The New Display Ecosystem, Part I: A Few Words on HYPE

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ADOTAS – It’s been four years since I wrote one of my most popular series of blog posts of all time — “The Ad Exchange Model” (part 1, part 2 and part 3). Since then a lot has happened. A whole slew of three letter acronyms has appeared: DSP, SSP, DSP, RTB… Venture capital investments have exploded, we have multiple blogs dedicated to ad-exchanges and it looks like the space has gotten a lot more complicated.

Or put another way… in 2007 I described the world with a simple diagram. Today Terry Kawaja has an industry “LUMAscape” that has logos so small I can’t even read them.

FROM…

TO

Wow. What the hell happened? We used to have this easy world… publishers sold to advertisers, there was one exchange and then a lot of ad-networks with different pitches. How the hell did we get from there to the above hodge podge “ecosystem” that nobody understands.

To help bring some clarity to this world I’d like to kick off a new series… “The RTB Display Ecosystem.” This first post is will primarily be musings on hype… as before we can talk about what’s really happening we all need to step back for a second and realize 90% of what we read is… well… bullshit.

How VCs and Bankers brought hype to the industry

I’m sure by now you’ve seen the below diagram. It’s confusing, cluttered and supposed to explain to the world how the new Display ecosystem works. Hundreds of companies have incorporated this slide in their presentation. I haven’t gone to a single conference where this hasn’t come up multiple times.

DISPLAY LUMAscape

View more presentations from Terence Kawaja

Here’s the hard truth people don’t like to hear: the display world is actually not that complicated.

Yes, the ecosystem has evolved. Exchanges are core tenets of display and there certainly has been a ton of innovation in the data space. But that doesn’t make for 20 boxes on a slide. What really happened is that online advertising captured the attention of Silicon Valley… complete with a massive influx of VCs, money, TechCrunch posts and of course… HYPE.

You see, venture capitalists make money off of home runs. The top companies in a category get great exits, and after that valuations drop off very quickly. To actually be able to justify an investment, a VC has to be convinced that the company has a chance at being top in it’s category. Well, this is quite hard to do if the world were simply advertisers, publishers and ad exchanges.

So what do you do? Well… you create a new category, pump millions of dollars in a company marketed as such category, and then hype up this category on TechCrunch as the next greatest thing and rejoice.

Of course, VCs have coffee with each other, hype up their investments to their VC friends (ever heard of an “echo chamber”?), and now they’re all clamoring to invest money in other companies who could vie to be a winner in the category and a new slew of companies get funded.

In 2006 it was impossible to differentiate yourself as an ad network… and thus every ad network rebranded as an exchange. In 2007/2008 nobody could raise money as an “ad exchange” that would compete head-to-head with Google and Yahoo. But “SSP” worked out quite well… even though it’s exactly the same business model (queue funding for Rubicon, Admeld and PubMatic, etc.).

In 2007/2008 you also couldn’t raise money as an ad-network, but there were plenty of companies interested in helping advertisers spend their money… enter the “DSP” category (queue funding for MediaMath, Turn, Invite Media, etc.). What’s funny is that TMP was doing the SSP business before anybody else and Ad.com has been offering “DSP services” since… well, forever!

VCs are also obsessed with investing in “Technology Companies” that build “Scalable Platforms.” You see, Technology is supposed to be sticky. Platforms have ecosystem effects and become $1 billion companies. To adapt, companies have quickly adjusted their positioning to better reflect attributes that will attract high valuations from said Venture Capitalists. Again, ad network isn’t sexy, but a technology — “Demand Side Platform” — is.

The funny thing is… it’s hype yet again. Most companies on the LUMAscape slide receive the majority (if not all) of their revenue from media services and not technology fees. Now this line is blurring (more on that later) but what companies are doing is saying they are “technology providers” while behind the scenes they operate exactly like a media company.

An “SSP” technology provider hands out tags to publishers and then pays them a check at the end of the month together with a nice Excel sheet. This is exactly the same business model of many an ad network.

Don’t get me wrong — I’m not saying that any of the aforementioned companies aren’t or can’t be great companies. Many of the companies I mention have built terrific technologies and great businesses, and some have followed that up with successful exists. But they did all capitalize on a great marketing opportunity — at the expense of some “old world” companies who were too slow to react.

And this is where VCs and bankers are actually hurting the industry rather than helping. They are reinforcing the importance of new categories that in themselves shouldn’t necessarily exist. Rather than focusing truly on what a company does they repeat and hence validate what companies say they do.

So What’s Next?

Well first, let’s stop the hype cycle and start celebrating real successful businesses for what they have accomplished. Give me more case studies of real results and less BS!

In the coming blog posts, I’m going to lay out the new RTB ecosystem and how all the different parties are interacting. Your feedback is as always invaluable so please leave comments with specific topics you’d love covered.

Cross-published at mikeonads.com. The views expressed in this column are those of Mike Nolet and do not represent the official views of AppNexus.

4 COMMENTS

  1. Wonderfully sarcastic!

    My favorite bit:

    “Most companies on the LUMAscape slide receive the majority (if not all) of their revenue from media services and not technology fees. Now this line is blurring (more on that later) but what companies are doing is saying they are “technology providers” while behind the scenes they operate exactly like a media company.”

    In my experience, this is totally true. Everyone’s trying to win the business of the medium-to-large brands, in which case the deals and campaigns have to be pretty custom-tailored to the client. And when you’re stitching together audiences, ad formats, and various other solutions to win a sale, “one size fits all” technology platforms aren’t actually as helpful as the hype would have you believe.

    This is not to say I don’t think that scalable technology platforms will eventually have their day in the sun, but I agree that right now there’s a big mismtach between the buzzwords that are on all the ad tech websites and what happens once you actually start talking to an account executive.

    In fact, the mere existence of account executives are a big give-away that the “old” media world is still going strong; if everyone’s technology is so scalable, and so automated, and so smart, why is it that almost EVERY ad tech website still requires you to talk to a human first? (yes, I know the reasons are, in fact, many, but I guess it’s part of my personal Litmus Test for anything claiming to be a “platform:” Am I required to talk to a human in order to use said platform?)

  2. I look forward to your next installment on ‘the new RTB ecosystem’ – with more of your ‘plain-English’ written and no BS (reality) type articles.

    As a (non tech) keen observer of the space & a fan of yours, I have often quoted (or have made mention of) you, over on my own blog. (I do love the ‘freedom of the net’, to get to express opinion, be it right or, wrong)

    http://seekingalpha.com/user/36191/instablog/search?terms=Mike%20Nolet

    I like the efficiencies and already proven success of audience re-targeting & a certain balance it can provide between all parties involved. It can be strongly argued to be fair to all.

    If there is a better means (these days) of suitably matching advertisers with their target audiences (from global down to local zip codes or, wherever on the web) than the use of the ‘re-targeting’ of individual users (and @ scale), it hasn’t surfaced yet. I do suspect one won’t for quite some time.

    A ‘win-win-win’ proposition with universal standards & one that becomes, clearly fully measurable for both big & small advertisers. (Providing the kind of results, that simply can’t lie).

    So, with an increase in (and, no risk for) advertiser interest @ each audience/user re-target auction point (spanning across what appears to be a now-a quickly growing global marketplace), performance marketing (CPAs, CPVs etc) will be proven to provide better (best available) ROI for publishers that are involved. And at (every available, individual) impression and converting click opportunity – that (I feel) publishers will soon get to embrace.

    This UK Online fashion store ASOS (that has increased growth from 15% to 69% in Q1 with opportunities in the international market), would surely love to reach out to even more potential global customers and on an almost ‘one on one’ basis (right across the web), who may well have been earlier identified through search, like-wise. – j.mp/oaU9z2

  3. Is there hype in digital media? Of course. Has the hype over-priced certain VC investment rounds? Yes, but most of this risk is borne by the VCs themselves.

    The broad – and rational – basis for the hype continues to be the growth and/or shift of marketing spend into digital. No longer a niche marketing line item, digital spend is now pervasive and rapidly taking share from traditional broadcast media, as well as blurring the line with broadcast via IPTV, etc.

    This growth drives innovation, which drives industry fragmentation. The DSPs and SSPs identified an opportunity to greatly reduce the oft-40% margin take by traditional networks and hopefully produce a more efficient distribution model. They are the ‘FedEx’ plays for VCs, aggregating or eliminating spot providers. The problem is that, as Kawaja has also pointed out in a separate speech, the economics of the distribution layer are somewhat limited: there’s likely only room for two major players on either side of the exchanges.

    I, for one, see more consolidation occurring, ultimately where advertisers and publishers have “SAP-grade” platforms to manage direct and indirect buys across digital and broadcast (see, Donovan, Google/Admeld). We’re likely approaching diminishing returns on data products, since finer cuts on behavioral, contextual, demographic, and attitudinal attributes is counter to extensive reach. The industry will morph from ‘shiny new star’ to execution and vertical integration. Hence, the footprints of IBM, Adobe, and SAP.

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