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ADOTAS Conversations: Bill Urschel, CEO, AdECN

Written on
Sep 25, 2006 
Author
Sarah Novotny  |
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ADOTAS Conversations: Bill Urschel, CEO, AdECN


What exactly is an exchange and how do companies claiming to be exchanges differ?

An exchange is an automated trading platform in which buyers and sellers enter their bids and asks, and the exchange makes the match, delivers the goods to the highest bidder, handles the accounting, and collects and pays all of the members. An exchange has to be a neutral, disinterested party in the transactions. It cannot care who wins an auction.

This is how the new computer-based stock markets, such as Island, Archipelago, Brut and so on now work. They are all Electronic Communication Networks (ECN’s) and are extraordinarily efficient.

Over the years I’ve seen “exchanges” that were auction houses for remnant inventory. One of them held an auction three days a week, using a whiteboard. There are “exchanges” where the members were merely introduced to each other in a sort of dating service, leaving it up to the members to contact each other and work the deals. There are also “exchanges” that were really CPC and CPA ad networks trading for their own accounts, and not necessarily for the benefit of their clients.

How will your new approach to inventory work with relation to ad networks?

Just as a stock exchange provides liquidity to its member stock brokers, AdECN exists to provide liquidity for its member ad networks. In other words, the ad networks are our customers, not the advertisers and publishers they work with.

For the purposes of membership in the AdECN Exchange, we define a network very broadly as any entity that has a direct relationship with both advertisers and publishers. This can be a traditional CPM, CPC, or CPA network, or a CPL lead generating network, or an ad agency running campaigns for its advertiser clients but who also reps some of their inventory, or a publisher network that represents websites or blogs but also gets them ad revenue, or it can be a mega-publisher who has a direct sales force that sells space on its own inventory, which is a sort of captive network. The point is, our members provide real service to their advertisers and publishers.

Why an auction? Doesn’t that introduce a lot of uncertainty?

The fixed pricing models most commonly used today in online advertising are a vestige of our newspaper and magazine past. In a fixed price model, there is very often a buyer, an advertiser, who would have paid more for a specific impression if he had known more about it and had the opportunity to make an offer. The advertiser missed an opportunity, and the publisher left money on the table.

When a spot goes unsold in the fixed-price world, it was too expensive. But there was probably an advertiser who would have bought it for something less. The advertiser missed a good deal, and the publisher loses entirely.

With a real-time auction, each and every impression can be sold to the highest bidder.
The publisher always gets the highest price and even more importantly, almost nothing goes unsold. When the publisher sells so much more of his inventory, his overall revenues go way up. The advertiser also wins because they know what they’re buying, because it was specified up front, and therefore pays only what it is worth, not a penny more.

How does the auction work?

Publishers, through their members, place their ad spot inventory in the exchange, defining the format, acceptable content, and maybe a minimum price. Advertisers specify in advance the targeting they want, and how much they are willing to pay when such an opportunity comes up. That’s their bid.

The action starts when a viewer lands on a website page. That triggers a single-pass auction among all of the interested advertisers. The highest bidder wins, and that ad is shown. The entire auction takes less than 100 milliseconds — no matter how many advertisers are bidding.

So the auction is being run on a CPM basis?

Yes. You have to compare apples to apples. You can’t mix CPM, CPC, and CPA bids in the same auction. In fact, you wouldn’t want to; CPC and CPA auctions don’t work well for branding campaigns because the search engine or network won’t show the ad if it doesn’t get enough clicks or actions. Even in performance campaigns, you can be the highest bidder and not have your ad shown.

Does that mean the AdECN exchange is limited to CPM ads, or can advertisers run CPC and CPA campaigns?

The exchange can handle any pricing model. It’s up to the member. Any member can take a CPC or CPA campaign and run it on the exchange on a CPM basis. We call that arbitrage.
For example, if an advertiser wants to pay a 25 cent CPC every time his ad is clicked, the member can accept that, and then run that ad only on sites where the cost of the impression, on a CPM basis to the publisher, is less than the revenues to the member from the advertiser’s payments. It may take the member a hundred bucks or so to figure out where the ad can run profitably, but we give the members the arbitrage tools and the data, and they can earn a very worthwhile insurance premium.

So the performance advertiser is happy with his reduced risk, the member is happy with his additional profit, and the publisher is happy because he got paid the most for every impression.

In a CPC or CPA transaction, does the publisher still get paid on a CPM basis?

Yes, and that is essential for publishers. CPC and CPA auction models are really just a way for performance advertisers to offload their risk onto the network. Assuming the network is paying the publisher on a CPM basis for every impression that typically works fine.

But if the network is paying the publisher on a CPC or CPA basis, the network is passing the risk along to the publisher. Why would any publisher accept that? The publisher is not getting the highest price any advertiser will pay; he is getting the price his network tells him he should get, based on the network’s optimization algorithm.

Some experts have argued that a good optimizing algorithm can increase publisher’s revenues on a CPC or CPA payout, but what these experts fail to mention is that this also requires that a lot of the publisher’s inventory goes unsold, simply because it didn’t perform for the CPC and CPA campaigns the network happened to have on hand. So maybe for a few impressions the publisher makes a little more, but on most impressions he doesn’t, and worse, a lot of his inventory goes unsold, decreasing his overall revenues considerably.

Basically, CPC and CPA payouts are good for the network, but horrible for publishers: the publisher doesn’t always get the highest price possible, and he doesn’t always get paid for your inventory. Abused publishers don’t stick around. In the AdECN Exchange, the auction is a straight-forward CPM auction for every impression, with the highest bidder always winning, and the publisher always getting the highest price, and selling more of his inventory.





Reader Comments.

As an advertiser I can say I’ve tried the Right media marketplace system and it just does not work. Campaigns convert at a higher conversion when compared to the bigger networks such with 247 and Maxonline. In their marketplace the bulk of the campaigns come from the networks exchanging campaigns with the same publishers. These networks do not have a high level of quality sites. On screen shots I’ve questioned ads showing up on warez sites adult sites and banners stacked one on top of the other. There is no guidance on this marketplace. It is like the wild wild west. Right media looks the other way just to boast the amount of impressions it serves not click rate or conversions. The sad fact is the marketplace is full of low quality sites who accept any low cpm cause they can’t get into the non-Right media networks. The only thing Right media is spawning is huge amounts of nothing sites where illegal downloads of programs, music, and videos are shared. As an advertiser I asked for a site list. Had some hesitance but got a list of sites where my ads would likely appear. When comparing the sites with the site referrers in our logs NONE of the sites were in the referral lists to our sites. There other referrals were from networks use the same marketplace system. I know it is not allowed to post the links to the sites in the comment section but the list would make an advertiser vomit.

On the other hand, I think the adecn is a system that can work. The system looks like it will be impartial and will not be owned by the network that runs it. Over the two I would pick adecn over the Right media marketplace. Whether major sites accept giving their site up to the open market sill remains to be seen. At least they do not try to push off their 2 billion a day impressions through networks recycling the same ads. Pure crap clear and simple.

Posted by Charles Charnel | 3:24 am on September 16, 2006.

Charles,

What campaign did you try? Vizi Media, who is affiliated with Adotas, participates in the Right Media Exchange. Maybe if you worked through the Vizi Direct network, you wouldn’t have had conversion problems. Shame that you only saw bad inventory – great new sites like Tribune, Fox Interactive, Community Connect, LookSmart and Tickle are there. You could always request just to run on those sites that are trusted.

Posted by Adv guru | 1:11 pm on September 16, 2006.

Shit in shit out i say.

Posted by Davey Sprocket | 1:39 pm on September 20, 2006.

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