Advertising

Over the last few years, online ad exchanges have proliferated throughout our industry, promising both time and cost savings to advertising agencies and clients alike. The theory behind these services is that they can utilize technology to simplify the online advertising process, and use their third-party status to negotiate better rates than agencies. Although most of these services offer similar benefits, the nuances of our industry and the variant platforms offered by differing services require particular attention before one works with an ad exchange.

How They Work

Most services have an online interface that enables agencies to enter their client’s campaign data. Information ranging from the client’s objective, target audience, campaign date ranges, etc. can be entered and then either matched with sites that meet specified criteria or sent to sites in an RFP (request for proposal) format. The offer is pitched to sites with which a client has relationships. A round or two of negotiations may be necessary before an opportunity is selected. The ad exchange will then offer services such as ad serving/tracking, trafficking of creative, insertion order generation, and some level of optimization. In exchange, the service receives a percentage of the commission from the site receiving the ad placement.

Pros, Cons and the Reality

Chance for Cost-Savings:

Pro – These services typically taut better rates then an agency can offer for one of two reasons. First, their third-party status puts them in a unique position to buy/sell media. They hope to leverage their buying power and distribution system to get better rates than agencies. Some of the exchanges also let their advertisers participate in phantom buying-- the side effect of not knowing the specific site where your advertising is placed in exchange for favorable pricing. Sales reps for these ad exchanges will “hype” the chance that you will get quality placement on top sites. In fact, so good is the deal that the sites don’t want you to know how low they are selling it for--thus phantom pricing.

Con – Obviously, not knowing where your advertising appears is an issue that affects not only brand positioning, but also campaign learning. It might be an acceptable solution for an e-tailer who’s looking to generate low CPA (cost-per-acquisition) deals, but not for blue chip companies who need more control over their brand image and placements. Media buyers have also found that phantom buys are often used to hide the actual quality of the media placement.

Reality – The dramatic move to PFP (pay-for-performance) marketing will dictate interest in any solution that offers cost-savings as a primary benefit. However, ad exchanges’ ability to generate these cost saving deals will determine whether they can continue to capitalize on this trend. While TargetMarket Interactive (TMi) has used ad exchanges for some of its campaigns, performance varies by circumstance, leading to what every media planner knows—cost, while important, isn’t everything.

Quality of Inventory:

Pro – Of the inventory that’s available, most of it is broad, untargeted and inexpensive—a pro if that’s what your client needs. Many clients have found that targeting with a “shot gun” approach works well on the Web. For advertisers who have determined specific conversion rates they require in order to be profitable, it may just be a question of selecting opportunities that fall below (X) CPM or (Y) CPC.

Con – Most clients need inventory that’s somewhat more targeted, or at least need to have the ability to optimize within what they’re given. Be wary of your own projections, since it’s likely your ads will be placed in low performing areas such as chat, e-mail or other remnant spaces, further decreasing performance.

Reality – TMi’s media planner, Jennifer Tang, states it best: “Why would good targeted inventory be offered at the cost levels that these exchanges promise? These sites are using the exchanges as a way to sell unwanted or remnant inventory”. Using your clients’ historical data can help you determine whether the inventory they have and the price at which it is offered is compelling.

Amount of Time Savings:

Pro – Utilizing these services can indeed be time effective if the application is successful and produces a high number of quality sites. Because the process is somewhat automated (from RFPs, site selection, negotiation, and insertion orders) theoretically, time can be saved at each step.

Con – It takes time to enter all the appropriate information into each ad exchange’s interface. In addition, all of these services are limited by the number of publishers who participate in their programs. Therefore, to ensure that one isn’t limited by the services’ site participation list, agencies must continue to use their typical processes of media planning/campaign management—all factors that can actually increase the amount of time used managing a campaign.

Reality – Using multiple ad exchanges will create extra work and some redundancy. However, using one of these services for each client won’t take up too much additional time. Plus, if the ad exchange can generate one or two really good opportunities, it will be time well spent. This is why it’s critical to evaluate each service offering carefully, and choose the right one for your client.

Level of Optimization/Learning:

Pro – Most ad exchanges offer some level of optimization. Since you will usually be paying lower prices for this inventory, any optimization they offer will be a great benefit. The level of optimization will depend on their business model, their relationships with the publishers’ sites and the level of available communication once the campaign starts.

Con – Most ad exchanges will limit the amount of optimization you receive. You may be able to optimize by site, but more detailed optimization by placement, creative, etc. is usually limited. This is in part due to the parameters they have established with the publishers, where a lot of the inventory is sold via Phantom buys.

Reality – What seems like a good idea on paper may not turn into a good ROI or branding investment for your client. If the buy doesn’t work, you may be severely limited by what changes you can affect. And if it does work, there are often limited lessons that can be used for future campaigns.

Recommendation to Agencies

Familiarize Yourself: Get to know each of the online ad exchanges. Know each of their business models and think about how they can be applied to each of your clients’ needs. TMi has successfully utilized these services for several clients to generate productive campaigns and successfully apply lessons on other buys. To use them most effectively you need to know how to manipulate each service for what it can offer. Knowledge and experience is key.
Test: As with any service/resource you don’t want to put all your eggs in one basket. Determine a percentage of your clients’ budget that can be dedicated to these types of buys. Five to ten percent can be a good rule-of-thumb for clients new to this arena. If you find success with this model, stick with it. If you don’t, you’ve minimized your risk and can chalk it up to good learning.

Know your clients: Knowing what works for your clients’ other media buys is imperative. Similar inventory usually leads to similar results. Be sure to use historical data for similar buys (i.e. Search Engine RON) to project the potential ROI on these buys. And for good measure, reduce these projections to account for things like high frequency levels or poor creative placement, as this will alleviate potential frustration when the numbers come back below expectations.

Set Expectations: Make sure your client knows the Pros and Cons of using ad exchanges. The flexibility, level of optimization and lessons will not be what they expect from an agency. And if the campaign performs, you might not be able to tell them why. Of course, temper this with the potential benefits of these placements—i.e. low cost, presence on large sites, and good ROI-- if you feel strongly about its inclusion in your media plan.

Summary

There are numerous interrelated concerns when placing online media. Automated solutions never will replace the human interaction needed for 90 percent of media buys. The buyer/salesperson relationship is a symbiotic one, in which new opportunities are discovered and each party is held accountable to the other. While ad exchanges take away from many of these benefits, in today’s price-driven marketplace, these services can provide some advantages that can’t be ignored. Agencies should learn the ins and outs of each service, figure out which service best fits each of their clients’ objectives and use that service as they would any other planning resource/tool.

The ad exchange industry will mature and hopefully, consolidation will allow one strong player to emerge, commanding the attention from publishers and advertisers alike. That is when we will see the biggest advantages from these services, when agencies can leverage the power, technologies and relationships of one or two ad exchanges, with minimum time and risk.

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