As everyone sums up their impressions post-CES and prepares to jump on planes bound for IAB ALM, I predict that your reading list is chock-full of 2016 predictions and conference take-aways. At CES once again we saw the continued interest in the use of tech gadgets to track and quantify consumers’ health and activity. As we look ahead to what will bring our digital industry to its next $50+ Billion mark, I’d like to start digging deeper into one major trend that is happening and largely remains undiscussed: the health, activity and future of intermediaries. In this context an intermediary is one who doesn’t directly produce content or command advertising budgets (agencies, SSPs, DSPs, networks are all included). If there was an Apple Watch or Fitbit for digital intermediaries they’d probably read danger across multiple categories. As with most chronic health issues, these also didn’t occur overnight.
In adtech, rumors of the demise of intermediaries have been floating around for the better part of the last decade. Back in 2008 Emily Steele covered a very important trend for the WSJ - ad networks were downsizing to appear profitable while access to VC money was drying up and leaving many companies looking for quick suitors in hopes to have somewhat of a happy exit.
With a few tweaks Emily’s article could have been written today; indeed 2016 is starting to resemble 2008 in more ways than one. As the economy turned sour in 2008 the entire digital sector faced hard times. Efficiency and controlling transaction costs was widely seen as a solution. As soon as the economy bounced back a little our industry saw an influx of platforms focused on algorithmic decision making: the rise of programmatic, the birth of SSP and DSP technologies, and a myriad of other new systems operating with user-level data. Ad networks, accustomed to reinvention, quickly pivoted from their original models to embrace the technological aspects of RTB & programmatic and were able to continue to profit and grow. Ad tech became an area of interest for venture investors again and as more money for new products and platforms became available the seemingly immediate death of ad networks that never truly came turned into a running joke - not only were ad networks not dying, they were generating enviable margins, investing in technology, and here to stay.
Today, a mere 8 years later (or about as long as iPhones have been around), many of the companies that spearheaded the revival of our industry in ‘08 are facing the exact same challenges as the original ad networks did back then. When leading SSPs and DSPs start downsizing and shopping themselves around to potential buyers and premium networks are sold at fractions of their previous valuations it’s clear that intermediaries are losing ground.
I see 3 major trends that are leading to the demise of intermediaries:
When technology is commoditized (and it has to be in order for the ecosystem to conduct business efficiently), how do you differentiate? How many SSPs or DSPs and exchanges does the ecosystem truly need?
In a world where no single vendor has exclusive access to top comScore publishers and very few DSPs can boast any kind of exclusivity with a big brand or an ATD, it becomes almost impossible to keep profitability as there is no incentive for either a buyer or seller to work with your platform.
We’re seeing more and more top publishers take their supply and first party data into their own hands. A similar shift is happening on the brand side - circumventing agencies and building a more direct relationship between supply and demand seems to be on most brand CMO’s minds. This is pushing intermediaries farther down-market. Only the top buyers and sellers (comScore 20 - 50) will have the resources and clout to successfully implement, scale and profit from programmatic direct and guaranteed orders. For everyone else, intermediaries will still remain as a path to gain scale but the top-end of the market is going a different direction and so are their buying budgets.
So what can intermediaries do to survive 2016, thrive, and once again stay ahead of their own demise? Here are 5 healthy suggestions:
1. Build exclusivity on either the buy or the sell-side of the marketplace.
Companies that are successful intermediaries today remain ones who have exclusivity of a publisher or brand or a certain region (i.e. AppNexus’ growing partnership of selling Microsoft supply and Rubicon’s recently announced exclusive partnership with DMS - largest supply portal network in the Middle East or on the buy side Audience Science continues to be the programmatic platform of choice for P&G). Exclusivity will attract more valuable sellers/buyers to your platform.
As more premium publishers and brands move into programmatic direct, it will be crucial for any intermediary looking to survive 2016 to be able to cater to this highly coveted group as well. Rubicon recently announced a partnership with Zynga, where the game giant will offer all of their direct sold inventory via programmatic through the Rubicon platform. This move further reinforces Rubicon’s lead intermediary position and adds yet another exclusive supply deal to their books. In turn this creates a network effect on buyers who will be more attracted by access to better inventory via Rubicon.
3. Have a self service model (enabling long-tail and bringing scale to smaller players)
For long tail, self service platforms will be key to achieving necessary scale and capturing smaller advertiser budgets. As an intermediary your go to market approach needs to adjust from addressing the needs of several high profile clients to providing an easy to use self-serve interface with built-in transparency and support. This will be a leg up against the likes of Google AdSense (notorious for their comprehensive application process and lack of customer support) and Facebook (and their walled garden approach) and many regional category leaders.
Fraud is a tough problem to solve especially when intermediaries are involved: outside of a direct 1 to 1 deal it becomes increasingly harder to diagnose the precise origin of fraudulent activity (i.e. intermediary could be re-selling a fraudulent impression that they purchased from another intermediary unknowingly, or a fraudster may be using the intermediaries code as a passback to the next player in the chain). OpenX sets a good example here: they’ve invested significant resources and built out dedicated teams whose sole focus is on fraud prevention and management.
5. Increase transparency
Transparency is key to trust especially given the rise of fraud and multitude of options and competitors in the ecosystem. In order to survive and win your client’s trust it will be crucial to increase transparency, especially on the buy side of the equation.
So the outlook for intermediaries remains glum and prone to doomsday headlines (to which this piece is not immune). Perhaps the larger question we as an industry need to contend with is is there going to be room for intermediaries given the direction of investment in programmatic. Time to incorporate these healthy steps and adjust our lifestyle.
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