Reprinted from ADOTAS – Many moons ago, when the demand-side platform (DSP) was new and Invite Media was independent, I made some public predictions about display advertising. In the past year, LucidMedia has been executing diligently and dealing with the many twists and turns of our business. I thought it would be fun to revisit those predictions and rate them with 20/20 hindsight.

Before I get into the scoring, let me first review a few of the major industry developments since my predictions:

• Consolidation. The Invite Media acquisition was sadly not followed by a string of other overpriced DSP deals. This disappointed a number of bankers and all the DSPs.
• Self-Service DSP. This became a hot commodity briefly. There was plenty of chatter about “trading” similar to a stock exchange environment. Many media planners of old surely cast themselves as the new “mad men” of media.

We all know now that this is just silly. Soon, everyone realized that a slim markup on media is viable only if you have massive scale. The real value is provided by driving outcomes – i.e., layering valuable optimization services on top of the platform.

Data Management Platforms (DMPs). Data drives performance right?  So the reasoning goes like this – if we could value data appropriately, then publishers can be compensated properly for the “true” value of their audience, instead of getting diluted in an ocean of inventory. And so DMPs became the next hot thing for while.  BlueKai and Exelate raised even more money.

Are they still hot? Did the revenues follow? Anyone care to comment on this?  The established data players like Axciom kicked a lot of tires and eventually picked partners or charted their own path.

RTB Changed Supply Dynamics. Massive scale is now available via RTB on exchanges and supply side optimizers (SSP). These are new sales channels for publishers. These channels were and continue to induce bouts of teeth-gnashing and sackcloth-wearing for publishers as they try to figure out how to leverage them without diluting their value.

On the other hand, the traditional ad network has to deal with a new challenge to maintain their captive publisher base. As their publisher based flirted with SSPs and exchanges, networks saw no other option but to take a seat on the exchanges.  They built or partnered to acquire this ability to buy on exchanges. (Congratulations AppNexus – you read this trend well!)

Against that backdrop I thought it would be fun to revisit some of my predictions and throw some bouquets and brickbats at myself. I’ll score them on a scale of 1 to 5 where 1 = “Crack Pipe” and 5 = “Savant.” Just for fun, you may want to revisit your own predictions from last year and score them as well. I will have a glass of wine for all the savants. The crack addicts can join me for a pub crawl.

Prediction #1: Agencies won’t be able to absorb true self-service.

The Thesis: Running display campaigns requires a lot of expertise.  No self-serve DSP provides all of this expertise in a usable fashion for the typical media buyer. It will require human expertise to deliver the outcomes. Agencies do not have this talent and won’t be able to attract this talent.

How it played out: Almost all of the smaller agencies run campaigns with DSPs in “managed service” mode. The DSP typically gets a CPM rate.  Some of the larger holding companies have made significant investments in people to build up internal expertise.

They still use a third-party platform. They still profess independence from any one vendor. And they continue to use up business development cycles in “evaluations” of other DSPs. The media planning groups within these holding companies use the services of the “trading desks” services grudgingly, and continue to RFP externally.

The Score: 3.5. It is too early to call the trading desk experiment a success or a failure.  I would say my prediction is mixed for big agencies, and right on for small agencies!

Prediction #2: The DSP is the next ad network

The Thesis: Building on the predictions that (a) SaaS for agencies will not work out and (b) the change in supply-side dynamics due to exchanges will profoundly impact networks; true value will continue to be delivered by driving desired outcomes for customers. In other words, you make more money by running campaigns well.

This is what an ad network does. (I use the words “ad network” as a placeholder for a marketing services company that runs mainly display campaigns.) If DSPs have to  run campaigns to survive, and networks need the technology of DSP to continue to be relevant, then surely they are one and the same?

How it played out: Lets compare business models.

Demand-Side Platform

• Offers a “managed service” to run campaigns
• May offer a self service backed by managed service
• Pricing is typically CPM, CPC, or CPA
• Client base – agencies and direct advertisers
• Lots of noise about their awesome technology!

“Traditional” ad networks

• The run campaigns – i.e.  – offer a “managed service”
• They are trying to differentiate themselves by offering exclusive inventory
• They build or license technology to buy exchange inventory.
• Pricing is typically CPM, CPC or CPA
• Client base – agencies and direct advertisers

It walks like a duck and quacks like a duck.

So, it must be a duck right? Sort of, except that the duck with a DSP tattoo on its chest is a rocketship!
The common theme here is that both are in the business of delivering outcomes to their customers.  It is just that the inventory situation (supply side) has changed dramatically with exchanges and supply side optimizers.  The demand side has not changed all that much!

The Score – 4.5 Pretty much spot on.

What’s Next?

So what’s next for the evolving DSPs?  Emerging media is a likely wave to ride. Mobile, video, and social media perpetually sit somewhere on the slope of enlightenment. Social is probably the most exciting beach-head that DSPs are now wading into.

With DSP technology in-hand advertisers can quickly build a guaranteed fan base for new products, effectively engage and activate that audience, monetize it and then re-engage in a regular cycle. The DSP platforms with their massive reach and instant scale makes social media activation a solid bet.

Agree? Disagree? Have a visceral reaction? Let the fireworks begin.

Have you noticed lately that everyone in this ad network business says they offer great, transparent, handpicked inventory?  Everyone calls it Premium.  But in the end it winds up being self-certification and adding no real value beyond perceived value.  And now LucidMedia has launched a Verified Inventory program.  We are saying our inventory is safe for brands and that we can accurately target 14,000 specific content categories. You can find out more about brand protection in this Adotas article called A Display Advertising Safety Net. So how is this any different from all the other networks out there?  The difference is in the how, not the what or the why.  The what (verifying inventory) and the why (for brand safety) is the same across the board.  Every network says their media is checked for brand safety.  And everyone has the same reason.  Get more big advertiser spend.  That’s the common what and why in the industry.  It’s the how that is unique to this new program.  We launched this program not because we do it like everyone else, we have this program because we do it differently.  To be specific, we use the most robust and patented form of natural language processing at the pre-impression page level to better determine true meaning.  But how is that different?  Most networks spot check a top level domain list as their way of making their inventory brand safe.  You begin to see the degrees of brand protection available to advertisers and the intricate subtleties that make it confusing.  There’s a huge difference in the degree of safety provided between the two methods.  And every other network usually says they categorize for accurate relevance matching of ads to content because everyone knows that engagement and relevance are directly related.  But what most other networks really do is ask the publisher to self-certify their inventory and then they push it out in those same self-certified categories.  But we look at the words and phrases on the page in real-time and tag it with a far more accurate and granular category before we serve it.  Everyone has the same what and why but it’s the varying degrees of how that makes our program different.  But we go so much further too.  We even filter out pages with objectionable concepts as defined by our clients.  We also categorize our inventory into 14 different classes of media to filter against or target to a specific type of pages like a blogs, news sites, enthusiast site, or shopping sites.  So the story here is not that we are doing the same thing, the real story is in the lengths we go to verify our inventory versus what everyone else does.  They are two very different stories.  And that is why we created the Verified Program, because we do it differently and with a much higher degree of quality.

Adotas recently posted an interesting, albeit oddly written article on the value of the ad exchange. The real story seems to be the value of the vertical ad networks–with which I cannot agree more–but their analogy between mutual fund managers and ad exchanges is a fascinating one. They equate the ad exchange to a specialized mutual fund manager who can add real value to your portfolio and that is very true for the new breed of ad exchanges out there today. The scenario buy that they walk through truly highlights the value that an ad exchange can bring to a media planner. They point out that when an advertiser wants to maximize ROAS they need their media buyer (their agency folk) to create a balanced “portfolio” mixing direct investment in large targeted sites with the specialized engagement of the vertical ad networks and the broad reach from the many low cost remnant networks. The share of voice and audience is highest on the expensive premium sites, highly relevant on the vertical ad networks (vertical search sites for instance) and yet there is massive reach to be had across the broad remnant networks. It is the mix that is critical to getting the job done. This is how you nail the ROAS for a big branding campaign where audience engagement is a critical factor–and this is just what the exchanges are good at delivering. They have the mix all ready to go, you just need your media planner, your mutual fund manager, to recommend and execute that perfectly balanced portfolio and your investment will pay off. What an exciting time for interactive media!