Summary:

Although ad sales people at major publishers sometimes like to deride real-time bidding as a “race to the bottom,” fearing that the auction-…

Advance Publications

Although ad sales people at major publishers sometimes like to deride real-time bidding as a “race to the bottom,” fearing that the auction-based model will only erode their premium prices and perhaps make their job less relevant, media companies have little choice but to follow where marketers’ money flows — and that means participating in ad exchanges.

With that in mind, Condé Nast is following the lead of a number of big players and has unveiled its own “private” ad exchange today in partnership with AdMeld, which is currently awaiting regulatory approval of its $400 million purchase by Google.

Condé Nast has already signed on eBay (NSDQ: EBAY) and Macy’s as launch partners for its deeper foray into RTB. It plans to invite additional advertisers into its private exchange next year. Condé Nast’s display inventory is not available through public ad networks, and with the launch of this private exchange, is the first major magazine publisher to offer such an opportunity to its advertisers.

The amount of online ad dollars making their way through RTB systems in 2011 will be about $1.1 billion and then nearly doubling next year to $2 billion in the U.S, says IDC analyst Karsten Weide in a recent study commissioned by AdMeld supply-side platform rival PubMatic.

So RTB will still remain a fraction of the $14.82 billion in display dollars that are spent in 2012, according to eMarketer estimates, let alone the roughly $30 billion spent online in total. But ad exchanges are becoming the favored way advertisers use ad agencies to make their online buys.

It’s only a matter of time until its peers begin to do the same.

In order to protect themselves, publishers have flocked to “private exchanges” offered by the supply side platforms, which include AdMeld, PubMatic and Rubicon Project. Recently, Cox Digital Solutions, the online sales arm of broadcast and newspaper owner Cox Enterprises, turned to ad exchange operator AppNexus to help set up its own real-time bidding platform.

This past summer, NBC (NSDQ: CMCSA) Universal began expanding its partnership with AdMeld to build a private marketplace as it sought to reduce reliance on third party ad networks.

In addition, Yahoo (NSDQ: YHOO) began offering a private marketplace through its Right Media exchange, which before it was acquired was one of the pioneers of the RTB space.

Publishers have been amenable to private exchanges, which promise to protect publishers’ relationships with advertisers and agencies and allows them to set specific terms with specific buyers, such as establishing price floors and determining the exact kinds of placements that are available.

In a sense, the notion of a “private marketplace” as something separate and apart from RTB systems generally is something of a misnomer. Even in a “plain” ad exchange, sellers have the ability to set certain controls in place. Still, this is still uncharted, uncertain territory for publishers, so anything that provides clear restrictions around their inventory is apt to appeal, whether its simply window-dressing or not.

Certainly, the ad exchange operators and demand side platforms, which work with ad agency trading desks to get marketers better prices and placements in RTB environments, are willing to go along with the idea of private exchanges. After all, one of the things that has prevented the space from growing further is the lack of premium inventory. Unless publishers can be enticed to putting more valuable inventory on exchanges, marketers won’t be encouraged to spend more through the trading desks.

If publishers are smart about it, RTB doesn’t have to be a “race to the bottom,” driving down the value of their inventory and direct sales. Given the trend of “audience buying” by marketers, plus the fact that even major publishers have more inventory than they can can personally sell directly, the rise of ad exchanges could actually turn out to be a win-win for both buyers and sellers.

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