Last week I had a chat with Business Insider’s Lara O’Reilly, prompted by the news that Google is locking down access to buying Youtube ads.
She wrote that up, and here’s what I said:
“Programmatic is meant to be this open way of buying and selling media, but it’s not that, and it hasn’t been that for a while. As people have layered in more attempts to control it – either on the publisher side, through first look models or floor pricing, or advertisers understandably insisting on fraud measures and viewability measures – it’s just become this really complicated system. I wonder who actually benefits now.”
Google’s move seems symptomatic of this. As does the fact that many of the most successful sellers of digital advertising make most of their money through their own native ad units that don’t provide third-party ad tech players the chance to siphon off ad revenue for themselves – Google’s AdWords, Facebook’s News Feed, Twitter, and even BuzzFeed’s famed native advertising approach.
Beeston continued: “I think the long-term view says this is an example of how the whole approach is creaking. It’s too complicated, and it doesn’t matter how much you tweak it by adding additional floor prices, or viewability controls. It’s actually starting to break. And maybe we need to start again.”
Let me try to explain and justify what I said:
Ad tech isn’t open
The promise of ad tech was that it would be a completely open ecosystem for advertisers and publishers to trade inventory, akin to the stock exchange.
But that’s nonsense. Restrictions on trade were implemented immediately, and understandably so. Publishers don’t want to let any old advertiser to buy space against their premium content. Big advertisers demand access and preferential pricing to reflect their scale.
Ad tech’s market makers, such as Google and Facebook, aren’t about to allow intermediary platforms to siphon off their revenues either. As VivaKi’s Marco Bertozzi puts it:
These companies have invested billions into their product, and they have no obligation to make other competitive businesses rich on the back of their investments.
Attempts to control the auction make it worse
Publishers and advertisers want to maintain quality and pricing by putting limits around the auction. To quote Eric Berry, CEO at TripleLift:
Sell-side platforms have created yield-enhancing technologies, such as cascading floors, hard and soft floors and other techniques – all ultimately with the single objective of clearing auctions at a price higher than the second bid price, as often as possible. This underscores the questions of why the industry leverages second-price auctions in the first place, whether they continue to be appropriate and how to move forward.
Additional advertiser controls like viewability and fraud protection make it harder to find the ‘true’ value of inventory. There’s no spot price.
Native is the future, and the past
Native ads might seem to have come in vogue over the last couple of years. But the reality is that they’ve been around for a long time.
Google AdWords is the most successful digital ad format going. Search advertising captures about half of all online ad spend, most of which goes to Google.
Social media advertising is all native: Facebook, Twitter, Instagram are all pushing their own unique formats. The new breed of online publishers, like Buzzfeed, don’t take any programmatic placements at all.
Consumers are fighting back
On the elderly Mac Mini I’m writing this on, I’ve had to disable Flash (sorry Adobe) so I can get things done.
On mobile devices with slow connections and capped bandwidth, it’s a killer. The launch of iOS9 next month could change the game considerably.
It’s too complicated to fix
Venkatesh Rao, backed by venture capital firm a16z, recently released Breaking Smart, a collection of essays that are an in-depth exploration of Marc Andreessen’s observation that “software is eating the world.”
These words (with my underlining), from an article on scale and complexity, stood out to me:
The way complex systems — such as planet-scale computing capabilities — evolve is perhaps best described by a statement known as Gall’s Law:
A complex system that works is invariably found to have evolved from a simple system that worked. A complex system designed from scratch never works and cannot be patched up to make it work. You have to start over with a working simple system.
Gall’s Law is in fact much too optimistic. It is not just non-working complex systems designed from scratch that cannot be patched up. Even naturally evolved complex systems that used to work, but have now stopped working, generally cannot be patched into working order again.
When I read that last sentence, I immediately thought of the ad tech ecosystem.
Maybe it can’t be fixed.
Maybe the walled gardens will be built higher.
Maybe advertisers prefer buying from fewer sources that have bigger scale.
Maybe Wall St won’t ‘get’ ad tech at all.
Bleak? No. There will always be advertisers with products to sell, and publishers with audiences. We just need to find other ways of uniting them.