Summary:

Over the past two years, ad exchanges have caught on with marketers and ad agencies by offering the promise of making the process of buying…

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Over the past two years, ad exchanges have caught on with marketers and ad agencies by offering the promise of making the process of buying online ad inventory quicker, more efficient and cheaper. Since more marketing dollars are being funneled through real-time bidding exchanges, publishers have been forced to participate. But they’ve largely held back premium inventory, reserving the use of exchanges for unsold inventory. A new partnership between display/video ad services firm Collective ad exchange operator AppNexus hopes to unlock some that more lucrative premium ad inventory by offering a private exchange on top of Collective’s existing ad management tools.

To be sure, private marketplaces are not new. But they have been gaining momentum in the past year, as supply side platforms The Rubicon Project, which has rolled out over 14 private marketplaces for its publisher clients over the past few months, PubMatic and Admeld, have all made that a big part of their service offerings. Even demand side platforms, which service the agencies and marketers, like MediaMath, have introduced private marketplaces as an option.

As Google’s $400 million acquisition of supply side platform Admeld wends its way through the long regulatory review process, many more companies are expected to begin offering more services like private marketplaces to publishers, as they sense the opportunity from the growth of exchanges and publishers’ continued concerns regarding those systems.

Making the private exchange work: In essence, a private exchange, a publisher restricts real-time bidding to a specific buyer (or buyers, operating through ad agency trading desks like IPG’s Cadreon or Publicis’ VivaKi Nerve Center, and DSPs). The publisher can also set the availability of this inventory to certain price levels and inventory levels. It can also set favorable terms to advertisers and agencies.

For example, a publisher might strike an agreement with a buyer on a specific price and give them first right of refusal — meaning that if another marketer comes a long later with a higher bid, a publisher can still reserve that inventory at the previously agreed on price for that earlier buyer. The reason a publisher would do something like that is to preserve an existing sales relationship with a market — just like the good old days before technology disrupted it — and allows them to sell now at price they feel comfortable with rather than take the gamble later in the open exchange, where bids can rise and fall quickly, creating more uncertainty for the publisher.

Despite that level of control and protection, publishers are still averse to putting premium placements, like homepage inventory, into the exchange environment. The deal between Collective and AppNexus, along with the existing offerings from the SSPs, is designed to change that.

“If we can get more money into publishers’ pockets, we think that’s a healthy thing for everyone, advertisers included,” says AppNexus CEO Brian O’Kelley. “Before, the main goal of exchanges was to make buying and selling more efficient. If you had asked me a year ago if you could also include yield optimization as part of that goal, I wouldn’t have believed it. But that’s exactly what we’re doing.” He added that tests with a handful of publishers showed yield lift averaging 300 percent on the AMP exchange.

Where the ad money is: The latter point of publishers in need of additional assistance is behind the teaming up of Collective and AppNexus. It just so happens that the timing of Google/Admeld is right for these kinds of offerings, as publishers are paying even more attention to what’s going on in the RTB space. The two have been working for the better part of a year on testing the system, which expands Collective’s existing AMP display sales system as a complete ad inventory management service for large publishers and networks.

Collective expands: “Collective’s AMP Data & Media Management Platform has always been a supply-side platform,” said Andrew Kraft, Collective’s SVP for Technology Sales and Client Services. “The term has been often-misused in the marketplace: an SSP is a platform dedicated to serving the sell-side, as AMP does. We’ve now, with the AMP Exchange, added the ability for publishers to take advantage of those advertisers doing programmatic buying, integrated into their premium direct-sold inventory environment. We can offer the ability to have self-serve controls and utilize a private exchange for this monetization, or for those that wish a full-serve solution, can monetize 100 percent of their inventory through a managed service.”

Levels of control: As Kraft’s description shows, private marketplaces come in a variety of flavors at all the companies that offer it. They range from high levels of service, where a third party will handle ad sales for a publisher based on specific set of price and placement positions. There’s also marketplaces where publishers have the direct role in making the sales via that platform with marketers and agencies they’ve selected. The bottom line is that publishers have the visibility in a private exchange that is not available in the general RTB environment. The thinking is that as publishers feel that they’re not selling blindly to the lowest bidder, they’ll feel more comfortable selling their premium placements via these exchange systems as well.

“The key here is to support the growing revenue stream that comes from advertisers buying programmatically, but doing so in a way that is integrated with – and not competitive to or separate from – the revenue from advertisers buying branded solutions,” Kraft says.

It comes down to a core difference in purpose: existing private exchange systems have been about making money off unsold inventory. “We believe the conversation needs to change to ‘maximizing revenue’ on all impressions, not just the ones that are left over,” Kraft adds. “By letting the $6 bid on the private exchange compete with the $3 direct-sold ad, you can better control how you squeeze the most out of each and every impression – and yet still deliver out your guaranteed deals. That, combined with integrated reporting to view direct-sold and exchange-sold side-by-side answers key publisher needs.”

While AppNexus claims that the tests of the AMP Exchange lifted yields by 300 percent, publishers will certainly be looking very carefully at the results. If private marketplaces can approach — and more importantly, maintain — those kinds of yield boosts, it would certainly go a long way to convincing publishers that these systems can enhance and not detract from direct ad sales. For now, publishers remain wary, but as more ad budgets are directed through agency trading desks, the pull of the exchanges in whatever form appears inevitable.

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