Floors are not Fraud

Hi all.  I have been thinking about cracking my knuckles and getting back to the literary salt mine for a while now and I saw an article yesterday that just I couldn’t resist.

Right off the bat, the headline “Are Artificial Price Floors The Next Iteration Of Ad Fraud?” almost audibly screamed Betteridge’s Law. (OK, I had to Google the name, but I swear I remembered there was such a thing).  So, in honor of Mr. Betteridge and his predecessors, let me state clearly that with respect to this headline, “The answer is no.

I can certainly understand why the buy side might not like price floors, but a buyer calling floors fraud is like King George III calling George Washington a terrorist.

Would it be fraud if one bought for 25¢ CPM an impression that’s worth $25 CPM from an ROI perspective? That’s a much bigger disparity between “true” value and transacted price than the example in the AdExchanger byline. Yet this sort of transaction happens all the time because, leveraging technologies like re-targeting, a buyer often knows much more about user value in the context of a particular campaign than a seller does. If they were being candid, many (if not most) buyers would tell you this is kind of the point of sophisticated, RTB-based buying strategies.

So, then, Is Precise, Data-Driven Targeting The Next (Next) Iteration Of Ad Fraud? Of course not.

What would a “true” or “real” floor price for an impression even be, as opposed to the “false” or “artificial” floor to which the author objects? Would it be the small fraction of a cent that it costs the seller to serve the impression? Would it be the seller’s operating expenses divided by its impression volume? Maybe add some margin? What’s a fair margin? Would it be opportunity cost, which the author implies would be his choice? (Second price approximates opportunity cost if one makes some reasonable assumptions.) Something else?

It’s not like I have written a book on this stuff or anything, but I have to tell you that I don’t see any reason why one of these options is more “fair” or “true” than the others. On the contrary, I see all kinds of reasons why all of them are less fair than the outcome of a voluntary transaction between two independent and accountable market participants.

To be clear, the seller has an obligation not to misrepresent what she is selling; misrepresenting what one is selling is bad (just ask Volkswagen). But where else in commerce do we even expect, much less require, a seller to disclose their reservation price transparently?

Do we get mad at the person who sold us our house because they didn’t tell us their brokers’ open was poorly attended and they really need to move immediately? Do we get mad at the car salesman who bargains harder because we forgot to take off our nice watch? Do we get mad at the movie theater because there were empty seats and so their opportunity cost on our ticket was $0? For that matter, do we even get mad at the movie theater for the $10 bag of stale popcorn? No. We expect that behavior and we do our best to counter it, but at the end of the day we decide whether the price offered is worth it to us in context and we buy or don’t buy.

The bottom line is that sellers should be free to use any and all (legal) tools available to them to manage their businesses in any way they think will meet their business objectives. Buyers are free to change bidding strategy, negotiate special terms or look elsewhere if economics on a transaction don’t work for them. Reasonable people could debate whether or not price floors are good for the efficiency of the market overall, but thankfully nobody is setting policy for the market overall – this isn’t 1950s Stalingrad.

Floors, “artificial” or otherwise, are a valuable and perfectly legitimate yield management tool for sellers.

Brand.net’s breakthrough

Interesting article by Joe Mandese on MediaPost this AM.  “Unsavory adjacencies” (which would be a great band name by the way) are indeed a huge concern for the largest brand advertisers as they ramp up their online investments.  That’s why Brand.net pioneered preventative page-level content filtering with the launch of SafeScreen almost a year ago.  Abbey Klaassen at Ad Age and Laurie Sullivan at MediaPost both covered the launch back in February.

Since then, while others have been in development, we’ve been busy protecting our customers.  In the past year, SafeScreen has provided 8 of the top 10 CPGs, dozens of other Ad Age 100 spenders and each of the top agency holding companies with the cleanest inventory available on the web, preventing millions of “unsavory adjacencies” each week.

While we’re on the topic, I will reiterate the point I made in my iMedia article a couple months back – that quality is a page-level issue, not a site-level issue.   The reason I bring this up is that in order to do any sort of page-level quality filtering, it’s necessary to know exactly which pages are requesting ads – i.e., which pages need filtering.  This is a very difficult challenge due to common usage of iframes by publishers.  This recent blog post provides a great background on iframes for the uninitiated.

SafeScreen works because Brand.net does the buying and the filtering.  So if we want to buy from a publisher that uses iframes we can take steps in advance to make sure we have accurate page-level visibility so SafeScreen can work.  The recently announced quality assurance products seem to suggest in their marketing claims that they can be dropped in front of a random, arbitrary ad buy and ensure safety.  This simply isn’t technically possible due to the prevalence of iframes.

Buyers considering these “stand-alone” solutions should ask hard questions.  If they do they will find they aren’t going to be nearly as safe as the marketing suggests.

Misconceptions about Yield Management and Channel Conflict

Another interesting article from Forbes.com’s Jim Spanfeller yesterday.  I wholeheartedly agree his point about the online ad industry focusing too much on demand fulfillment and too little on demand creation, as evidenced by my previous posts here and here.  That’s exactly why we built Brand.net from the ground up — to help advertisers with demand creation.  I also agree with his point about ad networks that offer some types of user-based targeting  representing a potential “data drain” and a legitimate privacy concern for publishers.  This is an important issue and just coming to the fore for the publishing community overall.

That said, I disagree with two major points Jim makes in this article.

First, he seems to be perpetuating industry confusion on the definition of “remnant”.  In the context of online ad inventory, “remnant” is commonly considered to be the opposite of “premium”, which is often used interchangeably with “high-quality”.  Thus if “premium” = “high-quality”, then “remnant” = “low-quality”.  Unfortunately this is often untrue.  When used correctly, “remnant” actually means “available to the spot market after forward commitments have been fulfilled”.   So the opposite of “remnant” is not “premium”.  The opposite of “remnant” is “reserved in advance”.  There are really two distinct axes at work here:  one describes quality of the inventory, while the other essentially describes the terms or process under which the inventory was purchased.  There is some correlation between the two axes, which I believe is at the heart of the persistent confusion; it’s a fact that remnant inventory is often of lower average quality than inventory that is reserved in advance.  However, due to traffic volatility, forecast errors, suboptimal pricing, supply/demand imbalances, etc., there is often significant volume of high-quality or “premium” inventory available in the “remnant” market. The airline standby example he cites is actually a good illustration of the correct definition of remnant, not (as I think he suggests) the incorrect one that has done so much mischief.  The standby seat has exactly the same physical characteristics (“quality”) as the seat sold in advance, but the difference in timing and deal structure results in a difference in value to both the airline and the passenger, which manifests in a difference in price.

This brings me to my second point: Jim’s position in this article on airline yield management practices shows some pretty fundamental misunderstandings.  Airlines’ lack of profitability has a lot more to do with unions, over-capacity and sub-optimal product offerings than it does customers risking their vacation plans or business objectives to save money on a last-minute ticket.  So I would echo Jason Kelly’s well-informed comments on the thread and add that to suggest yield management practices are somehow to blame for the poor financial performance of airlines is like suggesting that ERP systems and supply chain optimization practices are responsible for the poor financial performance of the American auto industry.  It’s simply not true.

The bottom line is that ad networks and publishers can work together for mutual benefit over the long haul, but to do so requires careful management of channel conflict, an issue we take very seriously.  This discussion is a valuable and important one, but I think we need to be more careful and rigorous in our thinking – the more so, the better off we’ll be as an industry.

David Moore, Chairman of WPP’s 24/7 (Now B3), Says Content Quality Doesn’t Matter

I was catching up on content from last week’s Ad Age digital conference when I came across this clip.  Turner Executive Walker Jacobs begins by exploring some common themes with respect to tension between top publishers and networks, but the part that really caught my attention is the short exchange at the very end of the clip between prominent market analyst Henry Blodget and David Moore, Chairman of ad network 24/7 (now renamed B3 within WPP):

Moore: “It wouldn’t hurt us at all if every premium site out there never used us again.  We’d be fine.  We don’t need ‘em.”
Blodget: “So, to heck with quality content.”
Moore: “Quality, really, is in the eye of the beholder.”

I had to rewind the clip and watch a few times to make sure I understood what Mr. Moore was saying.  I was, frankly, a little shocked to hear that from a senior executive at  WPP, parent company of some of the premier agencies in online advertising, who represent many of the most iconic brand marketers on the planet –  AT&T, Unilever, Sprint, Macy’s, Campbell’s Soup and  Colgate Palmolive among them.   I’ve had the privilege to work with each of those brands in my past life with Greg Coleman and Wenda Millard at Yahoo!, and have worked again with many of them in my new life at Brand.net.   Throughout that decade of experience, these brands have consistently reinforced the critical importance of both the quality of execution and the quality of the content surrounding their ads.  In short, the eyes of these beholders have insisted on very high content quality standards.

Because of this, we only buy from top quality sites.  If every premium site out there never used us again, it would not be possible for us to meet our clients’ standards for top quality ad environments.   However, the way the web is evolving makes maintaining quality an ever more difficult challenge.  The common practice of intermingling professional edit and UGC on the same page means that even if we start with the best sites, there are some individual pages that can create problems (most often due to user comments).  This is why we assembled a top notch technical team that in partnership with IBM has delivered a market-leading page-level filtering capability we call SafeScreenSafeScreen allows us to deliver the best of the best to our clients, which is what they look to us to provide.  Starting with top quality sites and continuing to lead the market with page-level filtering capability, we take our commitment to quality seriously and we always will.  It’s who we are.  And it’s what top advertisers told us at Yahoo! and tell us at Brand.net they are looking for from a partner.

So, a word to our premium site partners:  we *do* need you, we *will* need you, and we will continue to work with you on issues that matter to both of us,  including the need to constructively avoid channel conflict.  I am tired of glorified link farms supported by belly fat ads.  Let’s bring quality advertisers to quality content and watch the web thrive.

Interesting MediaPost Blog – “Team Publishing: Stop Whining”

Many interesting points raised in this recent MediaPost Blog.  Certainly an interesting take on one of the reasons for the current predominance of DR over Branding in online advertising and I agree wholeheartedly that online display ads are a far better branding medium than it’s currently fashionable to believe.  (I found myself thinking, “AMEN!” as I read that paragraph.  Well put.)

I also agree that the more compelling the creative opportunities for brand marketers the better, as long as a standard approach can be developed.  I’m not sure that the tethered ad approach that’s recommended is the right solution, but that doesn’t detract from the argument against clutter.  A publisher choosing to go to with 100% tethered ads would likely execute that choice operationally the same way they would execute any other new ad unit, so the real question is, “What’s the most effective ad unit for brand marketers?”.  Certainly a worthwhile question.  Would also point out that networks as whole wouldn’t necessarily lose in the scenario outlined.  Many certainly would if the new unit was less effective (lower ROI) for DR campaigns, but Brand marketers and Branding-focused ad networks would welcome any new standard unit that improved results for online branding.

A Brief Analysis of the Ad Supply/Demand Imbalance

It’s true that there’s an imbalance between supply and demand, which is putting downward pressure on rates as highlighted in this morning’s WSJ article “Future Shock for Internet Ads?”.  However, I think there are some important details missing that would add richness and perspective to this article and other similar ones.

First off, the writer cites PubMatic data at the beginning of the article. I have every confidence that the PubMatic data is accurate for what it is, but articles quoting the data rarely mention that it reflects a very specific sub-segment of the overall online ad market. That is direct response campaigns running on primarily small publishers with poor average content quality (with many exceptions I am sure) and weak/non-existent direct sales channels (likely not many exceptions here). This market sub-segment is the most volatile and most sensitive to changing market conditions so in that sense the trend numbers (48% Y/Y decline in Q4) really represent a “worst case”. The absolute numbers ($0.26 average CPM in Q4) are similarly non-representative; the significant majority of money that was spent in the display market during Q4 was spent at CPMs an order of magnitude higher than that. PubMatic actually makes some attempt to clarify in the text of the report itself, but in general these numbers are too often represented to be a broad barometer of display advertising, which they simply are not.

Two other important points: In general much of the online ad supply that’s being created is not being created in areas that advertisers have figured out how to use yet. Social networking sites and long tail content sites are good examples. The consumer applications are evolving so rapidly that effective ad models are lagging behind, so spend stays concentrated in areas that advertisers understand better.

Finally, in any analysis of supply/demand balance and particularly when CPMs are involved, it’s important to note that there are two distinct high-level market segments in online ads – Direct response and Brand. Across all measured media, Brand spend is 2x DR spend but this dynamic is very different online. Nearly 30% of DR spend is now online, but only 5% of Brand spend is. This imbalance is a big reason why the overall supply/demand balance is out of whack. The author mentions this at the end of the WSJ article I reference above but I think these more specific details help clarify why this is happening.

The Importance of Brand Advertising

This week Randall Rothenberg, the President of the IAB, released a self-proclaimed “manifesto” which picks up many relevant themes to our work at Brand.net.

It’s quite long, but the first 3 sections and the last 2 echo conversations we have with partners (advertisers, agencies and publishers) literally on a daily basis.  As I said in my comment to Randall’s article, there’s more confusion than information in too much of the ongoing debate about CPMs, formats/standards and the role of networks.   Everyone – advertisers, agencies, publishers and networks – would be better served if we could collectively take a step back from today’s disproportionate focus on DR and think more broadly about what it takes to make the Internet work for the full funnel.  In doing so we will find long-term, sustainable solutions to many of today’s challenges.