Monday, November 30, 2009

Six Supply Side Strategies for Ad Networks in the New Ad Ecosystem

In my last blog I covered some concepts around the supply side of online advertising. In this blog I'll be venturing over to the demand side.

Ad networks have always been a two way street. The yin and yang of the demand and supply sides of the better ad networks growing and feeding each others needs in a virtuous cycle. As most online publishers, advertisers and ad agencies know, some ad networks are better at one side or the other, but over time a balance is found or growth is stunted.

Ad exchanges are going to be a game changer for ad networks because they break the need for a complete dependence on the other side of your network. And soon, when they start massively scaling, they also will have a profound effect on strategies for targeting and optimization and how campaigns are sold and filled. This effect will ripple through to publishers, advertisers and ad agencies.

Additionally the emergence of demand side only platforms acting as buying agents for agencies offers a disintermediation risk.

I am writing this blog entry from an ad network management perspective so if you are an ad network, here are some strategies for you to survive the change, and if you are a supply or demand side only platform here are some opportunities for you to explore. I'll have some new strategies for this list in the future, but here are a few starter strategies to wet the whistle.

1. Step Up Your Game...NOW!
You are now or will soon be competing with hungry startups who care not about balancing the distribution of budget and engineering resources between the supply and demand side because they will be demand side only or supply side only platforms. They will innovate faster, they will pay more attention to the advertisers, agencies or publisher needs, they will invade niches, exploit your weaknesses, and they will clean your clock. Invest now. Right now. Seriously, right now. Take some of that cash you've been squirreling away and invest it in your technology and your people.

2. Parallel Experimentation is Your Friend
Does your system support multiple optimization strategies in parallel? Can you experiment on the fly? Can you do post hoc testing and make sense of the results? You need to have multiple parallel experimentation streams that are constantly informing your optimization secret sauce and evolving against each other in an algorithmic survival of the fittest. Remember, optimization will no longer be just amongst sites or ad units, but amongst entire purchasing platforms!

3. Take the Channel Conflict Lemon and Turn it Into Margaritas
Start thinking about your sales team differently. In the old model the same person was your starting pitcher, your middle reliever and your closer. Now you are going to be using them very strategically. Your sales team actually becomes MORE important because the campaigns for which you will be using them most with be the ones that are more strategic and require high touch, hands on management. Sure, you will be buying inventory algorithmically (a.k.a. programmatically) for more of your campaigns in the future, but the winners in the new paradigm will be the companies who know how to balance that opportunity with a highly skilled group of sales people for the management of the more complicated deals and relationships. More on this in a moment when we talk about the leaner meaner sales team.

3. Create Your Leaner, Meaner Sales Team
If you are an ad network then no doubt you will have been keeping an eye on cost of sales as one of your key metrics. You need to now start thinking differently about that metric. What is important now is OVERALL cost of sales AND cost of sales per campaign. You should start looking at managing campaigns as either programmatic intensive campaigns or sales intensive campaigns. What you should be doing is paying a leaner meaner sales team higher compensation and getting your reduction in overall cost of sales on the campaigns that work smoothly in a programmatic model without high sales team touch. Don't be afraid to let the variation of cost of sales per campaign increase greatly (it actually should), so long as the overall cost of sales comes down over time. Don't get greedy (yeah right...) and start leaning on cutting the cost of sales for those high cost campaigns. So long as the overall cost of sales is coming down, then the higher cost of sales for some campaigns is an indication that the strategy is working. Think long term relationships. Some campaigns need sales people and good sales people get good and stay good by being supported, developed and well compensated. If you keep the advertisers and agencies happy on those high touch campaigns the programmatic campaigns will follow.

4. ROI is Your New Religion
If you are an ad network you probably review and approve the CPM (or other pricing model) per ad unit type your sales team is selling. Maybe you have a rate card minimum to keep your publishers in the fold and improve overall revenue. You certainly view ROI for your advertisers as important. Now you must make ROI your religion. ROI for your advertisers or the agency campaigns is now your guiding principle and should drive your product solutions. You need to understand ROI deeply because you need to know how to bid, fill the campaign and still make a margin. And how do you come to a deeper understanding of ROI expectations?...

5. IT Introductions
How are you measuring ROI? How are your advertisers or agency partners measuring ROI? How do they want the data? Do they want to API into your system to feed their system? Do they want a fantastic UI and canned reports? Do they want a UI that can query your data set and provide flex and pivot reports? Are you working well as the go between third party ad server data and the final user of that data? Is your internal reporting system able to easily incorporate data from multiple exchange platforms? Are your supply side partners, either in-network or third-party, aware of your forecasted needs in their systems. Think about how successful Walmart has been by integrating their POS with their suppliers. Use that lesson to guide development of your systems. Now is the time to introduce your IT department to outside party IT departments and help them work together. This may be a paradigm shift for your IT department. You may need to change the character of the team to accommodate exposing them to a team different in culture and with different goals and expectations.

6. Know How to Value the Impression
If your ad network has been going down the behavioral targeting path for some time, you have been moving toward targeting and optimization at the impression level. Now prepare to bid (or offer), in real time, programmatically in such a way that you are maximizing ROI for your demand side partners while lowering overall cost of sales. You do this and beat your competitors by being better at knowing how to value the impression. You should be capturing every available shred of data about the user, the site, the ad unit, the time of day, the season, special events, etc.. and using it in your feedback loop. You should prepare to incorporate third party data into your mix. You should prepare to evaluate the cost of third party data at the impression level in the final analysis of your margin. The bottom line in a bidding environment, if you know more, you can bid higher, win the auction and still retain margin. Strategy and real time execution of your strategy programmatically will empower your drive to maximizing ROI for your demand side partners.

Fair Use Policy: Please include the name: Edward Boettcher and the following link: The Product Messenger when referencing this information. All content (c) 2009 Edward Boettcher

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