A cXense Whitepaper

Publisher-Controlled Ad Networks

A cXense Whitepaper Publisher Controlled Ad Networks 2

For more than a decade, publishers have been searching for a solution to the overarching strategic

problem of decreasing revenue stemming from reduced print circulations. The much sought-after total

online ad revenues have been steadily increasing, but new players have arrived from unexpected

corners with innovative products to dominate and control these new revenue streams. Recently, new

digital business technology has appeared that enables media companies to counter these trends, and

create their own complete digital advertising environments. To optimize these digital businesses,

publishing companies have started uniting into publisher-controlled ad networks, which covers both

web and mobile users. In this whitepaper we both present this concept, and one such active ad

network with its initial business results.

INTRODUCTION In the US, only five companies now control 65% of all online ad revenues. None of them are

from the traditional publishing industry. They have originated in technology, but are now by all

means competing in the media value chain.

As the online content offerings have developed, the online ad

market has become crowded and complex with different

technology-driven media middlemen. At present, these middlemen

sit in the value chain between the publishers and advertisers, and

reap un-proportionally large shares of the overall online revenue,

thanks to solutions that help them understand the end users and

exploit the corresponding data to arbitrage on ad prices through

better targeting. So far, publishers have been at a disadvantage

and at a loss at how to regain control over their online advertising

business.

Now, new pure-play technology companies, with no intentions of intercepting the media value

chain, are appearing as a reaction to this situation. They offer publishers complete solutions

across the whole online ad value chain, and thus help media companies eliminate the costly

middlemen. With this technology, several publishing companies have taken the challenge to

regain control over their digital business. They now offer and deliver a highly attractive, self-

made proposal to advertisers: large and sufficient inventory for online ads (which means

sufficient traffic volumes), effective understanding of content consumption and user behavior,

and an effective matching function where the best ads are displayed to the right users to

maximize relevance for the end user, as well as ROI and revenues for the advertiser and

publisher, respectively.

These networked publishers use advanced and integrated tools that enable them to monitor,

analyze, model, and predict patterns of content and users behavior, through a dynamic, real-

time closed loop that connects the information about their content, their users, and their ads.

Through this improved visibility into and understanding of the content and users intent,

For publishers, managing network relationships effectively is becoming a competitive differentiator. New technologies also are creating opportunities for publishers to form – not just join – ad networks.

Media Management Centre, Kellogg School of Business

A cXense Whitepaper Publisher Controlled Ad Networks 3

publishers are able to utilize their traffic inventory optimally for ad placement. This is a critical

success factor for any ad network operation.

However, publishers also need to have a critical mass of inventory and traffic, so that they can

attract a critical mass of advertisers. To achieve sufficient traffic, these companies have united

into publisher-controlled ad networks.

CASE STUDY: PUBLISHER-CONTROLLED AD NETWORKS cXense works with a number of such ad networks worldwide. The ad network we describe in

this white paper is formed by a group of publishers consisting of all the largest newspapers in

one European country. The network represents more than 60 sites including national, regional,

and local newspapers, as well as other online offerings like classified, search, and verticals. The

total online traffic for the group is more than 1 billion page impressions per month.

The different partners in this ad network have previously used several third party network-

based platforms for their search- and performance-based ads. One of the main drivers for a

change to their own network was their desire to gain and

keep with the publishers the knowledge about the readers

and the readers‘ navigation patterns. The combined user

knowledge in this group is broad and deep, since most people

in the country leave implicit signs of their preferences on the

classifieds site; they also daily use one or more of the online

newspapers in the group, implicitly marking their interest

through the chosen newspaper articles and vertical sections. In addition, the new platform

allows a collection of user data based on their devices, location, social media participation, etc.

A central aspect of this network is its size. A high percentage of publisher traffic (more than

75% of all of the online users in this country) is available from the start through initial traffic

commitment from participating publishers; over time, there is a considerable revenue upside

through publishers’ plans to provide additional traffic to the ad network, and to expand the ad

network to new types of content sites. Already, the technology this publisher group uses

collects data from a wide variety of external public sites in the country. This enables them to

build trustworthy long- and short-term user profiles, since every new source of content

increases the understanding of user’s interest and intent.

To build an attractive ad-serving base and high match rates, the publishers also benefit from

having a good base of relevant vertical content pages to enable even higher quality user

profiles – in addition to sufficient traffic. Hence, to achieve this, the publisher network has also

committed their vertically focused sites to this new solution. Already, their analytics show

significantly improved match rates and relevance leveraging the user profiles and semantic

content profiles, resulting in increased ad click-thru rates (CTR). For example, a leading travel

operator in this country reports a four-times increase of conversion and ROI on its ads with the

new ad network, as compared to the conventional third-party ad network.

60 sites Both newspapers and classifieds 1 billion page views per month 75% of online users in the country Committed vertical sites

Network Properties

A cXense Whitepaper Publisher Controlled Ad Networks 4

High CTR leads, in turn, to higher CPC pricing for ads. In the very beginning, the eCPM from the

network is expected to be somewhat below that of the eCPM for the corresponding ads served

by the dominant ad players, due to the fact that these players have been in the market for a

long period, and have had a correspondingly longer period to develop the commercial factors

in their favor (large traffic, many advertisers, and high click prices). However, in a relatively

short amount of time, the publisher-controlled network catches up on these factors. As their

inventory grows, their user profiles improve, and their network attracts more advertisers, the

price auction system will mature to same or higher levels of eCPM. Hence, the net advertiser

value over time exceeds revenue offered by traditional online ad models. In addition, the

publishers will retain full control of their online ad business.

The publishers also have access to an advanced semantic content and ad analysis tool, allowing

them to survey and optimize both the content and the ads relative to user behavior, and to

deduce important user behavior patterns. This data is used in a dynamic closed loop system so

that ad placement can be planned in real-time; thus they optimize their relevance and revenue

on the whole time spectrum: from the long-term to the extremely short-term.

TECHNOLOGY AND OPERATIONAL ASPECTS The solution these publishers have chosen is a cloud-based solution, user friendly and flexible,

and which can be in operation within a few days. It is highly scalable, since it requires

responses within milliseconds for millions and millions of users, and is also highly secure and

reliable. It uses highly advanced linguistic, semantic, and statistical analysis tools that recognize

the overarching meaning and sentiment of the content articles, as well as gathers information

about the readers and their interests and behavior across the publisher sites. The system is

extended continually with world-leading academic research results from these areas.

Technically, user interest is, for example, clustered in a set of categories and associated with

the individual users’ long-term profiles. Categories include health, car and motor, travel,

celebrities, telecom, food and restaurants, sport as training, gadgets, etc. Categories are

further divided into sub-categories, and associated with meta-values; these meta-values are

typically matched with ads from advertisers. The content is also automatically profiled and

categorized. Furthermore, a wide range of contextual information is taken into account,

including location, device, time-of-day, etc.

The system is easy to integrate in the publishers business, both technically and functionally. In

terms of operations, the publishers no longer need to handle a multitude of ad networks and

exchanges. The small and focused team operating the ad network handles all kind of ads for

them, from agencies, direct customers, to direct downloads for other search ads providers.

ROI ASPECTS The projected business model for this publisher ad network shows an expected ad revenue

growth for the participating publishers of 5 to 8 times over the next three years, and the

A cXense Whitepaper Publisher Controlled Ad Networks 5

network expects to gain more than 20% market share in the performance-based ad sector in

this country. This growth is to a large extent based on greater inventory, higher ad relevance

leading to higher ad pricing, and on a better revenue share model than is typically offered by

the incumbent players.

The revenue share that publishers gain from external networks is typically non-disclosed

information, but in most cases in the traditional model the publishers’ share represents less

than 50% of the gross invoiced advertising value. In the new model presented in this white

paper, the publishers retain 70-80% of the total revenue. In addition, they retain the strategic

control position towards the advertisers, and the data and knowledge about all the users online

behavior can be leveraged by the publishers, so they stay in control of their future.

Within the network, publishers are free to experiment with their own ad-serving strategies to

increase revenues. We have observed significant business innovation related to ads and user

patterns. Once they realize the potential of user and content data, publishers show great

inventiveness in how to optimally use the powerful dynamic

analytics and serving tools in the new solution. The trends we

have observed are extremely encouraging for the digital

future of these businesses; they show that with the right

insight in the digital user, the publishers are eminently able to

take advantage of their industry expertise and bring the ad

business back to their own territory. Based on their historical

media savvy, they are the ones who can best interpret the

emerging content consumption patterns. The generic ad players have been out-competing

them in the digital space; but now, the publishers can see and explore new user patterns and

ad models themselves and learn, in real-time, about their effectiveness and monetary results.

They publishers can build their proprietary ad-related IP at impressive rates.

As one example of such digital stratagem, one of the networked publishers has shown that

they can better exploit the unattractive display ad inventory on the high-traffic generic pages.

Because of the generic profile of these pages, it is typically hard to achieve high CPM rates on

these pages. However, with the right user and content data, the system can now place highly

relevant ads for each specific user even on these sites. These precise targeting methods have

enabled the publisher to increase the CPM price for targeted ads 2-5 times as compared to

current CPM price for a run on a generic network ad. By using only 10% of display ad inventory

on a specific ad placement, this publisher has increased the ad revenue on these generic ad

places with up to 50% of gross revenue. That is a significant growth for a very limited risk.

Over the past two years, we have worked with eight other publisher-controlled ad networks

around the world. They all show similar projections and early performance improvements. By

using closed-loop targeting technology they have all achieved increased ad revenue, through

higher volumes, increased CTR, higher prices, and better inventory utilization. The targeted ad

server tools, with associated content and user analysis, have helped them all improve efficiency

in exploitation of their inventory.

5-8x revenue growth over 3 years 70-80% revenue share 20% of market share in the

performance ad sector New ad serving strategies

ROI advantage

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Here are some ROI examples from our other partner networks. A European mobile ad network

has observed an increase of 30% in the volume of ads served, and a 25% increase in inventory,

over a period of three months. They have also been able to grow prices by 7% over the same

period. Another example is an American publisher-controlled ad network, which has

experienced an even volume increase of 12% over a period of six months. Finally, over one

year, a proprietary Asian ad network has achieved a three-fold increase in their CTR compared

to the old solution, with an average CPC at 1.5 USD.

The numbers presented here are achieved in a relatively short time frame and in some cases

also with only a portion of the overall traffic of the participating publishers. Nonetheless, they

show significant positive changes in ad serving and consumption, and have already lead the

participating publishers to continually increase their traffic commitments to this new solution.

SUMMARY By uniting resources around the right technology, publishers can create attractive publisher-

controlled online ad networks. Through their aggregated size, they attract a large group of

advertisers, so that the selection of the right ads to the right users becomes easier. This in turn

leads to better ads and optimal placement of ads, resulting in the optimal business

environment for the advertisers. Effective advertisements lead to higher ad prices, leading in

turn to higher ad revenues for the publishers, with a better revenue share model than

previously possible. By networking, every publisher participant gains from building a larger and

more effective network, and earns more through their own sites. Through their deep audience

and content consumption insight, the publishers are free to improve the existing ad-serving

models, and innovate on new models.

Until now, the digital marketing value chain between the publishers and advertisers was highly

fragmented, with many niche players focusing on specific technologies, verticals, devices, or ad

models. Publishers did not have the control over or access to their user data, which is

necessary for effective digital ad strategies. Now, with a new and complete suite of previously

un-connected technologies, they can collect and connect all their data, and re-discover

profitable business models in the space of digital media.

Contact cXense

©

www.cxense.com info@cxense.com Corporate Headquarters: Henrik Ibsens gate 100 P.O. Box 2920 Solli NO-0230 Oslo, Norway

About cXense© cXense (pronounced [see•sense]) is a global technology company founded by a team of software and internet media veterans who share

a passion for delivering innovative and intuitive products that help companies build great online user experiences. Our team has worked

with and for media, mobile and e-commerce companies for the 15 last years and we come with an extensive experience in Internet

search, advertising, and analytics. We have a global presence with offices in Oslo, Zurich, London, New York, Boston, San Francisco,

Tokyo, Melbourne, and partners in Latin-America and South-East Asia; and we currently serve customers on four continents with billions

of transactions every month. We offer an end-to-end white-label SaaS monetization solution for online businesses, with integrated

analytics, both user and content profiling, ad serving, search engine, and a flexible targeted advertising platform.

At cXense we have the ambitious goal of understanding what people really want so that we can make the world of information easier to

navigate. We do it using data and advanced science. We are the best in the world in capturing and analyzing the context in which

content is consumed and produced; the context in which entities and concepts are used within the content; and perhaps most

importantly, the context of the users themselves. Using this context computing, we can help you deliver the right piece of information to

the right user at the right time.