Well, first let me reassure you — so far the nuclear winter hasn’t started yet. The data that exists so far has been fairly sparse and inconclusive — Google is up, AOL is down… Rubicon claims the sky isn’t falling whereas PubMatic claims prices are steadily falling. I’ve had quite a few in depth discussions over the past few weeks on exactly this topic — where is the industry headed? How is the economic downturn affecting online advertising? What are the big boys doing? What’s new exciting?

Last week’s AdECN announcement and a short stroll through the booths at AdTech finally motivated me to get up and write another blog post! (sorry for my absence, life is pretty hectic these days). So here goes in no particular order my views of exciting things in the market today and what’s coming next.

The traditional “marketplace” network model is dead

By traditional networks I mean the models that ValueClick, Casale and Ad.com were founded on — networks that were primarily built by matching large amounts of supply and demand. The name of the game was to get as many advertisers and publishers together as possible to build the largest marketplace. Once the network was large enough, ad dollars naturally flowed to these players as they were a “one stop shop” for thousands of publishers. Large margins are made by buying low and selling inventory to advertisers at a higher price.

This model was used by many companies to build incredibly successful networks — and in fact — most of these networks are *still* very successful. The problem is, the world is changing. Namely:

First, access to inventory is no longer a competitive advantage. Between Exchanges, publisher aggregators and a mass influx of social networking inventory — everybody has access to billions of impressions.

Second, agencies want to cut out the middle man. Agencies have started to realize that networks are taking massive cuts out of their media buys while in many cases simply serving as an aggregator. And indeed, with supply easier and easier to get access to, many agencies are launching initiatives to cut out the middle man. Whether it’s the new Havas Artemis system, the Publicis Vivaki network or the WPP 24/7 acquisition — they’re all moving in the same direction.

Essentially — networks are getting pressure from both sides. On the supply side they are getting commoditized by aggregators and network optimizers and on the demand side a new crop of technology companies is attempting to empower agencies to buy directly — cutting off the ‘marketplace’ networks.

The rise of the pubgregatimizer

Publishers have finally realized that they might not be the best ones to sell their non-guaranteed inventory. Three well funded companies have emerged that are looking to help publishers navigate the sea of ad-networks and best monetize — PubMatic, Rubicon and AdMeld. I think the value prop is obvious — only the largest of publishers can afford the staff to fully manage the distribution of remnant inventory across various networks. At the moment it looks like the three are neck & neck in terms of unique visitors:

Decreased growth rate will force more accountability for agencies

Although the sky isn’t falling, money is getting scarcer. This scarcity will force everyone along the entire value-chain to be more competitive. This will start with the agencies and go all the way to the publisher — everyone will have to prove both effectiveness and figure out new ways to differentiate themselves from others. Scarcity of dollars will also put pressure on agency margins forcing them to look elsewhere on ways to increase their revenues.

Some initiatives have already started here — Publicis has launched Vivaki, WPP bought 24/7 and Havas has Artemis. Although the exact strategies are vague, one thing is clear — Agencies are going to start getting more involved in the buying process as they see their margins drop to 10% or below whereas our traditional networks (dying per the above) are still pulling in 30-50% margins on their media.

The challenge here is that most agencies aren’t setup to buy effectively online. Buying online is much more about technology, analytics & strategy than it is about creativity, ingenuity and imagination. To buy effectively online an agency needs to start working on it’s brain — which of course is currently largely dominated by “right brain” creative folks and lacking in “left brain” analytics. One of the things we see here as an increase in popularity of the ‘media trading experts’ — networks that focus exclusively on helping agencies buy the best possible media for their clients. Leveraging exchanges & aggregators instead of traditional ties to publishers these networks can serve as an unbiased agent of the agency.

Exchanges will move to real-time integration

Even though only one has made it public — AOL, Yahoo, Microsoft & Google are all working on real-time integrations. Why? Any central trading platform for media needs to support different engines & algorithms. If nobody can differentiate themselves on a platform, then nobody will want to use said platform! Although Right Media was a terrific step forward as the first central trading platform, it’s major flaw is that it took the technology out of the network. Real time bidding platforms solve that by allowing smart advertisers & networks to run their own engines. With the big 4 all working on something… it’s going to be interesting to watch what happens!

This combined with all of the above show a great picture for technology focused ad networks. As I wrote about earlier here and here — it is the difficulty of integration that has limited many an online ad technology startup from succeeding. With supply becoming more and more available in more and more programmatic manners — a time is coming when the guy with the best algorithm will actually stand a chance competing against the guy with the best relationships at WPP.

Final Thoughts

This is an incredibly exciting time in the industry — the whole industry is fragmented, there is little standardization and there is a massive amount of pain. I think big changes are coming. I’ll try my best to be a little more prompt about blogging about it while it happens

Also — if anybody is going to be at Adrevenue 08 and wants to meet up, shoot me a note.

Back in March I wrote a post titled “Battle over the Cookie. I’m going to quote myself real quick — (I know, kind of tacky)

So why the title “Battle over the Cookie”? Well, people are starting to catch on that if they own the cookie, they own the market. Think about it, if one exchange succeeds in capturing a massive percentage of the market, the barriers to entry will be practically insurmountable. What value is your exchange if you can’t provide services like global frequency caps, cross publisher behavioral targeting, etc. etc.

So who’s fighting? Well, my employer (Right Media) for one. Doubleclick is said to be launching a marketplace, AdECN is another. I’d expect others to start soon — as long as someone hasn’t won, there’s still a chance.

Well, as we all know, Right Media has been bought by Yahoo (if you hadn’t heard yet, the deal closed today), Google is buying DoubleClick, etc. etc. etc. So how are these developments changing the battle over the cookie?

There won’t be a single cookie

That’s right. It ain’t happening. At the minimum there are going to be three different marketplaces, three different adservers and hence three different cookie domains. Think about it — Google/Yahoo/Microsoft are arch-rivals and even though some may build more open solutions than others they are most definitely not going to be fully integrated, and they most definitely won’t be sharing a single cookie space. Add on to that the remaining independent adservers (e.g. AdECN, Zedo, OpenAds) and I don’t see any way in which there will be one unified marketplace.

To be honest, this saddens me quite a bit. One single marketplace would have been extremely beneficial to both publishers and advertisers, but of course there are simply too many people fighting to control the means by which ads are transacted. Ok, so now what?

What’s next?

To be honest — it’s too soon to really tell how this new battle is going to unfold. I don’t think it’s very clear what Microsoft, Yahoo or Google (how about we call them MYG) are going to be doing with their new acquisitions. One thing is clear, it’s going to be difficult to get access to inventory without working with MYG. Advertisers should benefit from consolidated buying. I imagine that networks not working with MYG will find it difficult to survive without a really compelling story and publishers should benefit from increases in both innovation and competition.

In the next couple posts I will be digging into how companies should prepare for this new online advertising landscape — How will ad-networks continue to grow over the next couple years? How can large publishers increase rates by leveraging the new marketplaces? How will behavior work without a single cookie? CAN behavior work cross-platform?

COME ON GUYS. You are going to trust news from a publication where on the homepage the first two headlines are:

and

The best part of it all is this:

Sources said the software giant is considering a price in the $1 billion range for 24/7 Media – a giant leap from the $600 million valuation analysts placed on the firm.

So… please… don’t post something as ‘news’ until you have a reliable source.