Last week one of the world’s biggest publishing companies for both online and print, Conde Nast, announced a major shift in focus — one that is squarely directed at reducing the company’s dependency on advertising dollars, which currently account for 70% of its margins. According to the New York Times, Conde Nast’s CEO, Charles Townsend, stated, “We have been so overly dependent on advertising as the turbine that runs this place, and that is a very, very, risky model as we emerge from the recession.”

Conde Nast’s point of view isn’t at all unique among the world’s largest publishers, nor is it unreasonable for them to want a more balanced revenue strategy. However, moving away from a heavy reliance on advertising dollars to greater dependence on selling content to consumers is an even riskier model. Publishers looking to charge consumers for (or more for) their content are making two bold and unproven assumptions:

Assumption No. 1: Consumers are loyal enough to your brand to overcome their desire to consume free, or highly subsidized, content.

Among Mr. Townsend’s quotes was that “people pay $180 per month for a cable bill,” which gives him some confidence that people would pay for Conde Nast content. It is impossible to ignore the glaring differences between Conde Nast and a cable company, including that cable companies have geographic monopolies, own the connection to the home, and although people generally disdain them, cable delivers hundreds of channels of content and often the home’s broadband connection. Even if Conde Nast could somehow bundle all of its offline and online content into a single offering (there is a rumor that they will try to organize all of their online audiences into an ad network), it would pale by comparison to even the smallest cable company.

Assumption No. 2: Advertising prices are going to continue to free-fall.
In contrast to consumers not wanting to pay for content, advertisers are keenly aware that they have to pay for advertising. But advertisers don’t often have the loyalty to publishers that the publishers wish they did. The days of “Mad Men” are over; we are in the age of Math Men. At the end of the day, advertisers need to see significant return on investment for their ad dollars. And advertisers will pay more, and are right doing so today, for placement with proven return on investment. This trend of higher-priced ads from publishers with a track record of ROI for marketers will continue with the advancement of advertising targeting technology.

There is a lot of innovation in targeting, particularly in the online ad space, that is providing advertisers with better performing campaigns. Advertisers can target highly valuable audiences that large publishers — like Conde Nast — might have spent years attracting. Combined with the advent of more efficient ways of buying media, like Real Time Bidding, some publishers are seeing pricing for segments of their traffic increase by more than 90%.

Publishers that understand and master how to sell this growing demand of audience-based advertising will see their ad revenue go up significantly while retaining advertiser loyalty. No one is suggesting that advertising alone will cover Conde Nast’s online and offline content costs (which are high compared to many other media companies) but it argues that online can make a more significant revenue contribution than it has in the past and almost certainly higher than the risky move of asking their readers to pick up the slack.

There is no doubt that publishers should be thinking about new strategies to make sure that they can continue to grow and be profitable — but improved advertising needs to be their major focus. Major publishers which invest in the infrastructure that will allow them to sell audience-based advertising will be best positioned to capture the growing dollars associated with audience-based advertising. Large publishing companies in particular have an advantage to better monetize their advertising by leveraging the unique audience they spent years building in conjunction with their ubiquitous brands. If they lose that audience because of charging for content, they might do more damage to their revenue than good.

How we began

When we started PubMatic in 2006, we had a vision to focus on publishers.   That’s why “Pub” is in our name.  From day 1, publishers have been our primary customer.  There are a few reasons we focused on publishers.  First, we had considerable background in being publishers ourselves, at both small and big sites, and saw some of the frustrations in managing the business day to day.  In particular, at our start in 2006, ad networks were growing aggressively and we saw publishers struggling with the real-time nature of non-guaranteed inventory.  Traditional ad serving platforms were not built to address the issue of hundreds of ad networks and exchanges all bidding different amounts in real-time for each user and impression.

Second, we noticed that while online advertising was growing by leaps and bounds, and was getting more sophisticated, very few solutions and technologies had been developed in the last 10 years that were focused on publishers.  When we looked at most of the innovation happening in the online advertising industry it was focused on advertisers and capturing more ad dollars directly from the advertiser — new kinds of ad-support content platforms, new kind of networks, new kinds of targeting technologies, etc.  But every dollar that is spent by an advertiser ends up on a publisher.  We saw so much opportunity to help publishers be more productive, efficient, and increase their visibility into their own businesses.

Third, we believed that technology was a necessary enabler for helping publishers to be more successful.    Massive amounts of R&D were going into helping advertisers.  And we wanted to invest massive amounts of R&D into publishers.  We believed that massive amounts of R&D were necessary!  All of our founders have advanced degrees in science — at our core, we believe R&D will drive superior results for customers.

Thus, PubMatic was born.

Working with the comScore Top 10

We started by focusing where we heard publishers saying they needed the most help, the non-guaranteed real-time world of networks.  We innovated.  We developed PubMatic’s impression-level Ad Auction Engine^TM to optimize a publisher’s inventory in real-time across hundreds of networks. We developed a real-time bidding (RTB) platform that allows a network to bid in real-time for inventory that a publisher wants to expose.  We were the first to provide a global platform handling multiple currencies.  We were the first to expand to Europe.   We provide local service to publishers today in seven countries around the world.  This has resulted in the majority of the comScore Top 10 now using PubMatic.  We are, frankly, humbled by that, and use that to drive ourselves harder every day.

While working with the most premium publishers in the world, and as media buying continued to evolve, we saw other opportunities to improve ad monetization and management for our customers.  Publishers started asking us about helping them manage data, keeping their brands safe, using our technologies (today we process  1 terabyte – 1,000 gigabytes – per day to create our real-time predictions) to give them insight into what is happening in their business,  and helping them get better yields in their guaranteed (also referred to as “premium” or “direct”) business.   What we were doing helping publishers with networks and exchanges, really, just scratched the surface.   This has led us to the new PubMatic Premier, a revolutionary new solution to enable publishers to holistically manage their guaranteed and non-guaranteed businesses, utilize data more efficiently, and keep their brands safe.

Growing with the new rules of revenue

Online advertising is getting more complicated.  We hear this every day.  We see it every day.  Publishers’ businesses are growing aggressively.  Five years ago, there were only a few publishers that did in excess of $20M a year in the US.  Today, there are more than 100.  Sales teams are growing.  The types of solutions publishers sell are expanding quickly (e.g., display, video, mobile).  At the same time, marketers are getting more demanding and more savvy.  They are asking for better targeting, better results, better service, better everything…  Marketers have more options across all media channels than ever before.

As most industries mature, they come to use industry-specific tools that are purpose-built for them to help them manage their business. The best publishers in the world are looking for sophisticated solutions to navigate the new rules of revenue.  Excel and intuition alone may not be the best tools to understand the value of data, price inventory, predict inventory availability, see trends, etc. To just give you a brief example, publishers are looking for answers to questions like:

• Data: How can I get more data on my audiences and sell those audiences?
• Data Control: When I sell to an ad network, what data are they getting from me?
• Yield Analytics: What products/placements are driving the best yields, pricing, and overall monetization?
• Pricing: What does demand look like based on various product attributes (site, section, channel, ad size, audience segment, etc.)?
• Inventory: How can I forecast and sell specific audiences, not just placements?
• Inventory: Can I reduce the amount of time we spent in reworking orders due to under delivery?

Why PubMatic Is leading this effort

We believe that we have two outstanding competitive advantages in helping publishers:

1. Single-minded focus on publishers.  Publishers are our business; without them we have no business.  We work with ad networks, exchanges, data partners as well, and they are very important partners, but it all starts with the publisher.  Our business is focused on making publishers successful.  Every day we come to work thinking about how to make publishers more successful!  There is no doubt in our mind.
2. Largest technical team, with a history and dedication to innovation and problem-solving.  PubMatic created the ad revenue optimization category when we started the company in 2006 and launched before anyone at the TechCrunch50 conference in September 2007.  We believe that algorithms are important to the new world of revenue for publishers, and have invested and continue to invest in that.  Our product team of 40 with 30+ PhDs and Masters degrees, with a deep understanding of publishers, works hard to deliver innovative solutions. Our record of industry firsts and dedication to results bears out in that the majority of the comScore Top 10 uses PubMatic.

We believe focus, dedication, understanding, and innovation is the key to moving this industry forward for publishers. It’s easy to come out with press releases and trumpet new things, but delivering value to customers takes more than just talking about it.  It takes real work, and unrelenting commitment.  We have been doing this for almost four years, never losing sight of the fact that we work for publishers.

We will continue to innovate for the benefit of you, the publishers, and we are looking forward to playing our part in making you and the entire ecosystem more successful, each and every day.

By Rajeev Goel

In digital media, a new solution that promises a better mousetrap will typically draw two reactions from the industry. The ones who stand to benefit try to hype the trend, hoping to ride the wave. The old guards spread fear, uncertainty and doubt because the solution may eat at their market share.

Such is the case with real-time bidding, which became a very hot topic among online display advertising buyers and sellers in 2009, and is likely to dominate industry discussions in 2010.

Just 1 percent of all online display ads were bought on an RTB basis in 2009. That number will rise dramatically to 3 to 5 percent this year. Most of the conversation on the topic has centered on the benefits for advertisers and demand-side platforms. These entities are able to place a value on each unique ad impression, individually and in real time, using a judgment that takes into account proprietary data and technology. The result is better performing campaigns and greater advertiser ROI on those campaigns.

However, what are the benefits to impression sellers—the publishers? If buyers want real-time bidding, publishers should be thinking about real-time selling. There are some key areas to consider in real-time selling and their effect on the online publishing business model.

Revenue: There has been little, if any, publicly available data showing that publishers participating in RTB campaigns are seeing revenue lift. RTB is new and only a few companies have the infrastructure to facilitate those bids. In our early tests with select publishers and a dozen RTB buyers—roughly thousands of campaigns and billions of ad impressions—the impressions bought via RTB are monetized at CPM rates 60 percent (in some cases more) higher than impressions not monetized via RTB. This translates to better single impression value on inventory that is not sold by the direct sales force. The industry needs more volume to realize the overall sustained effectiveness for publishers with scale.

Brand control: The instantaneousness of RTB requires improvement on the granularity, timeliness and fidelity of publisher brand controls. Work flow must be set up to automatically update blocklists with new advertisers that can then be instantly communicated to RTB buyers in seconds or minutes rather than in months. Furthermore, the system allows for more premium buyers to get into the bidding game, willing to spend more for the right targeted customers.

User experience: Because RTB uses a range of contextual and audience targeting parameters in real time, the ad served is more precisely targeted, and therefore provides a better experience for the user. Additionally, because the number of times a user has seen an ad is taken into account, a wider variety of targeted ads are shown to avoid overexposure of a single brand. This can also mean more exposure to new advertisers for the publisher.

Reduced discrepancies, simplified ad operations: One of the biggest frustrations for publisher ad operations teams is dealing with discrepancies—ads priced differently from an agreed upon amount, ads not served where they are supposed to be, ads coming in through an ad network when it was originally blocked on another network. An RTB system allows publishers to know exactly where the ads come from and at what price. That cuts the amount of time spent on rectification hassles.

No ad network defaults equals speed: Frequently, when an ad network is called to show an ad, it either has none to show or chooses not to show one. This sets off a daisy-chain reaction where publishers rely on the next ad network among their partners to show an ad.

What amplifies this is that sometimes multiple ad networks default, which stresses the ad-serving system and slows the page load. The flexibility of RTB allows only the demand side to make a bid if they have an ad to show, thereby avoiding the page load issue.

Participating in RTB campaigns requires publishers to be connected to a platform that can facilitate real-time bidding. While this sounds like yet another complicated technology to learn, master and deploy, the good news here is that a growing number of ad networks, demand-side platforms and ad optimizers are doing the learning for the industry.

However, even if everyone else is already investing in this technology, it doesn’t mean publishers can stay on the sidelines. Real-time bidding is still in its infancy, but it is gaining momentum every day. Publishers can’t afford to stay on the sidelines and let somebody else figure it out.

Rajeev Goel is CEO, co-founder of PubMatic, which manages non-guaranteed ad avails for Web publishers.

We’re pleased to be releasing our Ad Revenue Report for download to the public today. Hard copies of the Ad Revenue Report were originally handed out to attendees of the Ad Revenue 2009 premium publisher conference on October 8th in NYC.

The report, created to help premium publishers better navigate the ecosystem that powers their 2nd ad sales channel, is separated into three parts:

1. About the Ad Revenue 2009 conference panels and participants
2. Premium publisher trends and data
3. A detailed look at the 2nd Channel Ecosystem

The Ad Revenue Report is collaborative effort that couldn’t have been created without the help of the people thanked in the report. We hope you find it useful.

AdRevenueReport_PubMatic

Here are some of the highlights:

Ad Revenue 2009 host and moderator of this panel, Greg Stuart, asked the question that polarizes the participants right off the bat – “who owns the data?” Check out the response from Mark Zargoski, CRO, eXelate:

Owning the Data from PubMatic on Vimeo.

In the following video Greg Stuart gets straight to the point and asks, “Is there a revenue value of data (for premium publishers)?” The answer from Huffington Post CEO, Eric Hippeau, offers caution to other publishers that might be considering selling their data to third parties:

Revenue value of data from PubMatic on Vimeo.

Eric Hippeau’s response leads into another discussion on when data is the most valuable by Jeff Hirsh, President and CEO of Audience Science. This prompts Zargoski to talk about how audiences now define themselves based on their own performance rather than companies defining an audience:

Where is data most valuable? from PubMatic on Vimeo.

PubMatic’s own Jeanne Houweling, VP of Ad Network Solutions, jumps in with her take on why premium publishers should be using data from third parties:

Leveraging data for a long term revenue strategy from PubMatic on Vimeo.

And finally, we have Bill Wise, VP and General Manager, Ad Platforms, Yahoo, explaining why data needs to applied correctly from start to finish, or it’s all-for-not:

Value of data compared to inventory from PubMatic on Vimeo.

Michele Madansky runs a media and market research consultancy specializing in online media and measurement. Her clients have included Microsoft, PubMatic, MMA, ESPN, The New York Times, Martha Stewart Living Omnimedia, GSN, VideoEgg and Technorati. She holds a Sc.B. from Brown University, and an MBA and Ph.D. from the University of Chicago’s Graduate School of Business and is a lecturer at the Haas School of Business.

During her presentation at Ad Revenue 2009, she showed how Ad Networks can be effective for branding oriented marketing campaigns. Using the fact Ad Networks today rival single publisher sites in reach (70%+ reach for each of the top 10 Ad Networks vs. only 2 publisher sites above 58% reach), Michelle leveraged three separate studies by comScore, Insight Express and Dynamic Logic to make a case that ad networks have a positive brand impact.

The studies she referenced used quantitative results with control groups to determine the brand impact of ad network buys vs. direct publisher site buys. Insight Express showed ad networks had positive brand impact, and for some areas they actually outperformed direct publisher sites. Dynamic Logic’s study showed that the top 20% of ad networks delivered better results than publisher sites while the bottom 20% of ad networks were detrimental.

Michele’s presentation, which can be viewed below, suggests that with the right key drivers in place, ad networks can be an effective channel for brand-based campaigns.

Ad_Revenue_2009_Branding_on_Ad_Networks

Moderated by John Ebbert, Managing Editor, AdExchanger

Panelists:
Andrew Kraft, VP Technology Solutions, Collective Media
Darren Herman, Founder & President, Varick Media Management
Joe Zawadzki, CEO, MediaMath
Matthew Greitzer, VP Search Marketing and Head of ATOM Systems, Razorfish
Sean Kegelman, SVP, Partnerships, VivaKi Nerve Center

John Ebbert, the man behind the quickly growing, AdExchanger moderated what he referred to as a “dream panel” filled with key execs from the most cutting edge media buying platforms.

Buy side optimization platforms have become an important topic in part because of the potential for the amount of dollars that it can bring online due to the better performing campaigns that the platforms provide. There is opportunity for online publishers to see billions of dollars more spent on advertising over the next few years due to the rise of these platforms.

This panel examined how media buying is changing as a result of real-time bidding capabilities that are in the process of being scaled up across the industry. However, at least one panelist, Andrew Kraft of Collective Media, called bidding a “red herring.”

Regardless of opinions on the best way to reach them, increasingly advertisers are interested in uniquely valuing a particular user, based on their proprietary understanding of that user, along with the context or web page that the user is on and serving the right ad at the right price. The panel agreed that ultimately as this process becomes widespread, it should increase revenue for all players as improved targeting will lead to higher CPMs. As Sean Kegelman, SVP, Partnerships, VivaKi Nerve Center points out, paying a higher CPM is well worth it for better performing campaigns.

As this shift to audience targeting occurs though, there is a possibility that premium branded publishers may suffer CPM and sell-through reductions in the near term as the buying model shifts. And many of the panelists agreed that the role of the ad network in this future world of media buying platforms working with exchanges was far from certain.

Not many organizations understand ad ops better than AdMonsters does. And not many people can so skillfully connect Star Trek and ad revenue. Rob Beeler made a great presentation about the evolution of ad operations for the premium publisher. Rob’s point is that the role that ad operations play today is a “grown up” version that now sits at the intersection of sales, editorial, finance, and technology.

New opportunities exist for ad operations to take advantage of a new tier of premium publisher inventory that sits between premium and remnant, but in order for ad ops to really earn more revenue for their company, the ad ops teams needs to be built out differently than it has been in the past.

Check out Rob’s presentation and a short video from his presentation to learn more:

Ad_Revenue_2009_Ad_Operations_Into_Revenue_Center

Last week PubMatic hosted the standing-room only premium publisher conference, Ad Revenue 2009, in New York City. From the opening keynote to the end-of-the-day cocktail hour, the event was packed with hundreds of the brightest people in online advertising, who used the day to discuss monetization strategies for premium online publishers.

This week on our blog we’ll be doing summaries and analysis of the event, including presentations and panels for those who couldn’t make it on October 8th. The content of the event was very focused on how to help premium publishers develop and improve strategies to help them better monetize the 2nd ad sales channel – or inventory that is sold through intermediaries.

Also stay tuned this week as PubMatic releases the Ad Revenue Report, a guide that maps out the online advertising ecosystem for premium online publishers that was handed out to the conference attendees.

Follow us on Twitter to get the latest updates about our Ad Revenue 2009 posts and the release of the Ad Revenue Report this week.

This conference was a collaborative effort and PubMatic would like to thank all the participants again for making this event possible:

Ad Revenue 2009 sponsors:

interCLICK
Audience Science
CPX Interactive
eXelate
Pulse360
MediaMath

Ad Revenue 2009 participants:

Greg Stuart, Digital Media Advisor and the Event Host
Jack Flanagan, SVP, comScore and the Closing Keynote

Alan Chapell, President, Chapell & Associates
Amar Goel, Founder & Chairman, PubMatic
Andrew Kraft, VP Technology Solutions, Collective Media
Bill Wise, VP and General Manager, Ad Platforms, Yahoo!
Darren Herman, Founder & President, Varick Media Management
Eric Hippeau, CEO, Huffington Post
Greg Stuart, Digital Media Advisor
Ian Wallin, VP National Digital Ad Sales, TV Guide
Jay Sears, EVP, Strategic Products & Business Development, ContextWeb
Jeanne Houweling, VP Ad Network Solutions Group, PubMatic
Jeff Green, COO, AdECN/Microsoft
Jeff Hirsch, President & CEO, Audience Science
Jeremy Fain, VP Industry Services, IAB
Joe Mandese, Editor In Chief, MediaPost
Joe Zawadzki, CEO, MediaMath
John Ebbert, Managing Editor, AdExchanger.com
Mark Zagorski, CRO, eXelate
Matthew Greitzer, VP Search Marketing and Head of ATOM Systems, Razorfish
Michael Learmonth, Reporter, Digital Media & Advertising, Ad Age
Michele Madansky, Michele Madansky Consulting
Philip Smolin, GM, Platform Solutions, Turn
Rob Beeler, VP Content & Media, AdMonsters
Rob Rasko, President and COO, CPX Interactive
Ryan Whittington, VP, General Manager, bizjournals
Sean Kegelman, SVP, Partnerships at VivaKi Nerve Center
Tom Bowman, VP Strategy and Operations, BBC Advertising Sales
Tom Sipple, VP, IAC

• Presenter and Panelist information from the Ad Revenue 2009 conference
• Premium Publisher Trends & Data, which includes ad pricing data, a section on demystifying buzzwords, and key takeaways from PubMatic’s 30+ premium publisher executive interviews
• The most comprehensive guide to the companies and segments in the 2nd ad sales channel ecosystem; the 2nd Channel refers to inventory sold by intermediaries including ad networks and ad exchanges.

The Ad Revenue Report is a collaborative effort that is made up of over 60 interviews from executives on the publisher side and the vendor side. Next week, the PubMatic blog will have a recap of our annual premium publisher conference as well as the entire report available for download.

In the report we unveil the very latest ad pricing for premium publishers as noted in the graphic below:







Next week, the PubMatic blog will have a recap of our annual premium publisher conference as well the entire report available for download.