Are Private Exchanges About to Have Their Day?

Hearst headquarters in New York

Hearst’s SVP of Ad Platforms Mike Smith has been along for publishing’s long, bumpy ride from insertion orders and ad adjacencies to programmatic auctions.

In the late 90s, publishers moved online as Google begun writing the rules of what an ad-based search engine might look like. The publishing industry merely adapted print rules and language for the web.

“The banner ads looked like newspaper ads. The unit of commerce was the same, sold not on clicks but on CPM,” Smith said. “Salespeople got insertion orders and production people—called ad ops—fulfilled them the same way they did with magazines and newspapers.”

The West Coast pioneers, chief among them Google, however, were auctioneers from the get-go.

Forget all those office workers and contracts, they said, and let’s just auction everything off. They had the algorithms capable of putting every keyword imaginable up for bid, and so they did, and so they continue to do. But, from the time AT&T’s historic first banner ad appeared on in 1994, publishers plodded along with their paper-pushing system until…

“…Ad tech,” says Smith (at left). “It was January 2010. Google’s AdX 2.0 debuted, and that I think was the defining moment. Display advertising was introduced to the world of auctions. In fact this auction is even more technologically impressive than the search auction, where bids are placed well ahead of time. This is real-time buying, where in a very small, finite space of time, the computers can appraise the value of the user waiting for the New York Times to load in his or her browser. In that moment, the winner of the auction gets to serve an ad to that person. It’s really magical.”

Real time bidding was a godsend for publishers, who now could find buyers for their scads of unsold inventory, albeit at a heavy discount, often about 10% of what they were getting for their premium inventory. It is in this RTB chasm between high-quality inventory and low-ball pricing where publishing industry ad tech folks like Mike Smith spend the bulk of their time these days, and Smith reports they are making headway.

“The question is, is this ad impression going to be from a direct-sold, guaranteed campaign through a private exchange, or is it going to be sold through a public, or open, exchange?” Smith says. “There’s another aspect to programmatic, which is the automated guaranteed, or programmatic direct, system. In this case the deals are guaranteed and so the impression will serve within the negotiated time frame.”

The stakes here are huge for publishers, since an open exchange RTB ad that sells with a CPM of $1.50 could snare as much as $15 if sold in guaranteed fashion. Hearst has a solution called Core Audience that serves as a clearing house for the unsold inventory across all Hearst properties, including 30 newspapers, 31 television stations, and some 60 magazines globally. If a salesperson for, say, the Houston Chronicle sells a $300,000 package to an automotive account, but the Chronicle doesn’t have enough inventory to satisfy the advertiser, Core Audience pieces together a premium inventory program through its private exchange delivering desired customer segments in, say, Car and Driver, WBAL in Baltimore, and Road & Track.

The media mind meld of Silicon Valley and Publishers Row is on the verge of being consummated for real, Smith promises. “Now that programmatic is in full bloom, it will only be a couple of years before the process goes away of fulfilling display ads like print ads. Hopefully, most of the deals we make will be automated guaranteed and private exchange and CPMs will be healthy. It’s taken a long time, but the East Coast will soon service digital campaigns like the West Coast.”

Marketing’s East Coast-West Coast, print-based-digital based struggles may soon fade into history. If only Biggie and Tupac could have been so conciliatory.

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