How GroupM’s Exit From Open Ad Exchanges Shifts the Power in Ad Tech — ‘Our Brands Shouldn’t Have to Compete With Mom-and-Pop Shops’

Jun 17, 2014  •  Post A Comment

By Tim Peterson
Advertising Age

GroupM is looking to reset digital advertising's balance.

The giant ad-buying network, part of WPP Group, plans to pull its clients' budgets from open ad exchanges by the end of the year, as first reported by Beet.TV. Open ad exchanges offer vast pools of digital inventory to buyers through automated processes, part of the broader world of so-called programmatic buying. But when GroupM wants to use ad technology to buy digital inventory next year, it hopes it can instead rely on arrangements with publishers operating private exchanges or using automated tech to process direct sales. GroupM already has 91 such deals in place.

The decision to exit free-for-all auctions is a power move, in addition to a defensive measure. GroupM doesn't want to bid on relatively random inventory in auctions that almost any advertiser can enter, nor does it want to risk paying for wasted ads on sites it or its clients don't want. It does want to deal more directly with publishers so that it can assert its leverage.

Considered the industry's largest media-buying group, claiming $73 billion in global ad spending, GroupM sits atop the food chain. But open exchanges put other bidders on its level.

"We started to ask ourselves why are we playing in this pond where there's no competitive advantage," said Ari Bluman, chief digital investment officer for North America at GroupM.

It's the automated ad-buying vendors themselves that hold the competitive advantage in open exchanges. Their technologies allow them to track audiences and inventory prices to figure out the cheapest place to advertise to someone online and then buy that placement in a matter of milliseconds. Whether the ad is for Procter & Gamble or some Peoria diner doesn't matter to them.

"Our brands shouldn't have to compete with mom-and-pop shops for their bid," Mr. Bluman said.

"Realistically it's time to reset the benchmarks on price," he added.

If GroupM is trying to use its clout to get lower ad rates, however, remember that publishers can also throw around their own weight in private exchanges. Many top publishers have in fact embraced private exchanges to reassert their leverage.

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Private exchanges enable publishers to adapt to online advertising's automated overhaul while keeping control over who advertises on their sites and at what price. For example, the only way to buy News Corp.'s inventory programmatically is through the company's private exchange. These private exchanges also cut out many of the ad-tech-intermediaries that siphon some of advertisers' spend in exchange for services like making sure a consumer saw the ads purchased.

"A publisher might only get 65% to 70% of spend," Mr. Bluman said. "If I have the ability to work with them and they make it easier to buy directly, more of our dollars will go to them. I really don't see the holes in our thinking," Mr. Bluman said.

One hole may be a loss of the wide reach that open ad exchanges conveniently assemble. To match that, GroupM would need to secure many deals with many publishers. Mr. Bluman said that's the plan.

"We're not going to lose volume, not going to lose scale," he said. "We're going to upgrade quality."

Mr. Bluman declined to say what percentage of GroupM's spend goes toward programmatic buys or how its plans might impact that share. But the figure is expected to grow as more advertising across the industry is bought and sold through digital pipes. "It's not just a tactical play," he said. "It's across display, video, native and anything that pipes can do," he said.

Among ad-tech operators, GroupM's move could separate those that have added private exchanges and those that have not. The major ad exchanges may have seen writing on the wall even before GroupM's decision: Google, AOL and Yahoo operate three of the bigger open ad exchanges, but also run private exchanges for publishers.

"AOL works with tens of thousands of publishers globally, and we expect this will encourage more of them to open private exchanges using our technology," an AOL spokeswoman said. "Many already have"

A Google spokeswoman declined to comment, but the company has put a lot of effort into publicizing its programmatic deals with publishers. Google runs private exchanges for Time Inc. and The New York Times and helps Conde Nast automate its direct sales. And earlier this month Google added a private exchange for top publishers to sell their video inventory.

Even Yahoo, which has been criticzed for failing to keep up with the times, opened up a private exchange business earlier this year. It's unclear what kind of adoption the company's private exchange offering has achieved so far; a Yahoo spokeswoman did not respond to requests for comment.

Google, Yahoo and AOL aren't entirely insulated. The companies still sell some of their own inventory, bundled with other sites, through their respective open exchanges. That helps juice demand and, in turn, ad rates. Getting ads on YouTube or Yahoo, for example, at lower exchange rates can be enough to entice advertisers to use the open markets. But GroupM is arguing it wants to buy ad inventory only from its owners.

"There are several that use owned-and-operated along with extended inventory," Mr. Bluman said."We're very interested in owned-and-operated. We want proprietary content."

Buying mobile ads programmatically is not as common yet as it is for desktop display ads, but private mobile exchanges are already staking an early claim. Millennial Media, for example, only launched its mobile ad exchange late last year, but Mollie Spliman, exec VP-global sales and operations, said the company also runs private exchanges and automates mobile publishers' direct sales.

Mobile exchange Nexage said it is seeing a significant increase in business conducted through private exchanges. "30% of buying is through private exchanges," said Victor Milligan, CMO at Nexage.

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