and buy everything through these systems thus killing publishers’ primary revenue. And if that happens there is negative impact on consumers.”
While Google executives repeatedly deny that agencies and marketers get special deals by funneling their ad spend through Invite if they agree to put more dollars in the Google Ad Exchange, the perception that the various parts of Google’s display business operate closely, if not tightly, persist. And while Google may be able to prove it to regulators, it will still take a lot more to convince publishers.
The competitive landscape: Of course, there’s more than just Google to consider. A lot depends on how the other supply side platforms respond. Beyond that, it also depends on Yahoo, AOL and Microsoft (NSDQ: MSFT), all of which offer various solutions to publishers and command a large segment of display ad spending.
Ad tech providers evolve: The other primary companies in the supply-side platform space — publishers, the sellers of ad inventory are the “supply-side,” while agencies and marketers, as the buyers, are the “demand-side” — are Rubicon and PubMatic. Like Admeld, all three have evolved from offering “yield optimization” — helping ad impressions and campaigns perform better, such as driving higher clickthrough rates or determining the times and places for certain ads — to supply-side platforms, which include offering price protection through real-time bidding exchanges.
As Google and Admeld await regulators’ decision on whether they can work together, PubMatic, which doesn’t say how many pubs it works with, and Rubicon, which represents 450 publishers through its REVV system, can be expected to continue to build on the array of efforts and relationships each has put in place over the past few years.
All of been aggressively expanding their businesses in recent weeks, as both have made notable hires and deals, such as PubMatic’s acquisition of ReviNet, a smaller SSP that brought 57 additional publishers along with it, while Rubicon has been collaborating with Donovan Data Systems on building a media buying platform. Both companies have been building up their ad sales and engineering teams.
Meanwhile, Admeld recently scored a coup with publishers by being selected to build an ad exchange focusing on local ad inventory for quandrantOne, the online newspaper media sales joint venture owned by The Tribune Company, Gannett (NYSE: GCI), Hearst Corp. and The New York Times Company (NYSE: NYT). Q-Exchange, as its called, is a private ad exchange promising to focus only on “premium” buys.
Lately, there’s been a lot of attention being paid to SSP’s “private exchanges” or marketplaces. Rubicon and PubMatic, for example, have launched over a dozen private marketplaces over the past few months. The idea of private marketplaces is to protect publishers’ relationships with advertisers and agencies and allows them to set specific terms with specific buyers, as opposed to just opening their inventory widely for any agency to bid on one.
“The purchase of Admeld is a massive opportunity for Rubicon,” O’Kelley says. “If I was [Rubicon CEO] Frank Addante, I’d be thrilled by this news. The same for PubMatic. I don’t think they’re in play, but both Yahoo and AOL have to be seriously thinking about them as an obvious play. But aside from entertaining offers, both companies will benefit as publishers consider alternatives and see what the combination of Google and Admeld means for them.”
While there are dozens of DSPs that are already established, there aren’t too many SSPs. O’Kelley believes that companies operating at the ad network level will also be looking to expand into the space as well, in particular, companies like Collective, ValueClick and Undertone.
Display leaders’ challenge: There is a big question for display bellwethers Yahoo, AOL and Microsoft about how to react to the Google/Admeld deal. While Microsoft is partnering with AppNexus on building out its exchange services, Yahoo and AOL have circled the publisher side of the exchange business the last few years.
AOL reassembles: AOL’s Brody said that the company doesn’t have any desire to create an exchange business on par with Google. It does have a number of products that leverage bidding platforms, like AdDesk, which isn’t a DSP but is pretty close in some ways, and it has self-service options for publishers as well through its Advertising.com network. The company recently integrated its ad tech operations more closely together under the Advertising Group, which houses Advertising.com, ADTECH, Pictela, Goviral, 5min Media, StudioNow, Seed and AOL Answers under one entity. The group is an update of Platform-A, which was dissolved after Tim Armstrong became CEO two years ago.
“We’re one of the biggest participants in the ad exchange space as a buyer, but not as a seller and we don’t plan to be,” AOL’s Brody said. “We have found value buying in exchanges, certainly. And we are looking at the yield optimization space. Right now, there are three main companies providing that specific service. Are they the only companies who can do that? I don’t think so.”
Yahoo’s moves: While AOL has been reorganizing its existing properties to better serve publishers looking for an upper hand in the exchange space, last month, Yahoo paid $28 million to acquire 5to1, an online ad marketplace that lets top brand advertisers purchase unsold premium inventory on the sites of 20 major publishers. Yahoo said that the addition of 5to1 will allow it to increase the premium inventory it can offer advertisers.
“Yahoo has been investing for four years,” notes, AppNexus’ O’Kelley, who started with ad exchange Right Media before it was acquired by Yahoo in April 2007 for $680 million. Although Google earlier this month appeared to displace Yahoo as the display leader, according to IDC analyst Karsten Weide, O’Kelley says, “I wouldn’t count Yahoo out. They’ve been the market leader, so that allowed them to move a little slower perhaps than Google. But they’ve made a statement about getting more serious about display business as the landscape changes with the purchase of 5to1.”
Next steps: Right now, ad exchanges represent a small amount of the total $26 billion spent online — and an even smaller amount of the roughly $7 billion spent on display — each year. O’Kelley estimates that about 15 percent of online ad dollars will go through exchanges this year, but he’s betting that 50 percent of online will be funneled through exchanges within two years. In the meantime, according to a recent Forrester study commissioned by Admeld, the researcher predicted that spending on RTB will rise to $823 million in 2011, a 130 percent increase over 2010.
That bet is predicated on the notion that publishers will eventually embrace — or at least, acquiesce — to online ad exchanges in greater numbers, creating more of a seller’s market. That’s certainly the notion of private exchanges that the SSPs are rolling out.
Ever since Google bought Doubleclick for $3.1 billion over three years ago, observers were wondering what sort of impact it would have. Initially, many believed that Google wouldn’t dominate display, but it’s certainly proved itself as the leader in the space. Unlike search, where despite the efforts of Microsoft’s Bing, Google remains peerless, display is so much wider and the exchange space is still nascent. Even if Google does continue to loom large over display, which is pretty likely, there are still a lot of publishers out there who are ready to back alternatives and in any case, are unlikely to rely solely on Google. But, as with everything involving the search/display giant, time will tell.