10 Years of the Ad Exchange

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I spent the first three months of 2005 working on an ad serving technology called “Yield Manager” that packaged the proprietary predictive optimization we developed at Right Media into a software product that other companies could use to run their online advertising businesses. The fundamental idea was that we could treat every ad impression as a real-time auction where thousands of advertisers could bid based on a predictive model. Almost by accident, I built a feature that allowed companies to bid into each other’s auctions. We called it “linked networks.”

On April 1, 2005 we migrated the Right Media ad network onto the new platform along with two other networks. As we obsessively watched the reporting data to see how it performed, I began to yell. Something incredible happened: advertiser CPAs were improving, publisher revenue was increasing, and the networks were making more money. In hindsight, it seems obvious what happened: by combining three separate pools of supply and demand, every campaign could bid on more inventory, giving it more chances to find the right user. Every publisher was getting three times the demand. And the networks tripled the effective size of their networks.

Over the next few months, tens of other ad networks joined the platform to take advantage of this revolutionary new concept. As we watched this phenomenon take shape, we realized that we had created an entirely new business model: the ad exchange.

Today is the tenth anniversary of the launch of the ad exchange. Since 2005, it has spread to mobile, video, TV, print, and radio. The programmatic industry represents $10 billion of advertising spend, and has spawned hundreds of companies and billions of dollars of IPOs and acquisitions.

As we enter the second decade of programmatic advertising, I see huge opportunities ahead for marketers, publishers, and consumers. As the CEO of the leading independent ad tech company whose mission is to create a better Internet, I’m constantly asking, “What can we do today that will significantly impact the online ecosystem for years to come? How can we improve the system for marketers, publishers, and consumers?” Here are five ideas that I hope we see the industry embrace over the next decade:

  • Privacy by Design. Many Internet businesses start by building large consumer audiences, then tack on an advertising model for monetization. Consumers expect advertising experiences that protect their privacy and respect their personal information, and the only way to deliver on that expectation is to start with privacy and build around it.
  • The End of the Black Box. While the ad technology landscape is complex, the basics of marketing haven’t really changed: deliver the right message to the right audience on the right medium. We need a combination of human intelligence and machine learning to achieve this at scale. Let’s open up the black box and allow marketers and publishers to leverage and create proprietary insights to improve the efficacy, monetization, and impact of digital advertising.
  • Unbundling of Ad Tech and Media. For the past 20 years, every major Internet portal has had the realization that its revenue and success depend on a handful of ad technology vendors that track and optimize digital marketing…they’ve then gone on a build/buy/partner mission to try to “own the stack” and allocate a disproportional (they would say proportional) share of spend to their own properties and related ad networks. This has been a boon for entrepreneurs and VCs who start and fund ad tech companies, but leaves marketers, agencies, and publishers without an ecosystem of scaled independent technology companies that they can trust. It’s time to unbundle tech from media. Agencies and marketers will spend money where it has the most impact, and won’t trust media companies that try to use ad tech to tip the scales.
  • Single Digit Take Rates. Executing a programmatic campaign is dramatically more expensive on a cost-per-dollar-spent basis than the equivalent campaign executed through the traditional RFP method, which itself is far more expensive than traditional TV buying. Technology is supposed to make things cheaper and more efficient. I believe the introduction of programmatic direct technologies like twixt will have a huge impact on agency efficiency. Targeting and bidding are commodity technologies now. The total take rate from ad tech will drop from the current 40-50% to below 10% as volumes increase, creating significant leverage for marketers and publishers.
  • Disruptive Innovation. Most of the successful companies are still DMP, SSP, DSP, ad network, retargeting, or exchanges…all of which were invented by or around the Right Media platform. It’s time for entirely new ideas to disrupt the industry. My bet is that by offering an open, independent, low-cost platform, one of our clients or partners will be able to invent the next disruptive idea that will change digital marketing. I can’t wait.



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