Reprinted from ADOTAS – 2010 is already shaping up to be the year of real-time bidding (RTB) technologies and demand-side platforms (DSP). The availability of real-time bid access into the major ad exchanges is converging with an industry-wide preference for agency-administered ad-buying and ad-trafficking platforms.

The traditional ad network model achieved many things but has yet to deliver on the promise of truly cost-effective scale. The rules of engagement changed when downward-spiraling CPM prices forced publishers grudgingly onto the emerging exchanges to improve their yield and back-fill diminishing ad revenues. The networks had to follow their publishers and a new aggregated sourcing model emerged.

Real-time bidding is the hot feature this year and a staple of the effective DSP. Now the combined capabilities of RTB-enabled DSPs built on the exchange model are replacing traditional ad networks with a new buy-side network paradigm that is more nimble, more economical and more in touch with advertiser goals.

Control is subsequently moving closer to the advertiser, intermediation is being reduced and prices are arriving at a true market-driven equilibrium. Not only do advertisers have more control over targeting, performance and safety, but buying has become more centralized and access to inventory become more streamlined.

It is no secret that LucidMedia has one of the most robust contextual targeting engines in the marketplace, but what we have achieved in the DSP space over the last year has not been widely publicized. Late in 2008 we began engaging all of the large aggregators to co-develop RTB solutions. Next we developed an advanced, proprietary ad server to give us one of the most nimble systems available for trafficking campaigns.

We also built a unified inventory management system that could dispense with the complexity of hard-wiring campaigns to inventory sources. We included an automated optimization engine that can evaluate thousands of campaign facets in real-time, project performance trends, and govern campaign targeting based on advertiser goals.

In January 2009 we deployed the platform internally, effectively making it the industry’s first production RTB-enabled demand-side platform. Named ADvisor DSP™, LucidMedia has since executed hundreds of successful campaigns on the platform and is currently processing up to 45 billion impressions each month. This pioneering experience makes us uniquely qualified to access the necessary features of a successful RTB-enabled DSP initiative.

There are certain universal features that agencies need for any successful DSP initiative. All buy-side platforms must offer multisource RTB integration and scale, an advanced ad server, page-level contextual analysis for targeting and brand-safe filtering, audience profiling for retargeting, universal frequency capping, detailed performance roll-up reporting with discrepancy management and reconciliation, flexible and intelligent bidding strategies, the ability to leverage third-party targeting data and a managed service deployment approach.

Advanced Ad Server: A good DSP starts with an advanced ad server. Core ad serving capabilities like frequency capping, day parting and targeting are minimum requirements. The savvy agency should also look for full-featured holistic campaign management features like cross-aggregator universal frequency capping, pre- and post- impression auditing, preemptive brand-safe filtering, page-level impression verification and hyper-segmented targeting based on content, demographics, behaviors, site, location, and time of day. Discrepancy management and reconciliation are also critical aspects of the built-in ad server.

Integrated RTB: Properly integrated real-time bidding is not standardized or modularized. There is still a great deal of heavy lifting development needed to bring on each inventory source, scale and balance the volume, and bid effectively. A good DSP needs to have these problems already solved.

Intelligent Bidding: Smart bidding strategies are also critical to an agency’s bottom line. The DSP model promises that agencies can claim a larger slice of the ad spend dollar, moving it further and further away from the networks. But without intelligent and flexible bidding, that slice can be lost. Look for detailed graphing of bid price and win ratios and the tools to quickly adjust bidding per source. Look for RTB solutions efficient enough to drive bid costs below the $0.001 threshold.

Retargeting: Another aspect of the successful DSP is the ability to roll up audience and link users to performance for retargeting purposes. Reaching the right audience with the right message at the right time is a core tenet of advertising and although this applies to all mediums, display always reaches its users through a proxy device.

The right platform goes beyond simply rolling up interpolated audience facets and instead segments users into actionable profiles using third party data based on their propensity toward a desired action.

Managed Services: The concept of an agency-side buying and management platform relies heavily on managed services at the inception of any in-house DSP program. The current transitional period is favoring the managed service approach to demand-side platforms as agencies step into the traditional ad network role. Managed services allow the transition and knowledge transfer to happen in the most effective manner.

Optimization: Automated optimization is a differentiator for the demand-side platforms. Historically optimization was the mystical secret sauce of the more technical ad networks but it has become a required attribute of the full-featured DSP. Look for optimization that can juggle thousands of campaign targeting facets, project outcomes, and model performance scenarios prior to launch.

Inventory Sources: Sources and scalability are key factors for every agency to consider. The right platform needs to plug into all the large repositories as well as the more niche aggregators plus the all supply-side optimizers. This kind unprecedented impression potential, scale and broad reach are requirements for large direct response campaigns, major corporate branding promotions and scaled niche segments of very specific demographic traits.

These are the major features — as well as ad network staples like brand-safe filtering, transparent reporting down to the page level and flexible targeting to content, demographics, and behaviors — that an agency should look for when selecting a DSP.

The right demand-side platform allows agencies to easily audit the networks and exchanges on their media plans, efficiently acquire page-level contextually and demographically targeted inventory, ensure brand safety across all sources and most importantly enforce a universal frequency cap. The new breed of DSP with integrated RTB gives agencies pre-impression filtering, post-impression auditing, and allows agencies to cherry-pick the most effective impressions in real time and then feed their campaigns with an optimization engine that automatically maximizes return on spend.

This is reprinted from “Data-Driven Thinking”, a column on AdExchanger written by members of the media community and containing fresh ideas on the digital revolution in media.

Demand Side Platforms (DSP) are hot! I can tell by the huge agency interest, and even more eager venture capitalists anxious to get in on the latest craze. Traditional ad networks and newfangled technology platforms are declaring themselves to be DSPs. Others who did much of the evangelical spadework for DSPs appear to be stung by the sudden rush. There is now an attempt to define a “true DSP”. At this stage, a “true DSP” as defined by a list of features serves little purpose and is as much a disservice to the industry, as it is disconnected from reality. In fact, many of the current DSP competitors—those with the most significant solutions already in-market—are successfully violating that definition of a “true DSP” to the benefit of their agencies partners.

The truth is that a “fully self-service DSP” would be far too disruptive to most agencies at this early stage. There are far too many levers, knobs and buttons in a DSP robust enough to deliver the optimum cross-section of pacing, performance, and price for an agency to take on today. They range from mundane tasks like dealing with objectionable impressions and buys from non real-time sources to more arcane optimization tasks, RTB source integration, bidding strategies, discrepancy management, and post-campaign reconciliation.

As my own company has learned by providing DSP services to agencies over the past year, agencies are still not appropriately staffed to be full-fledged buy-side networks yet. Media buyers are already over worked and stretched to the limits and are looking for a DSP to do more with less. That means automating many tasks but also off-loading just as many (if not more). A managed service that facilitates knowledge transfer and leads to a semi- self-service approach is far more realistic today. The reality of the situation is simply not that black and white! At the end of the day what an agency really wants is to know what works for their clients and how to repeat those outcomes in the future. At least that’s been our takeaway. They want the data behind the performance, the audience segments that engage with their message effectively, and the easy-to-pull levers that will let them do it again on the next campaign. They want no more and no less.

It is also important to recognize that many of the most important DSP offerings are coming from the networks where the technology has matured and has been thoroughly field tested. Indeed, my company falls into this category. The networks already have the relationships and business models in place to support the early adopters. Real-time bidding is an excellent example of this necessity. To get multi-source RTB going at scale going takes a significant amount of relationship building and technical heavy lifting and many of the networks have already invested heavily in this. Discounting the network players with a single stroke, and leaving it all up to the agencies, is doing the industry a massive disservice.

There are many other aspects of a “true DSP” that were missing from the recent list as well. Our experience has been that no DSP should leave home without staples like universal frequency capping across exchanges and publishers, objectionable content filtering for brand safety, some sort of automated optimization for CTR, CPA, or eCPC and the ability to plug in others, an advanced and robust ad server capable of propagating campaign changes in minutes, seamless targeting of audiences with native and 3rd party data, and granular content targeting independent of site or section.

Only time and buyer requirements will define the “true DSP” and decide if networks and DSPs can truly coexist. The industry needs time to shake it all. The sector is too young to define the full product category or for one player to define it completely. I will conclude with a heretical prognostication – the next generation of ad network will be a hybrid DSP solution with a service layer.

LucidMedia just announced the availability of ADvisor DSP, our mature demand-side platform designed to help interactive agencies transition into buy-side networks. The solution was deployed internally in January of 2009 effectively making it the industry’s first production RTB-enabled demand-side platform. We have since processed more than 100B impressions and delivered hundreds of successful campaigns with the platform. Here’s a permalink to the big news.

Don’t miss the 2010 OnMedia NYC event from AlwaysOn this February 1 through 3 where LucidMedia’s founder Ajay Sravanapudi will be presenting in the CEO Showcase. Look for LucidMedia in Ballroom 2 at 11:00 AM. You can get more information from the OnMedia event website.

The new TNS Media Intelligence Report is out and Adotas has jumped on it with their Display Advertising Shows Signs of Life e-newsletter today. The reports indicates that for the first quarter of 2009, the total measured advertising expenditures they track dropped 14.2% versus a year ago, down to $30.18B. This follows a 9.2 percent decline in Q4 2008 as the advertising recession accelerated in the new year. While that may not seem like good news, consider they indicate that internet display-specific advertising spend is actually up 8.2% over the same time period last year which I believe is better than expected considering all the frozen budgets, wait and see attitudes, and narrowed lines of sight. Although it is lower than the original double-digit growth predicted last year, it is still growth—and very healthy growth at that. Wipe away all the historical (and semi-hysterical) predictions of double digit growth ad infinitum and look at 8.2% growth on its own—among a sea of declining numbers—and you have a very clear sign. So why is display standing out like a shining star pointing the way ahead in our rocky sector of space? A lot of the growth they are reporting is being driven by the new free market exchange models that are moving onto the plateau of productivity and at the same time relegating the old ad network models to the trough of disillusionment. From this emergence, not only is publisher yield inching back upwards, advertisers are finally smelling the real meat of return on their spend. That alone has been happening for almost a year now and is not the whole story behind this successful metric. The promise of data has recently begun to materialize through all kinds of platforms with their new insights and relevant analytics. It is this confluence of forces, the emergence of the exchange model and the promise of data being realized through the platforms that is drawing advertisers to invest in display at a healthy clip. And when the exchange playing field congeals a bit further, and at the same time a few of the platform players begin to dominate inside the agencies, we will see a whole new display advertising sector. Gone will be banners and CPMs and premium and remnant. We will have a truly value priced free market exchange of media in real time that rewards the publisher and empowers the advertiser. We’ll have less layers and less middlemen and less latency. We’ll have more return, more clarity, more accountability, and real transparency. If one thing is certain, it will be nothing like the display business of last year.

The article How About a Little Revolution in Display Advertising by Martin Betoni is a good, hard look at how display dollars break out of the total ad spending in 2008 according to the latest IAB annual report. Of the $187 billion spent on advertising in 2008, $24 billion were online dollars of which only 17%, or roughly $5 billion, went to display ads. In other words just 3% of the total ad spend in 2008 went to display. His point is that the banner has not progressed much and I find it hard to disagree. All the best optimization in the world is still completely reliant on the creative to engage the user. This is why I think technology around the creative, things like our new AdMatch capability which provide a dynamic creative directly from the advertiser’s database of products or services and matches them in real-time to the highest performing content, have the greatest opportunity to increase the display share of ad spend and tip the scales away from search or even draw dollars away from the larger pool of traditional media. A campaign is only as good as it’s creatives and as Martin points out we are still basically working with the same 728 pixel by 90 pixel rectangle from 1994 to get the job done.

We will be covering this year’s ad:tech San Francisco April 21-23 on Twitter. So start following @LucidMediaVIP now for all the inside news from this big industry event.

We recently announced that we have teamed up with Right Media and Yahoo! to contextualize the world’s largest ad exchange. This was no small achievement and has been in testing for scale, robustness and accuracy since May of 2008. But the effort has been well worth it and industry publications like MediaPost, Adotas and ClickZ are recognizing this as a significant milestone within the interactive advertising industry. Even more general media like CNET News and DMNews decided to cover the story. So how does one set out to improve on the world’s largest advertising exchange? And what does it take to integrate with a live exchange currently juggling 50,000 active traders with over 175,000 live creatives in circulation across 6 billion daily transactions? For us it took almost 10 years of active development, testing and versioning to bring our hosted contextual platform—called ClickSense—to fruition. And that was only after cutting our teeth with the likes of AOL Search through their Web Offers program and in some of the world’s largest pharmaceutical organizations, Government agencies, and even other large ad networks. And then there was the accuracy side of the equation that had to be rock solid before it would get the green light. Driving real eCPM lift (and maximum yield) for publishers and at the same time creating significant ROI lift for discerning advertisers means you have to provide real-time, almost instantaneous, categorization that is backed up by tangible proof. This then becomes the data providing mechanism that advertisers need to develop their optimization strategies and publishers need to expose their inventory in the most profitable manner. In the end we got it done and it is working far better than we had ever dreamed it might. So if you are already on the exchange or wondering how this all works, visit our new Right Media section and get started using our contextual targeting today.

As soon as Charter Communications voiced concerns about the controversial behavioral targeting issues, two other internet service providers (ISP) immediately distanced themselves from behavioral.  It has become the “hot potato” issue around targeting for internet advertising.  The privacy issues surrounding behavioral targeting are nothing new either and go back as far as 2005 or even earlier.  What I don’t understand is why organizations would even try to tackle this subject when there are great contextual targeting solutions out there that perform as well (or even better) than behavioral when it comes to performance lift for both direct response (DR) and brand advertisers.  Now don’t get me wrong, I am not anti-behavioral—far from it—but if the privacy issues rear their ugly head there is definitely a safe harbor from them in contextual.  Marketing Sherpa’s 2008 Online Advertising Handbook surveyed 577 online advertisers from a range of companies and found that 40.5% of the advertisers surveyed felt that contextual targeting yielded a higher ROI while only 36.7% preferred behavioral.  So while I’d prefer the industry found multiple ways to target for efficiency and performance, including unintrusive behavioral methods, which we certainly are doing, there has long been targeting solutions that completely side-step the subject of privacy.  Contextual is sublimely elegant in this aspect as it draws its relevance directly from the impression in real-time (at least our ClickSense approach does) to match the perfect ad to the user based on what they happen to be reading at the time.  This avoids saving any bits from the user’s historical actions yet serves up an even more relevant ad at a time when they are interested in learning more about the subject and they are most receptive to your message.  So if behavioral is got you down why not check out the contextual advertising solutions on the market today.  You won’t be sorry you did.

I was talking the other day with a colleague, Paul Rostkowski our new Vice President of Sales, and he came up with a term that I thought was very relevant to what we are doing here at LucidMedia. We were discussing what makes LucidMedia uniquely different in the crowded marketplace of ad networks and how we are passionately focused on the advertiser and their agencies. This is almost a 180 degree departure from the norm where the focus has historically been on the publisher and connecting them to advertisers. In that norm, however, real transparency is a pipe-dream that is never realized because the publisher network must be protected at all costs. As we were talking he casually said we are an “un-network.” The idea being that we are doing the opposite of the norm by empowering the advertisers and, unlike the blind networks, we provide transparency down to the page in the name of improved performance. I thought the idea had real legs and the more I thought about it, the more I wanted to take it to the next level. You see, traditional blind ad networks are a community of publishers and advertisers yet LucidMedia is an ecosystem of inventory aggregators built on the most robust contextual targeting engine in the business. You can look at it as almost a meta-network or a network of networks because we tie together and leverage a vast pool of ad networks, ad exchanges, vertical networks, publisher networks, and publisher optimizers. Basically we’re cutting a “channelized” swath of relevant, high performing super clusters of inventory across all the aggregated pools of inventory out there. It’s the right inventory anytime, anywhere, any way as long as it works. This is similar to the exchanges model as it’s an ecosystem of advertisers, publishers, ad networks, and advertising technology providers all happily steeping together in a free market broth. So maybe we’re a “nexchange” (pronounced nex-CHANGE); literally a network of exchanges. Isn’t that a meta-network? I like this term, nexchange, not only because it describes us in a single word but also because it is highly likely that our model will be replicated by other companies when the ad network and exchange space reaches equilibrium and has nowhere else to evolve. That day certainly has not yet arrived, as prophesied by Spanfeller in recent comments, especially with the recent explosion of publisher and vertical ad networks like quadrantOne, Healthline, and WPP. The supply of networks and exchanges will grow until they satisfy the existing demand and although they have created a sea of inventory and unprecedented reach, the demand does not seem to be satisfied yet. Advertising has always had an insatiable appetite for an audience and online display advertising, especially with its great ROI and measurable performance in an uncertain bearish economy, shows no signs of slowing. Maybe it is trite to coin a cute little phrase like nexchange for what we are doing but you watch, you will see more and more media companies taking this next logical step (if they can). More and more organizations will start cooking with the fresh ingredients of inventory across multiple networks and seasoning it with their own performance enhancing flavors. A dash of behavioral here, a sprinkling of contextual there, a smidgen of optimization, two cups of targeting, and a stick of demographic—and presto, a nexchange is born! Just remember who invented the succulent confection before you when it comes time to write the media plan or issue the RFP. When you need reach, an engaged audience, and a clean well-lit relevant ad space, at least you’ll know where to find the master chef in this Hell’s Kitchen. Dinner’s served!