The Rubicon Project, developers of an automated platform that connects publishers to hundreds of different ad networks, and serves ads from the highest paying ad networks based on their own algorithms, published a manifesto on Friday for revolutionising the digital ad ecosystem and giving publishers more power. Quite rightly, they are worried that the way advertising inventory is traded short-changes publishers, limiting the amount of money available to fund high quality content. This obviously disadvantages publishers, but also disadvantages consumers of content and by extension society writ large. By restoring “power to the publisher”, the Rubicon Project aims at nothing short of saving society itself.

Whilst the manifesto makes for thought-provoking reading, it fails to address the key issue holding the online ad ecosystem back, and hence its prescription is unlikely to deliver the kind of result hoped for.

The Rubicon Project’s diagnosis of what is wrong with the online ad ecosystem

The digital ad ecosystem has been built around the needs of advertisers and media buyers rather than around the needs of publishers.  As a result, the structure of the industry, and indeed its fundamental technological components (including the ad server itself) all serve to lower the CPMs received by publishers.  It’s worth giving some specific examples to illustrate the manifesto’s point:

• By selling inventory through multiple channels (direct and via different ad networks), publishers enable advertisers to “shop around” for the same inventory at the lowest prices, eroding CPMs
• Because advertiser demand is fragmented across multiple channels, the cost associated with finding the “best paying” advertiser is enormous, meaning publishers generally have to settle for less well paying advertisers
• The way inventory is traded by third parties that sit between publishers and advertisers (e.g. ad networks, media buying agencies) serves both to commoditise inventory and increase the number of agents taking a %, both eroding CPMs.  Worse, by “owning” relationships with buyers and the data on which that industry is valued, and not sharing them with publishers, those 3rd party intermediaries can take a higher % than perhaps they deserve

The Rubicon Project believes that now is an opportune moment to change the ecosystem, because the development of tracking technologies and behavioural targetting specifically mean that suddenly advertisers are more interested in “who” their ads are shown to rather than “where” their ads are shown.  The manifesto proposes to:

• Increase transparency between advertisers and publishers, making it easier for all players to identify where value is being generated and allocate revenue accordingly
• Better connect publishers to multiple demand sources.  (Isn’t this what Rubicon has been doing to date?)
• Give publishers their own data platform, giving them a better understanding of what drives value in their inventory, and better equipping them to capture more of that value
• Provide publishers with better yield management, channel management and forecasting

What the manifesto misses

There are three approach to drive up display ad CPMs.  The manifesto touches on the first two but misses the third, key approach:

1. Increase the efficiency of the display ad market by increasing transparency and reducing fragmentation. It is a fact of economics that the most efficient markets, for both buyers and sellers (if not arbiters) are transparent markets.  Increasing transparency and reducing fragmentation should drive up the CPMs publishers receive by making it easier for them to identify the highest paying advertisers and transact with them.  For advertisers too this is great, because they should be able to identify the most cost effective places to buy suitable ad inventory
2. Enable new sources of demand.  Another fact of economics is that price is a function of the demand / supply balance.  By opening up their platform using a self-service interface to advertisers who were previously too small (or spent too little) to participate in the display ad ecosystem, the Rubicon Project should be able to drive up total demand.  Indeed, the presence of a self-service interface for advertisers is one (of several) drivers of high search CPMs.
3. Make display advertising a more effective branding media.  The more effective display ads are as a branding media, the more advertisers will be willing to spend on display ads.  In spite of a lot of industry commentary to the contrary, many advertisers are skeptical about the effectiveness of display ads, and as we have explained before they are right to be.

By missing the third approach, The Rubicon Project appears blind to the biggest challenge facing the display ad space today.

Why most display advertising is not an effective branding media

The traditional model of monetising content through advertising, where people have to consume advertising they are not interested in in order that they can access content that they are, doesn’t work online where consumers can happily switch between many “channels” (i.e. websites) and are able simply to ignore (or even physically block) adverts that appear alongside content.

Online advertising works well when the advert adds value for the consumer as well as the advertiser, hence benefiting the publisher not just by providing a revenue stream, but by improving the consumer experience.  Search advertising is a great example: sponsored results provided on search results directly benefit the consumer by making available companies that offer products and services the consumer is actively seeking.   This can work for brand advertising as well as performance advertising: on websites that attract visitors that want to be entertained for example, display ads need to “add” to that entertainment. Today’s FHM website, for example, has a full screen takeover advertising the DVD of the film “Jennifer’s body”, including clips of the film and visuals of Megan Fox, something most FHM readers will be eager to consume.

For advertisers, then, it is not enough to know “who” an individual is who is being shown an ad and “where” the ad is being shown. The advertiser also needs to know in what mindframe is the individual: are they in “entertainment mode”, wasting time or looking for distraction, as I imagine most FHM readers are. Or are they in “accomplishment mode”, researching specific things with a view to making a purchase, e.g. to buy a present for a specific someone. Depending on the mindset of the individual, AND the context in which they are, the advertiser then needs to deliver content that ads to the user experience AND makes it more likely they will respond positively to their brand and / or make a purchase.

This is a tricky but solvable problem for an advertiser looking at a specific website:  after all, the context of a website and the way a visitor has come to it would provide an advertiser with a good idea of the kind of mindset that the consumer has.  (No one goes to the FHM website to be productive.)  For an advertiser buying across a 3rd party platform (like Rubicon’s for example), it is incredibly difficult to ascertain the users’ mindset.  And even if they can, it is tricky to work out what format of ad would be most effective.  (Note how the “Jennifer’s body” ad on the FHM homepage is a whole screen takeover.)  Simple display ads circumscribed in standard banner or skyscraper dimensions offer little scope for advertisers to actively engage website visitors. Standardisation (sadly) leads to commoditisation.

Publishers can drive up ad revenue themselves

As we have seen, third party platforms like Rubicon work by aggregating both supply and demand and making it easy for advertisers to buy across multiple publishers and for publishers to sell across multiple advertisers.  This standardisation has disadvantages for publishers, because the context of the site and the mindset of the user get lost.  This is one of the main reasons why direct ad sales houses typically win publishers much higher CPMs than automated 3rd party platforms:  it is easier for a person to explain directly to a media buyer the possibilities presented on a particular website than it is to express them in a machine-readable format.

Publishers that want to increase ad revenue need to think creatively about the way they can work with advertisers to deliver better experiences for their users. For a community site, this might be adding transactional features (as discussed in a previous post); for editorial-led entertainment sites it might be about making it easy to sell and deliver homepage takeovers. This is a commercial problem with technical dimensions, not a technology problem with commercial dimensions, as the Rubicon Project presents it.

If you’re a publisher exploring ways to grow your revenue, get in touch to discuss what opportunities are open to you and the best ways to go about testing and realising those opportunities.