Marketplace Networks and Exchanges

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IAB M ktl Nt k dXh IAB Marketplace: Networks and Xchanges March 31, 2008 San Francisco Chicago New York Minneapolis Boston William Morrison 415-249-1989 [email protected] Robert Coolbrith Member of the FINRA and SIPC. 415-249-6363 [email protected]

Transcript of Marketplace Networks and Exchanges

Page 1: Marketplace Networks and Exchanges

IAB M k t l N t k d X hIAB Marketplace: Networks and XchangesMarch 31, 2008

San Francisco ChicagoNew York MinneapolisBoston

William Morrison415-249-1989

[email protected]

Robert Coolbrith

Member of the FINRA and SIPC.

[email protected]

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Why Are We Here?

Ad Dollars Are Still Moving Online $25.3B worldwide in 2006 $60.1B worldwide in 2011E (19% CAGR)Allocation gap: 8-10% of consumer media spend vs. 20-30% of consumer usage in U.S.

The Good News Is…Marketers want to shift budgets sooner, not later

The Challenge For Marketers/AgenciesThe Web is fragmenting at an accelerating rateThe Web is fragmenting at an accelerating rateBuying media on small sites can be time consumingFormats multiplying – Traditional Display, Video, Mobile, Widgets, Gadgets, WadgetsEvolving standards

The Challenge For PublishersBursty traffic unpredictable inventory supply uncertaintyLow sell through usually reflects selling constraints, not intrinsic value of inventoryAccess to non-endemic advertisersMaximizing the value of their audience and advertising inventory

Today’s conference will explore the role of Ad Networks and Ad Exchanges

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Hyper-Fragmentation on the Web

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1026160 Million Registered Websites, 4.031026 More To Go

180,000,000

140,000,000

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100 000 000

120,000,000

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100,000,000

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20,000,000

May-00

Aug-00

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Feb-01

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Hostnames Active

3Source: Netcraft , GoDaddy, and ThinkEquity Partners LLC research

M A N F M A N F M A N F M A N F M A N F M A N F M A N F M A N F

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1.5 Blogs Being Created Every Second

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Explosion of Social Network Usage

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The Proliferation of Social Media

Number of Social Networks Created at Ning comNumber of Social Networks Created at Ning.com

180,000

200,000

120 000

140,000

160,000

80,000

100,000

120,000

20 000

40,000

60,000

0

20,000

Feb-07

Mar-07

Apr-07

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Jun-0

7

Jul-0

7

Aug-07

Sep-07

Oct-07

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Dec-07

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Feb-08

6Source: Ning and ThinkEquity Partners LLC research

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Fragmentation is Accelerating – The Widget Phenomenon

40

50

M)

M)

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40

Use

rs (M

MU

sers

(MM

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Reg

iste

red

Reg

iste

red

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RR

Source: RockYou Facebook Yahoo! and ThinkEquity Partners LLC

1 3 5 7 9 11 13 15 17 19 21 23Months (1)

Source: RockYou, Facebook, Yahoo!, and ThinkEquity Partners LLC(1) Yahoo! starts Q1’95, Facebook starts Q4’04, and RockYou Starts Q4’05(2) Facebook data represents active users, which was disclosed on 12/05 and 12/06. Undisclosed active user data is implied based on ThinkEquity Analysis.

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Media Fragmentation – Today

Consumer Ad Market 2007E$258B

Radio

TV

Internet

Yellow Pages

SearchDisplayClassifiedsRichMediaEmail

PrintDirect Mail

Email

8Source: McCann Erickson, IAB, and ThinkEquity Partners LLC research

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Media Tomorrow

Consumer Ad Market 2012E$268B

Internet Yellow PagesRadio

TVSearchDisplayCl ifi dClassifiedsRichMediaEmailVideo Pre RollVideo OverlayIn GameMobileMobile VideoSocial MediaWidgets

PrintDirect Mail

WidgetsIn TextMicro SitesUGCAd Funded AppsIPTV

9Source: McCann Erickson, IAB, and ThinkEquity Partners LLC research

IPTV

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The Market Response to Fragmentation

Ad N t k G th 2000 2007

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Ad Network Growth 2000-2007

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02000 2001 2002 2003 2004 2005 2006 2007

10Source: ThinkEquity Partners LLC research

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What is an Ad Network?

Somewhat analogous to the broadcast/affiliate television modelgAggregate and sell audiences on behalf of publishers to advertisers/agenciesComplicated by inherent fragmentation of Internet

TargetingVerticalContextual

FormatsDisplayText

PricingCPMCPCcs

Business ModelRev ShareArbitrage

BehavioralDemographicRe-targeting

In-TextVideoMobile

CPLCPA

hara

cter

istic Rep Firm

g gGeographicSite Specific

In-GameBlogRSSN

etw

ork

Ch

RSSEmailAudio/PodcastWidgets

Ad

N

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Widgets

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Why Are Marketers Using/Choosing Ad Networks?

2007 Collective Media Study of 100 marketers agencies and media planners2007 Collective Media Study of 100 marketers, agencies and media planners

What is the primary reason you use ad networks?Efficiency – 66%yReach – 52%Targeting – 38%Optimization – 25%Other 6%Other – 6%

What best differentiates one ad network from another?Targeting – 57%Optimization – 47%Inventory – 44%Price – 45%Reach – 33%Reach – 33%Other – 12%

12Source: Collective Media

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Key Concerns Among Marketers/Agencies

Wh t’ th i li it d ’t d t k ?What’s the primary reason you limit or don’t use ad networks?Editorial control – 59%Audience duplication – 38%Ad iti 21%Ad position – 21%Type of ad – 18%Client dictates – 17% Other – 10%

Other Considerations for marketers/agenciesQuality/reputation of networkSite targeting capabilitiesCampaign pacing against budgetSales support and customer serviceIntegrated and/or customized campaignsCreative testing

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gSource: Collective Media and ThinkEquity Partners LLC research

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The Publisher Perspective

Wh bli h i d t k ?Why are publishers using ad networks?Too small for internal sales/low impression volumeAbility to create inventory tiersU di t bl i t l / tiUnpredictable inventory supply/creationMechanism to monetize excess or unsold (aka remnant) inventoryAbility to add value through targeting and optimization

Other considerations/concerns for publishersLack of control (branded sites in particular)Sales channel conflictRisk vs. rewardManaging networks can add complexity All ad networks/exchanges not created equal

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Vertical Networks Proliferating

15Source: Company web sites and ThinkEquity Partners LLC research

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Next New Trend – Branded Sites Creating Extended Networks

16Source: Company web sites and ThinkEquity Partners LLC research

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Online Ad Exchanges Evolve

A ti b d k t l f d i tAuction based marketplaces for ad inventory

Many different takes on the ad exchange model currently developingReal-time spot marketsReal time spot marketsYield optimization specialistsForward and futures marketsBehavioral and contextual data markets

Current focus improving efficiency of remnant display market

Future possibilitiesFuture possibilities“Secondary” premium marketRe-vending inventory to add value or minimize wasteInventory securitizationInventory securitization

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How Exchanges and Auction Based Marketplaces Work

Auction platforms sell each impression in real timeExchanges may also optimize off-exchange relationshipsCan create more competition for publisher inventory

Netw ork or

Advertiser

Netw ork or

Advertiser

Network or

Advertiser

Netw ork or

AdvertiserPUBLISHERAD SERVER

Broader Exchange

Environment

Netw ork or

Network or

OR

HARD-CODED AD TAGS

Dynamic Yield Management System

or Advertiser

Netw ork or

Netw ork or

or Advertiser

AdvertiserAdvertiser

Network Netw ork Network Network

Off-exchange Monetization PartnersHistorical eCPM used as proxy for real time bid

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Historical eCPM used as proxy for real-time bid.

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Exchange Benefits for Ecosystem Participants

PublisherP t ti ll hi h i t i ldPotentially higher inventory yieldPromote competition among monetization partnersManage existing off-exchange relationships simultaneouslyEffective for long-tail sites (ad networks are typically “mid-tail” solutions)

Advertiser/AgencyImproved transparencySome ad network functions can be performed in-houseSingle cookie can create efficiency benefitsSome exchanges allow for various placement controls

Ad NetworkIncreased arbitrage opportunities for networks who add valueMarket innovators can achieve scaleEliminate expenses related to publisher recruitment/development/service

EcosystemReduced friction (IOs, faxes, phone calls)Improved transparency

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Exchange Concerns for Ecosystem Participants

PublisherPublisherPotential lack of controlPotential sales channel conflictComplexity

Advertiser/AgencyPotential lack of controlComplexity

Ad NetworkCommoditizationIncreased competition

EcosystemAdditional complexityNo standardsPotential devaluation

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Clearing Up Some Misperceptions

Misperception: Auctions drive down prices

21Source: Factset, and ThinkEquity Partners LLC research

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Clearing Up Some Misperceptions

Misperception: “Marketplaces” are for “commodities”

22Source: eBay

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One Thing is for Certain – The Ecosystem Will Continue to Evolve

The Publisher’s Media Inventory

Order Management Inventory Forecasting Inventory Provisioning

Premium InventorySecondary Premium Remnant Inventory

Yield Management/Optimization

DIRE Agency Network Auction Exchange

CT

Advertisers/Marketers

Agency Agency Agency

Negotiated

Automated

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Marketer/Agency Questions for Your Ad Network or Exchange

InventoryP i ( t d) N P i ( t tibl ) i t ?Premium (guaranteed) or Non-Premium (remnant, pre-emptible) inventory?Spot market (bided) vs. futures market (reserved inventory)?Safe for brands or direct response only?Control over content adjacency (blind versus site targeting)?j y ( g g)How much reach can you offer on run of network basis?

PricingControl of pricing for buyer and seller?Control of pricing for buyer and seller?Pricing models: CPM, CPC, CPL, CPA?

TargetingContextual behavioral demographic geographic other?Contextual, behavioral, demographic, geographic, other?

FormatsBanners, video, text, mobile?

Publisher typesLong tail, mid tail, large sites Inventory from content sites and/or social media?

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Publisher Questions For Your Ad Network or Exchange

Advertisers and campaignsH ill t h l fli t ith i t l l f ?How will you prevent channel conflict with my internal sales force?Who are your advertiser clients? What types of campaigns do you run?Do you offer site targeting, or publish/share your site list

PricingPricing models: CPM, CPC, CPL, CPA?What kind of eCPM can I expect for my inventory?How do you charge publishers for your services?How do you charge publishers for your services?

Yield ManagementHow do I work with multiple ad networks and/or exchanges?Can yield management be automated/optimized?Can yield management be automated/optimized?

FormatsWhat formats can you sell (video, display, text)?

Control Can I review and prevent certain advertisers from showing up on my site?

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Key Takeaways

Ad Networks and Exchanges Are Creating New Ways to Buy and Sell Inventory

Ad Exchanges Could Change The Role of Ad Networks Over TimeAd networks could become specialized media buyers, focused on performance/arbitrage

Old model: brokerage New model: hedge fundOld model: brokerage New model: hedge fundValue-added networks should continue to thrive

Key differentiators: data, technology, relationships

For Marketers/AgenciesDetermine your goals, ask questions, interview heavilyNo two networks or exchanges are created alikeLines between brand and direct response likely to blurLines between brand and direct response likely to blur

For PublishersManage Inventory strategicallyLeverage ad networks and exchanges to complement not replace direct relationshipsLeverage ad networks and exchanges to complement, not replace direct relationshipsMore competition for inventory could be a good thingNew yield management and optimization approaches could help maximize inventory valueReview strengths/weaknesses, examine business opportunities, determine role in ecosystem

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Disclosures

Information contained herein, including but not limited to research, market valuations, calculations, estimates and other material obtained from ThinkEquity Partners, LLC (“ThinkEquity”) and other sources is believed to be reliable, however ThinkEquity does not warrant its accuracy or completeness. These materials are provided for informational p rposes onl and sho ld not be sed or constr ed as an offer to sell or a solicitation ofpurposes only and should not be used or construed as an offer to sell or a solicitation of an offer to buy any security. Opinions and estimates constitute the judgment of ThinkEquity and are subject to change without notice. Past performance is not indicative of future results ThinkEquity Partners LLC is a member of FINRA and SIPCof future results. ThinkEquity Partners LLC is a member of FINRA and SIPC.

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Contacts

William MorrisonPartner, Sr. [email protected](415) 249-1989

Robert CoolbrithSr. [email protected](415) 249-6363

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