A Forrester Consulting Thought Leadership Paper Commissioned By Google

Insights From Buyers And Sellers On The RTB Opportunity September 2011

Forrester Consulting

Insights From Buyers And Sellers On The RTB Opportunity

Table Of Contents Executive Summary .....................................................................................................................................................................................................2 RTB Is Here To Stay, And The Buying Community Is Largely Embracing It ..................................................................................2

Several Factors Hamper Further Buyer Adoption And Spending Growth .....................................................................................4 RTB Concerns Have Hampered Publisher Participation..........................................................................................................................5 Actual Publisher RTB Experiences Are Largely Positive .........................................................................................................................5 Publishers Have Even Greater Opportunities Ahead .................................................................................................................................6

Key Recommendations ..............................................................................................................................................................................................8 Appendix A ....................................................................................................................................................................................................................10 © 2011, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. For additional information, go to www.forrester.com.

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Insights From Buyers And Sellers On The RTB Opportunity

Executive Summary In March 2011, Google commissioned Forrester Consulting to conduct primary research with display buyers and sellers to evaluate their experiences with real-time bidding (RTB). Through this research, Forrester provides recommendations for media buyers and media sellers on how to approach the significant opportunity that RTB presents to both constituencies.

To prepare this study, Forrester conducted phone interviews with 18 representatives on both the buy side and sell side of the display media marketplace and combined those results with our knowledge of the overall digital advertising ecosystem.

Key Findings Forrester’s study yielded the following key findings with respect to media buyers and sellers: • Media Buyers:

o o

RTB is here to stay, and the buying community is largely embracing it.

The model is not without its challenges today, hampering further buyer adoption and investment.

• Media Sellers:

o o

o

Despite rapid buyer adoption of RTB, many publishers remain ambivalent about RTB . . . . . . but even so, participating publishers are currently seeing success.

Publishers can realize untapped RTB potential by refining their strategies.

RTB Is Here To Stay, And The Buying Community Is Largely Embracing It Display media buying is undergoing a transformation. A new paradigm of programmatic, data-driven media management — of which RTB is a mechanism — is increasingly replacing the buying model of yesterday, one that relied on manual, time- and labor-intensive buying, optimization, and management; strong negotiation skills; and one-to-one, relationship-based decision-making. The introduction of several new tools and technologies over the last several years — including ad exchanges, real-time bidding (RTB), and demand-side platforms (DSPs) — is driving this revolution, and savvy buyers are leaning in with an eye toward pinpointing and buying precise audiences, deriving more insight, and improving overall performance.

RTB Offers Buyers Transparency, Control, and Granularity RTB, which is the process by which individual ad impressions can be managed — viewed, bought, and/or sold — in real time, is a key enabler of this new model. RTB provides programmatic buyers with increased:

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Forrester Consulting

Insights From Buyers And Sellers On The RTB Opportunity

• Transparency. Transparency can take many forms when it comes to digital media management, and RTB

•

has increased transparency, in its many facets, to buyers. Buyers cite increased price transparency (optics into the price of each impression), placement transparency (visibility — where data is made available — into sites, placements, and audiences purchased, and why) and performance transparency (understanding what campaign parameters are driving performance). We heard things like “We now have optics into all the variables entering into the equation. We know what’s working; there’s no more black box,” and “Transparency is the whole reason why I am doing this. I wouldn’t feel comfortable telling a client ‘Oh yeah, we’re just putting your ads up.’” Control. Buyers no longer have to cede control of their campaigns to media partners as they’ve often had to do in the past. Technologies like DSPs put programmatic buyers in the driver’s seat, allowing them to make deliberate, strategic, repeatable decisions. One agency buyer told us, “‘We can do that’ has become the answer; whatever the client is trying to do, we can now do directly. I’m a control freak and so is my team; knowing we’re empowered with these tools is great.” And buyers also see the new “private” models supported through RTB — where buyers and sellers strike direct contractual relationships for access to certain inventory and/or data — as a big win. Said one trading desk exec: “We now have upfront relationships with publishers for things like ‘first look.’ We tell publishers to consider us a channel. This has a major impact on our ability to recruit and work with media companies.”

• Granularity. Yesterday’s buying model saw impressions packaged together in groups of 1,000 and sold at

flat CPMs, effectively forcing buyers to take the less desirable impressions along with the more desirable ones. RTB gives buyers “the power of no” by allowing them to purchase on an impression-by-impression basis, and completely pass on impressions that do not meet their own specific criteria. Buying at the impression level also means de-averaged pricing, allowing buyers to set individualized price parameters for each impression based on expected return. One trading desk executive noted, “As our program is running, we’re thinking about how to break the buy into chunks to better toggle up and down what’s working and not in order to maximize campaign performance.”

Programmatic Buying Provides Tangible Benefits to Buyers It can sometimes feel like the hype machine is in overdrive when it comes to RTB in specific and programmatic buying in general. But in our conversations with buyers, we uncovered some key points of value that it drives. They include: • Performance gains. Many programmatic buyers echoed the sentiment shared by one large marketer:

“We’ve definitely realized ROI gains. We can see the proof in our numbers.”

• Operational efficiencies. The old media buying model, which relied on phone calls, Excel-based contracts,

and manual management and optimization, is rife with process inefficiencies. Buyers tell us that programmatic buying will introduce significant operational efficiencies in the long term, saving agencies and their clients money. One agency exec noted, “After many years of being in the industry, this is the first time I can see the light at the end of the tunnel for a proper automated workflow. Emailing IOs, reconciliation processes, and the like has been costing us millions of dollars. We see RTB in particular as the thing that improves our workflow.”

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Insights From Buyers And Sellers On The RTB Opportunity

• Actionable insights. Performance gains are certainly important, but understanding the “why” is also

critically important to buyers, as it gives them the insight necessary to make more informed strategic decisions, both in their programmatic buying and beyond it. RTB enables a more open and controlled exchange of information and value between buyer and seller, which benefits both parties. One trading desk executive put it this way: “I know exactly where my ad is running and what fueled the decision to buy that impression at that point in time. I know I bought that impression on that page because X, Y, and Z were true.”

Several Factors Hamper Further Buyer Adoption And Spending Growth Both RTB and the broader programmatic buying model are still new and, unsurprisingly, experiencing growing pains. As such, RTB faces some key challenges which will affect continued adoption and growth in the short term, particularly among brand-conscious and brand-focused marketers. When we explored this question with buyers, Forrester heard the following sentiments echoed again and again across the programmatic buying community: • Buyers are eager for more standardization. In such a rapidly evolving ecosystem, it’s not surprising to find

that standardization — of definitions, processes, information-sharing, and more — hasn’t yet happened. One buyer told us, for example, that the process of onboarding new supply should be straightforward, but isn’t: “In theory, the exchanges give you full access. But in reality, there are a bunch of steps you need to take when you onboard a new supply partner to make sure they are showing you everything. There are usually some hiccups that take a few weeks to work out.”

• Quality concerns remain a challenge. Direct response buyers, who’ve traditionally been less sensitive to

inventory quality issues, saw programmatic display buying as a great opportunity to increase efficiency, reduce waste, and improve performance. Brand marketers, whether brand-focused or simply brandconscious, have been less quick to leap, fearing negative brand exposure. One agency buyer noted, “We see a lot of poor-quality inventory: blogs, UGC, piracy. There’s a lot of crap out there.” For those who have taken the plunge, inventory quality presents scale challenges. One large marketer told us, “One of my biggest challenges is getting quality inventory. I’d spend more if the good inventory was there.”

• Format and rich media limitations limit the brand opportunity. Brand marketers looking to connect with

consumers by delivering rich interactive or emotional experiences have felt limited by the narrow range of sizes and formats available in the RTB and exchange environments today, where IAB ad sizes dominate. We heard, “In terms of brand buying, RTB plays a small part. Most brand campaigns are large rich media placements. I find that RTB is used for smaller units where you want to target a specific audience.”

• A new model challenges the status quo. It’s human nature to resist change, and for many in the digital

media buying community, the shift to programmatic buying (and away from the familiar) is no exception. One agency trading desk executive noted, “This model is disruptive; it breaks the model of the last 50 years.” It’s not uncommon to find display media plans where a single “DSP” line item sits next to 10 ad networks, largely negating the value of the programmatic buying opportunity.

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Insights From Buyers And Sellers On The RTB Opportunity

RTB Concerns Have Hampered Publisher Participation For all the buy side’s eagerness to embrace real-time bidding, many publishers continue to view the world of programmatic buying with ambivalence. Even among those publishers who currently enable RTB, leaders we interviewed admitted to continuing internal concerns over the role of RTB. While publishers vary dramatically in their perceptions of RTB, we find that multiple factors inhibit publisher participation in real-time bidding and programmatic buying: • Poor experiences with other indirect sales channels. Many major publishers continue to work with ad

networks as a means to monetize unsold inventory, but that doesn’t mean that sales and operations leaders don’t have concerns over ad networks’ role in the media buying ecosystem and the channel conflict issues that come along with them. Multiple publishers we interviewed blamed networks for contributing to increased pricing pressure and noted that they feared RTB would only exacerbate these issues.

• Concerns over diminished media buyer relationships. Programmatic buying means increased automation

of the media buying process. While this should theoretically lead to greater efficiency for both buyers and sellers, publishers worry about potentially diminished access to media decision-makers. After all, premium publishers have already invested heavily in building out large sales forces to interface with conventional media buyers.

• A perceived lack of dedicated sell-side technology. Although publisher-focused ad technology development

has been robust over the past 24 months and continues at a rapid pace, many publishers still worry that they lack the necessary tools and transparency to be successful in the RTB marketplace. Misconceptions over the availability of newer sell-side tools mean many publishers are hesitant to adopt innovations. As one publisher told us, “Most new ad technologies are built to favor the buyer. It’s made it hard to find solutions to publisher problems.”

Actual Publisher RTB Experiences Are Largely Positive Contrary to the negative expectations of some publishers, publishers participating in RTB today are generally positive in their opinion of RTB and programmatic buying. Although publishers vary greatly in the maturity of their adoption of RTB, a few key trends stand out among participating publishers (see Figure 1). What did publishers tell us? • CPM trends are positive, especially compared with other indirect monetization sources. Publishers tell us

that CPMs have exceeded expectations and are actually growing as more demand flows into exchanges. Many publishers told us that winning exchange bids were typically higher than ad network CPMs; one publisher noted that exchange CPMs were three to four times higher than what they received from other indirect monetization sources.

• Channel conflict and ad quality concerns shouldn’t get in the way of participation. Although every publisher

we interviewed admitted to fears of channel conflict and poor ad quality, these publishers were adamant

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Insights From Buyers And Sellers On The RTB Opportunity

that they had the tools to effectively manage against these issues. As one publisher told us, “Between ad blocking, variable price floors, and the ability to go blind in the exchange, we think we can effectively protect our premium brand.” That being said, publishers pointed to inconsistent toolsets across vendors and operational challenges as to how to best use these controls as continuing pain points.

• Demand is growing for high-quality inventory. Buyers have been clamoring for higher-quality inventory

within exchanges, and a handful of premium publishers are stepping forward to meet that demand. These publishers are seeing gradual increases in bid activity as more advertisers — including brand-focused advertisers — flock to RTB and discover pockets of quality inventory. Moreover, many publishers are opting to directly negotiate private RTB deals with advertisers that allow advertisers to gain RTB efficiencies and enable publishers to maintain control.

Figure 1 Publisher RTB Maturation Spectrum

Phase 2: Publisher incorporates multiple RTB vendors into Phase 1: No monetization partner suite active publisher participation

Phase 3: Publisher consolidates vendor strategy and executes private deals and/or sales with arbitrary price floors

Phase 4: Publisher actively manages smart, variable price floors informed by data; managed by strategic team within publisher organization

Phase 5: Publisher looks holistically at all sales channels and optimizes yield across both direct and indirect/RTB sales channels

Emerging models

Current models Source: A commissioned study conducted by Forrester Consulting on behalf of Google, January to September 2011

Publishers Have Even Greater Opportunities Ahead For all their early successes, we find that publishers have untapped potential for even greater RTB success. Although increased advertiser demand alone should yield both higher prices and higher fill rates, publishers can

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Insights From Buyers And Sellers On The RTB Opportunity

still further refine their RTB strategies in order to maximize yield. Publishers will see greater success in RTB as they:

• Create a clear RTB vendor strategy. Exchanges and sell-side platforms (SSPs) offer a publisher the ability to

aggregate demand on a single platform, yielding both higher yield and operational efficiencies. Today, many publishers take a “more is better” approach with these vendors, a strategy that works against these goals. Moving forward, publishers seeking to assert pricing control and obtain operational efficiencies will likely consolidate RTB vendor relationships.

• Set smarter price floors. In a market so flush with overall supply, “smart” price floors (i.e., dynamic price

floors that vary by buyers) are an important tool for premium publishers looking to ward off channel conflict while maximizing RTB yield. However, we find that most publishers are currently opting for “dumb” arbitrary price floors that can end up crowding out demand and eroding fill rates. We envision publishers benefiting from smarter price floors as they gain improved access to RTB buyer data and they build closer relationships with major RTB demand sources — namely ad networks, agency trading desks, and DSPs — to gain insight into their tolerance for different price floor levels.

• Gain operations experience. Publisher ad operations teams are typically adept at managing yield and

delivery for guaranteed ad campaigns. However, given the newness of ad exchanges, they generally lack operational expertise in RTB. Time alone won’t heal this wound — RTB requires a brand-new set of core competencies for operations teams. As one publisher told us, “It’s an entirely different operational skill set. It’s not easy to find people with the skills needed to manage a RTB strategy.” Ultimately, since RTB places campaign delivery and optimization burdens on the buy side, RTB will free operations teams to focus on more strategic tasks such as setting smarter price floors and managing the balance between direct and RTB ad sales.

Figure 2 Publisher RTB Checklist: Key Questions To Ask An RTB Vendor

 What information is disclosed to buyers in the RTB callout?  Can the publisher enter both anonymously and transparently into the exchange?  What tools are available to ensure ad quality?  At what level of granularity can the publisher set price controls?  What tools are available to help set better price controls?  What impact will enabling RTB through this product have on site latency? Source: A commissioned study conducted by Forrester Consulting on behalf of Google, January to September 2011

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Insights From Buyers And Sellers On The RTB Opportunity

KEY RECOMMENDATIONS Buyers Should Leap Into Programmatic Buying, But With Their Eyes Open Media buyers must embrace change now by diving into the programmatic buying opportunity. For all but the most custom of brand-building programs, programmatic buying using RTB is a smart choice to maximize the effectiveness of digital media spending over time. Today, it’s largely a display advertising game. But in the near future, other forms of digital media — particularly video and mobile — will become increasingly accessible via RTB and programmatic buying platforms. Already, great strides are being made by suppliers and their platform partners to introduce other formats and rich media options in the face of strong buyer demand. To take full advantage of the opportunity today and set themselves up for success tomorrow, digital media buyers must: •

Research the options thoroughly. Not every supply source is created equal. The breadth, depth, and quality of inventory can vary dramatically; likewise, not every buying platform or partner offers the same level of service or sophistication in its technology. Media buyers need to spend the necessary time and energy educating themselves and honestly assessing their own needs in order to chose the right partners. This is best accomplished by meeting with service and technology vendors that provide both primary and ancillary RTB solutions. Examples include DSPs, RTB-enabled supply sources and ad exchanges, and third-party data providers. One of the primary benefits of activating media buying and optimization through an RTB-enabled buying platform is the opportunity to centralize one’s efforts, creating price and operational efficiencies and reducing overlap (and waste) among buys. So it’s worth understanding the limits and opportunities presented by all your available options. One large marketer noted, for example, that her company must rely on more than one DSP to get access to the complete roster of suppliers she desires.

•

Approach RTB as a long-term strategic opportunity and execute accordingly. Programmatic buying shouldn’t simply be treated as another “network” line item on a media plan. This isn’t a new vendor; It’s a completely different buying and management model and should be treated as such. Some buyers may find the shift to centralized programmatic buying too disruptive, but that doesn’t excuse them from testing into the opportunity. Isolating a specific cookie pool or isolating supply is a good place to start when launching an initial test. But that’s just the first step. Buyers must have a road map in place to ensure they are moving toward a longer-term goal of centralized programmatic buying for all broad-based buying.

Sellers Should Capitalize On Increased Programmatic Demand As media buyers increase their investment in RTB and programmatic buying platforms, publishers will need to adapt or leave money on the table. Rather than letting concerns over channel conflict and price erosion keep them on the sidelines, publishers must gain experience with RTB now in order to be prepared for an increasingly programmatic media buying landscape. In order to make the most of this shift, publishers should:

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•

Get their feet wet by making private deals via exchanges. For many publishers, enabling private relationships with buyers through exchanges can be a good, relatively conservative entry point into RTB and programmatic buying. By building a one-to-one relationship, publishers can maintain personal relationships with buyers and protect against channel conflict. This arrangement is relatively inefficient for buyers, but many buyers — especially brand-sensitive buyers — are willing to make efficiency tradeoffs in return for access to high-quality inventory.

•

Educate the sales and operations teams. RTB and programmatic buying require new skill sets from operations teams and a new role for the sales organization. Given its relative infancy, few publishers have inhouse resources with the experience necessary to get the rest of the organization up to speed. Accordingly, publishers new to RTB should lean on their vendors for strategic advice and training. Investing in building a

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Insights From Buyers And Sellers On The RTB Opportunity

relationship with a single vendor can help speed along this familiarization process. •

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Work toward optimizing yield across direct and indirect sales channels. Most publishers assume that directly sold inventory always delivers the highest yield — and in many cases they are right. However, as more demand flows through programmatic channels, the most successful publishers will look to optimize yield holistically across both directly sold and programmatic sales channels. In this scenario, data will help publishers make smart decisions about what inventory to open to exchanges and what to sell directly via sales teams.

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Insights From Buyers And Sellers On The RTB Opportunity

Appendix A In this study, Forrester conducted phone interviews with 18 professionals in the US working with trading desks, internal agency clients, end client advertisers, publishers, and demand-side and supply-side platform providers to evaluate their experiences with RTB. We asked participants questions on topicslike what their experience has been with exchanges and what challenges and benefits they experience. The study began in January 2011 and was completed in September 2011.

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