“The Sell Sider” is a column written for the sell side of the digital media community.
Today’s column is written by Ari Paparo, CEO at Beeswax.
It may sound like the latest in young adult fiction, but this mystery is not dramatic or amusing, nor will it make your teenager ask you for money for the movies.
The mystery is this: In the supposedly super-efficient world of RTB, why would publishers continue to waterfall their demand sources?
Spoiler alert: This column will not actually answer the question. I merely posit possible explanations, which you will have to wait to see if the writer can tie together in an as-of-yet unscheduled Episode 2.
First, let’s start with some economics. As should be familiar to anyone who has anxiously waited for an airline upgrade, there’s a big difference in price between coach and business class, and it’s not easy to switch between the two. The economic theory behind this is that, as a seller, you can maximize your profit by touching different consumers on different portions of the demand curve.
Differential pricing maximizes yield on a demand curve:
Before the exchanges, most publishers executed demand segmentation through a waterfall of tags. Tags from various ad networks would load only after someone else had passed on the impression. The lower you were on the waterfall, the fewer premium impressions you had access to, which was a form of quality discrimination. If you don’t believe this matters, consider the difference in ad impression value between the first page of a slideshow and the last one.
Differential pricing using an old-fashioned waterfall/daisy chain
Fast forward to today’s world, where every impression can be simultaneously auctioned to every potential demand source in real time, with business rules customized to maximize revenue. This should allow publishers to maximize yield, not just on two points of the demand curve, but theoretically on every point.
Diagram: How RTB should be the perfect solution to maximizing yield
So what do smart publishers actually do? They waterfall, or "daisy chain," supply-side platforms (SSP). They send an impression to their preferred SSP with a relatively high floor price, then if the impression doesn’t clear, they redirect it to a second SSP with a slightly lower floor price, and repeat the process until AdSense clears the impression at pennies. This is essentially differentiating demand based entirely on the buyers being unaware that they could buy the same inventory cheaper. It’s as if you were able to repeatedly reload the American Airlines site and get cheaper prices for the same seat. When you ask publishers why they do it, they say, “Because it works.”
This is the ugliest secret in programmatic. I’ve personally verified it with more than a few top ad ops folks.
Any economist could tell you that this is a bad idea. But the ad ops folks insist that it works. So let’s trust them and try to answer the waterfall mystery: Why does it work?
Hypothesis No. 1: Different SSPs Have Different Demand Density
This seems like the obvious answer, but upon closer inspection, it doesn’t make sense. The top 80% of demand comes from a handful of bidders that integrate with everyone. Further, if one SSP had so much more demand than the others, it would always be the first in the daisy chain and gain significant share. But publishers insist they must move the order around over time and the SSP market remains a fairly stable oligopoly.
Conclusion: Unlikely.
Hypothesis No. 2: SSP Tools Produce Different Yields On The Same Inventory
The SSPs do have varied tools to manage yield. But once again, if one is dramatically and consistently better than the others, the market would reach equilibrium with the leader on top for most clients. This is not the case.
Conclusion: True, but unlikely to be the cause of the waterfall.
Hypothesis No. 3: Buyer Tools Differentiate By Supply Source
Do bidders price the same inventory differently if it comes from different supply sources? If so, this would cause some unpredictability in determining optimal auction settings, and switching between SSPs would be a crude way of generating incremental yield. But this could also cause reduced yield, since the combination of auctioneer, inventory and buyer would be hard to predict.
Conclusion: Possible, but hard to test.
Hypothesis No. 4: The Buyers (And Their Tools) Are Dumb
What if most buyers just don’t realize they can get the same impressions at lower prices and are instead consistently buying impressions for higher prices than they would ultimately clear for?
This would explain both the need for multiple auctions – to fool buyers into thinking they are distinct impressions – and the need to switch the order of the waterfall – to throw off the demand-side platforms once they have reached an optimized state.
Conclusion: This is a clear contender!
Hypothesis No. 5: Ad Ops Teams Like Messing With Things
What if yield is just going up because someone is paying close attention and tweaking settings a lot? See the Hawthorne effect.
If you play games on your smart phone, chances are you've noticed the video advertisements that pop up while you are playing. Though annoying, they keep the app free - and are the newest link in the evolution of gaming.
Nearly half of all mobile phone users in Europe have downloaded a gaming app - and of that group, 40 percent play it every day. But one company from California with a significant beachhead in Berlin seems to have solved the puzzle of serving ads without interrupting the gaming experience.
Ville Heijari of in-app advertising platform Vungle says such platforms are bridging a gap: they are helping game developers earn money from mobile users who are generally reluctant to pay for apps, while at the same time delivering advertisers a new captive audience for mobile ads.
About 50 percent of the advertisements that Vungle places inside mobile games for Android and Apple iOS are actually promoting other games or smart phone apps. The strategy is to build up a customer base and increase app usage overall, in order to create space to plug in ads for consumer brands. Indeed, the other half of the ads on Vungle's platform are paid for by companies like Unilever and Nokia.
Kaikkonen experienced massive success for his game RGB Express once it was offered free
But Heijari says Vungle's platform differs from similar offerings by the way it gives gamers incentives to watch ads.
"Advertising traditionally used to be something that disrupted the game play and drove people out of the game," Heijari explains. "But when we do an opt-in approach, people actually want to see the ads," he adds.
"They download the other applications that are being advertised, but they also gain some kind of benefit within the game or app."
Ads for hints
One game on the Vungle platform is RGB Express. Its developer, Markus Kaikkonen - a Finn who divides his time between Berlin and Helsinki - says his puzzle game became a number-one hit after Apple made it a free download of the week last September.
"Usually it costs a little under 3 euros [$3.50] in the app store," Kaikkonen says. "And it got 2.6 million downloads in eight days, at that time."
"We didn't get money from those sales, but we got a huge amount of publicity," Kaikkonen adds.
Five months on, RGB Express is still selling well in the Apple store. But when Kaikkonen launched the app for Android this past December, he chose a different strategy: He decided to offer the Android version of his app for free.
Heijari is working on incentives for mobile gamers to watch ads
Only 1 to 2 percent of Android users pay for apps. To make money with Android, Kaikkonen joined the Vungle platform, which serves video ads inside his game and rewards players with hints or game credit for watching 15-second advertisements.
"In the Android version of the game, the player can use hints to watch the solutions for the problems," Kaikkonen said. "He can buy more hints if he wants to, but if he doesn't want to buy those, he can watch a Vungle video ad to get a free hint."
Long tradition
Vungle's work is the newest development in brands trying to reach consumers through video games. One of the first product-oriented video games was launched by Johnson & Johnson in 1983. It ran on the Atari 2600 system, with a gaming premise like a cross between Pong and Space Invaders.
Fast-forward three decades, and the advertising gaming experience is more sophisticated. Tanya Lee of Vungle says today, brands want to be sure people are actually watching the ads.
"One thing that we're going to be testing out is a video for a major American car maker, as well as a game that will test whether users have seen the ad - what color that car was, that sort of thing," Lee says.
"I think what you're going to see is that there will be a lot more of that - efforts to make the users recall, interact and engage," Lee adds.
For Finnish puzzle app maker Markus Kaikkonen, video ads in mobile games are a welcome change from popup banner images that usually interrupt game play. A more seamless advertising experience satisfies his need to make money, along with users' demands for a constant stream of free mobile games.
"Especially with smart phone games, users have this idea that games are free," Kaikkonen says. "Advertising is the only way to make money for most of the apps from most of the players." Deutche Welle Article Here Deutsche Welle Article Here
If four video ad tech acquisitions in the second half of 2014 weren’t enough evidence the space is hot hot hot, a barrage of new investments in video marketing startups should help drive that point home.
Vidyard, a video marketing automation platform, just raised $18 million in Series B funding from Bessemer Venture Partners and existing investors iNovia Capital, OMERS Ventures, Salesforce Ventures and SoftTech VC, bringing its total financing to $25.7 million. The company employs 60, but expects to grow to 100 by the end of the year.
Vidyard’s capabilities differ from some of the exchange-based video startups purchased last year.
Its software distribution platform is designed for brands and agencies to create, host, distribute and track their video content with integrations to marketers’ existing CRM, analytics and back-end systems.
Marketers can access that data to see how their videos performed – for instance, when audiences dropped off and who was watching, said Michael Litt, CEO of Vidyard. Clients can also integrate this information into marketing automation platforms to improve lead scoring.
“If you develop a three-minute-long video, and data shows people drop off before they see a call to action, it can really help improve the production of content,” he said.
“Video at all stages of the funnel, either on owned-and-operated sites or via social campaigns, etc., is accelerating,” Litt said. “We’ve seen more top-of-the-funnel content pieces distributed to Facebook and Twitter to drive awareness.”
Marketers who use Vidyard for distribution generally experience the most traction with email and Facebook campaigns, Litt said, which is in lockstep with the marked uptick in video posts per user recorded by Facebook in the US and globally.
Publisher-Focused Platform Surge
The video investment dollars are going to publisher-serving platforms, too.
A number of supply-side-focused companies got snatched up last year, including LiveRail, SpotXchange, Videoplaza and Ooyala.
Parisian video supply-side platform Teads, which merged in 2014 with demand-side video tool eBuzzing, on Tuesday announced it had raised $30 million in financing, $15 million of which was equity-based, the remainder coming from a mid-term line of credit issued by Bank of China and HSBC.
Bertrand Quesada, Teads’ CEO, said the video ad platform did $100 million in net revenue last year, a 65% increase year over year.
Teads develops something called an “inRead” video ad format, which only activates sound or motion when a viewer scrolls over a placement. Quesada says it’s consumer- and advertiser-friendly, since Teads runs semantic analysis to align ads with contextual content, and only charges advertisers for completed views. Forbes, Slate and Reuters all white-label its tools, and Videology, Turn, DBM, Adap.tv and others hook in on the demand side.
The amount of video on Facebook Inc. (FB)’s news feed more than tripled last year, as many users and advertisers discovered the option for the first time. How much bigger video will get on the social network depends largely on Fidji Simo.
Simo is Facebook’s director of product in charge of video. After the social network debuted video ads last March, her team added tools for advertisers to measure whether the promotions fit goals they’d set. This year, Simo said she plans to tweak the website’s design so marketers can more easily buy video ads and monitor their campaigns. She’s also working to improve video targeting so the right Facebook users see the right ads.
Her efforts are central to Facebook tapping the U.S. online-video advertising market, which EMarketer Inc. estimates will reach $7.8 billion this year, up 30 percent from $6 billion in 2014. While that’s a fraction of the $70.1 billion U.S. television-advertising market, the growth rates in digital video promotions exceed that of other parts of the advertising industry, providing a lucrative revenue source for Menlo Park, California-based Facebook.
“We’re just really at the beginning of understanding what video on Facebook is about,” Simo said. “We want to make sure that we’re really communicating on how people are engaging with video so marketers can really understand.”
Embracing Video
Facebook today is releasing a progress report about video on the social network, including how users and brands have boosted the amount of video in the news feed by 3.6 times in the past year. In addition, the number of video posts per person has jumped 75 percent, with more than half of daily U.S. visitors watching at least one video a day, the company said. Facebook Chief Executive Officer Mark Zuckerberg said in a November public question-and-answer session that in five years, most of Facebook will be video.
Still, Simo’s job remains complicated -- especially with marketers. Brands typically measure a promotion’s success against television and other parts of the Web. Facebook’s video ads don’t work the same way as those offerings, as they can be targeted more specifically to certain demographics. Facebook ads also run alone, instead of appearing ahead of other content like on Google Inc. (GOOG)’s YouTube and Hulu Inc.’s streaming service. What’s more, the social network’s promotions play automatically without sound in the news feed until people click on them.
Education Kick
That means Simo has had to create new metrics for marketers to evaluate their video-ad campaigns in Facebook, including how many people clicked on a link at the end of a video. She has also had to educate advertisers on video, attending the company’s advertising council meetings, where executives at Facebook meet with consumer giants like Coca-Cola Co. (KO) and Unilever Plc. (ULVR) Marketers have asked to see more clearly how their advertising leads to sales, Simo said.
Facebook doesn’t break out revenue from video ads, for which it has been charging $1 million or more a day for 15-second spots, people familiar with the situation have said. Advertisers including Kate Spade & Co. (KATE) and Gap Inc. have used Facebook’s video ads, the company said.
Facebook “is coming on strong and has the potential to put pressure on YouTube,” according to an EMarketer report today that said social media will change the rules for video advertising.
More Steps
Facebook has been taking more steps to improve video ads. In September, the company unveiled an ad server tool called Atlas to let marketers get data on how often individuals saw ads and on what device -- something that’s essential for video now that 65 percent of Facebook’s video is viewed via mobile devices. In July, Facebook also agreed to acquire startup LiveRail, which will help it serve video advertisements outside of the social network.
“LiveRail will make it so that publishers can be more efficient, and Atlas can help them understand how it helped their business,” said Brian Boland, a vice president focused on ads at Facebook.
Simo, who joined Facebook in 2011 from EBay Inc. (EBAY) and who has helped the social network simplify its ad-format options, got her team to build more ways for advertisers to measure video last year, such as letting them see how many people are watching at a certain time. The company also added prompts at the end of its ads that sent people to websites or asked for an action.
This year, one type of video-ad campaign Simo said she’ll continue to pitch heavily to advertisers is one that involves following up on videos with other kinds of ads, called retargeting. That will help Facebook get closer to proving that it can drive sales, she said, with videos helping to brand a product and the follow-up promotion moving someone to actually purchase the item.
“This is really the year where we made a lot of investment and advertisers are now embracing the fact that we are big in video,” Simo said.
Verizon Communications Inc. is exploring a potential acquisition or joint venture with AOL Inc. (AOL) to help it expand mobile-video offerings, people with knowledge of the matter said.
The wireless carrier hasn’t made a formal proposal to AOL, and no agreement is imminent, said the people, who asked not to be named because the discussions are private. Speaking at a conference today, Verizon Chief Executive Lowell McAdam said the company isn’t having “significant acquisition discussions” and is more interested in partnerships with media companies and content providers, rather than buying them.
“AOL, along with lots of other media companies, are potential for us to do partnerships,” McAdam said.
Verizon is primarily interested in AOL’s programmatic advertising technology -- the automated buying and selling of ads online -- which could be paired with a future online-video product, two of the people said. With a takeover it would also gain paying subscribers and Internet properties including the Huffington Post.
AOL CEO Tim Armstrong has used digital-advertising acquisitions to transform it from the Internet portal once known for its “You’ve got mail” alerts. Verizon is seeking expertise in three areas: online content, mobile video and advertising, one person said, and a venture -- rather than a takeover -- would keep it focused in those areas. ‘Digital Response’
“Verizon needs a digital response and AOL has shown the best strategic foresight of navigating the digital-video world,” said Laura Martin, a senior analyst at Needham & Co. “Verizon can buy or build that, but it’s unlikely to build it fast enough.”
The company also has held talks with several of AOL’s peers about how to bolster those businesses, one person said.
~ by Tod Sacerdoti, CEO and founder of BrightRoll as reported by VentureBeat
When it comes to video advertising, a lot can happen in a year. In 2014, digital video advertising experienced huge gains in spend and viewership, took a giant leap into automated programmatic buying, and saw a continuing wave of consolidation withFacebook buying LiveRail and Yahoo announcing the acquisition of my company, BrightRoll. After such an eventful year, 2015 will be the year that digital video advertising fully ‘grows up’. We’ll continue to see IPOs and industry consolidation in 2015, and as a result the video ad market will settle into a more mature phase.
Here are my predictions for the year ahead…
1) Programmatic goes mainstream for digital video.
In 2014, advertisers and publishers laid the groundwork for a fully automated video ad future, with $700 million worth of video inventory transacted on programmatic platforms in the US, according to eMarketer. By the end of 2015, buyers and sellers will transact more than $2 billion worth of video ads on programmatic platforms, more than tripling 2014 spending.
Advertisers and agencies are already sold on programmatic, and in 2015, publishers, will finally fully embrace programmatic technology, realizing it represents a huge opportunity to improve efficiencies and boost profits. Top-tier publishers will begin to shift to automated processes, adopting private marketplaces and programmatic direct platforms to gain operational efficiencies while maintaining control over how and to whom their premium inventory is sold. Gains will also be made in open, RTB-based video ad exchanges, as advertisers seek to consolidate their video ad buys across publishers via single programmatic platforms.
2) Mobile video spending skyrockets.
Consumers around the world are moving their media attention to smartphones and tablets, so it makes sense that advertisers will look to put their messages in front of these mobile eyeballs. However, despite the rapid consumer move toward mobile, in 2014, supply outstripped demand in mobile video, with many advertisers unsure of the format’s measurable impact. A lack of standard practices about how to effectively target, measure, and frequency cap mobile video ads across devices has also held back mobile until now. Thus, mobile video CPMs generally remained lower than desktop video in 2014, but that’s set to change in 2015.
Sophisticated mobile targeting and measurement has finally arrived, allowing advertisers to target and measure in the same ways they have on desktop devices. Publishers will offer mobile video inventory that more closely mirrors (and integrates with) desktop video. Significant progress on device ID mapping will enable cross-screen targeting and measurement, while more precise geo-targeting capabilities will also emerge. These advances will generate more premium inventory, causing average mobile video CPMs to rise. In fact, research by Business Insider predicts that over the course of the next few years, mobile video ads will grow almost five-times faster than desktop. That said, by the end of 2015, there’s a real possibility that advertisers will spend more on mobile video ads than desktop.
3) Programmatic performance guarantees will become the norm.
In 2015, advertisers will expect publishers and ad tech platforms to guarantee some performance metrics such as completion and clickthrough rates, as well as targeting metrics such as audience, inventory quality, and viewability. With 2014’s rise in awareness around fraudulent ad activity, advertisers will also demand metrics identifying non-human traffic. Providing such ‘guarantees’ will require many ad tech platforms and publishers to upgrade their data analytics and measurement capabilities, helping the video ad industry tie ad investment to concrete returns. When advertisers trust their investments are going to high-performing, viewable, and non-fraudulent inventory, they will spend more so we can expect to see advertisers focusing more on performance, rather than price.
4) Ad tech will come back in favor in capital markets.
2014 was a challenging year for ad tech in the capital markets, as newly public companies saw their share prices decline. 2014 was also a year of big exits via acquisition for video platforms, as larger technology companies began to understand the value in video. With such a tumultuous year behind us, 2015 will be the year top ad tech companies rise back to favor in the capital markets. Video platforms that provide a full-service ad buying and management solution — including programmatic trading, metrics and measurement, cross-channel targeting, and partnerships with anti-fraud providers — will emerge as leaders, attracting more of advertisers’ video budgets. Investment banks, like Woodside Capital Partners, are bullish on the space and “foresee continuing disruption of the traditional media advertising landscape, with video and mobile Ad Tech driving the change.” On the other hand, video platforms that offer point solutions will be acquired by larger players or fail to gain critical mass.
When we look at how ad tech companies have performed in the market lately, it’s easy to forget ad tech is still a young category, especially programmatic video. The future potential for automated, targeted, and measurable video advertising is tremendous. As we move into 2015, ad tech will continue to grow in step with its potential, bringing investors back to the strongest players.
Tod Sacerdoti is the CEO and founder of BrightRoll, the industry’s largest programmatic video advertising platform. The company’s proprietary technologies connect buyers and sellers of digital video advertising to help them reach audiences across the web, mobile and connected TVs.
