supply side platforms

History of the Ad Exchange Landscape Part II: Network Fragmentation and the Ad Ops Problem

In Part I of this series, I talked about the Rise of the Ad Networks, and how publisher ad space was commoditized by inventory aggregators known as Ad Networks.  Part II talks about the start of network fragmentation and the technical and operational challenges this caused for publishers.

Part II: Network Fragmentation and the Ad Ops Problem

As the networks fragmented, Ops teams had to add more and more redirect chains to force users through, and created a reporting nightmare for themselves.  Here’s basically what happened – with one ad network, you trafficked a third party tag to that network, and also gave the network a tag back to your site.  The reason being is that no ad network would pay for an unlimited amount of impressions on a CPM basis, so if there was a traffic spike and the network denied, or defaulted on the impression, they had to have a way to send the user back to the publisher ad server so the publisher could figure out something else to serve.  That something else was usually another ad network tag, and the process repeated until the ad was filled.  For a browser, each call to an ad server might take 20 – 50ms, which seems fast, but if the publisher had three ads on a page and the code was written in-line, meaning each ad has to finish loading before the rest of the page content to load, once you start to pass three or four ad calls per tag, the page starts to feel sluggish to a user.  Keep redirecting that user and sooner or later, the ads don’t have time to finish loading before the user moves to the next page, which causes a discrepancy between the publisher and the network, not to mention a lousy experience for users on the publisher’s website.  The publisher thinks an ad was served, but the network’s ad never finished loading.  Ad server reports grew less accurate because the same impression could be counted multiple times as networks sent a user back to the publisher, inflating the numbers and throwing a wrench in any inventory forecasts as well.  Not only that, but from an Ops perspective, the more unsold inventory there was, the more relationships were necessary with ad networks to fill the inventory. Yikes!

The result was a complex and inefficient setups in the publisher’s ad server, with lots of redirects strung together to pass a user from ad network to ad network until one was willing to serve an impression.  All this caused page latency, a lousy user experience, high ad server discrepancies, a billing nightmare, and an accelerating erosion of publisher ad sales.

In other words, it was a huge business opportunity – enter the Network Optimizer, ancestor of the Supply Side Platform.

Next – History of the Ad Exchange Landscape Part III: Network Optimizers to the Rescue (?)

History of the Ad Exchange Landscape Part I: Rise of the Ad Networks

In this new series of articles, I will try to explain the current landscape of digital advertising as it relates to remnant monetization from the publisher perspective.  Specifically, this series covers how publishers have sought to cope with a ever-fragmenting marketplace of remnant buyers and the upstart technology companies built to help them.  I think for anyone trying to understand the current marketplace of technology vendors, data companies, and yield optimizers, it helps to know the history.

Part I: Rise of the Ad Networks

Since most major publishers can rarely sell more than a fraction of the available ad inventory on their site with a direct sales team, they historically sold off whatever was left over to a handful of ad networks, or tried to monetize the unsold space with performance-based advertising, like Google AdSense.  This pile of unsold inventory was typically sold off at fire-sale prices, as little as 5 or 10% of what the publisher might charge for the exact same ad space on a direct buy from an ad agency.  Who bought it?  Well an advertiser eventually bought it, but through a type of company called an ad network.  Ad Networks were initially setup to aggregate a number of publishers together in order to provide advertisers with low cost ads that could reach a lot of people and had very aggressive ROI goals.  Basically, they were built for direct response advertisers who were trying to sell something.  While it seemed like a good idea at the time for publishers to hand off this inventory to a network – some revenue was better than no revenue, right? – this practice started to catch up with publishers.  Agencies decided that prices were so much cheaper on networks, and the quality was pretty much the same, they could get more bang for their buck by moving more of their budgets to the ad networks, including for brand advertisers, the bread and butter of publisher sales teams.  From the publisher perspective ad networks were supposed to help monetize their inventory, but ended up cannibalizing the efforts of their sales team instead.

It was great for the networks, publishers desperately needed them to monetize their unsold inventory, and the network could change a huge margin and still be much cheaper than buying from the publisher directly.  And even though technically networks were supposed to aggregate a few publishers together to dilute the value of the ad placement, there was so much inventory available that they didn’t really need to, especially if they could charge an advertiser a bit more money to run them exclusively to one site versus a handful.  The best part was you didn’t really need any infrastructure to start an ad network, just someone to call a bunch of publishers to aggregate some cheap inventory, and someone to call a bunch of advertisers, trying to sell that inventory.  It was easy!  So easy in fact that a few hundred sprang up over the course of just a few years.  Competition drives specialization, and that’s exactly what the networks did – they started to specialize in various levels of ad quality or audiences to differentiate themselves in the marketplace, and of course, maintain their high margins.

Read More –  History of the Ad Exchange Landscape Part II: Network Fragmentation and the Ad Ops Problem