Web Publishers Left With Little After Middlemen Split Ad Spoils

In Typical Scenario, a $5 CPM Can End Up Netting a Publisher $1 -- Once Everyone Else Gets Paid

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NEW YORK (AdAge.com) -- Publishers fighting hard to squeeze every last dollar out of their online-ad inventories have turned to a variety of players to help them make the most of that space. But in doing so, they've let a lot of hands into the cookie jar and may find that the increasing complexity -- and the crumbs they're left with -- aren't worth the effort.

It's not just publishers turning to middlemen but advertisers, too, hoping to boost targeting and effectiveness of their buys. The space between advertiser and publisher has become jam-packed over the last decade, with literally hundreds of ad networks, data companies, yield managers, ad servers and exchanges all purporting to serve advertisers or publishers in some unique way; but all have their own business models that may or may not be adding value to either. And they're all dipping into the display-ad revenue stream.

In a not-atypical scenario, a publisher may only receive $1 of a $5 cost-per-thousand media buy once all the middlemen have taken their tithes. Where does the rest go? According to an estimate from Tolman Geffs, co-president of investment bank Jordan Edmiston, it gets divided like this: The agency ($.75), ad network ($2), data provider ($0.75), ad exchange ($0.25) and the ad server ($0.25).

The debate is over what parts of the online display-ad ecosystem, estimated by eMarketer to be worth $7.9 billion in 2010, are adding value for publishers or brands, and what parts are preventing the flow of brand dollars into the system.

"The market complexity has gotten ahead of itself," said Tolman Geffs, a co-president with The Jordon, Edmiston Group. "There is no question it needs to simplify to continue scaling."

Consolidation
JEGI's Mr. Geffs sees agencies and other large players consolidating this field and then offering services in a supermarket-like environment. The biggest player gave a strong sign last week that some consolidation is about to happen.

Last week, Google unveiled an updated DoubleClick ad-serving platform, which was built in part, said Google VP-Product Neal Mohan, who headed the remake, because publishers "tell us they're looking for an end-to-end technology solution encompassing and integrating both their direct sales and their indirect sales."

While some publishers remain wary of Google as both a service provider to publishers as well as a competitor for display-ad dollars, Google's argument is that its motivations are virtuous. As VP-Product Management Susan Wojcicki said last week at the Interactive Advertising Bureau's annual meeting, Google makes money when publishers do. That, and the set-up isn't much different from Microsoft, itself a seller of online ads as well as a service provider to publishers.

The suspicion among publishers, however, is that the entire ecosystem is optimized to serve advertisers -- and their increasing desire to buy audiences across sites at the lowest possible rate -- rather than publishers, whose interest is to leverage their specific environment.

Some, like CBS, ESPN, Time Inc. and Turner, have gone as far as discontinuing relationships with ad networks. But Walker Jacobs, senior VP-digital for Turner sports and entertainment, believes publishers need to go further in scrutinizing the motives and business models of companies in the middle.

Confusion
"Any time you have companies talking about their secret algorithms or black boxes, it should raise a red flag," he said. For publishers and advertisers, the question should be: "Do they make the whole thing bigger and better?"

While the new DoubleClick for Publishers does aim to simplify the confusing space, in line with Mr. Geffs' perspective, it may not be the kind of simplification i-bankers want. For example, it includes sophisticated tools for publishers to allocate inventory to be sold directly or optimize any number of ad networks vying for the impression. That's a lot like the burgeoning group of venture-funded startups in the so-called "yield optimization" space such as AdMeld, Rubicon Project and Pubmatic.

Those companies and others started before Google bought DoubleClick in 2008 for $3.1 billion, and came at least in part because DoubleClick wasn't innovating fast enough, inviting more players into the marketplace. "We have seen more publishers call us up since they made the changes to DFP," said Rubicon Exec VP-Sales JT Batson. "Specifically, they are scared that Google is trying to get access to more of their inventory for monetizing."

No single advertiser or publisher alone can cope with the level of fragmentation in the marketplace, both of audiences and sources of ad dollars. But Omar Tawakol, CEO of data exchange Blue Kai, said advertisers are driving innovation: "Audience buying is inevitable and at the end of the day advertisers want customers, they don't want pages."

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