Ad Network & Exchange Guide 2009

'Demand-Side' Networks Give Agencies a Boost in Display

Acquiring and Selling Inventory to Clients Helps Shops Navigate Fragmented Online Market. But Can Everyone Cash in on This Vision?

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Illustration: Celia Johnson

NEW YORK (AdAge.com) -- Emerging "demand-side" ad exchanges and networks show agencies asserting their power -- and boosting their slice of the display-market pie.

Ad exchanges and networks sit "in the middle" of the online ad world, neutrally matching ad buyers and sellers, right?

Not so fast. That's typically been the case, but as the online-display market becomes more automated and exchange-driven, a surprising group has not-so-quietly snuck into the space.

Enter the emergence of so-called demand-side or agency networks and exchanges. Like they sound, such efforts involve agencies operating like ad networks, acquiring and selling inventory to their clients.

Why agencies are making this move depends on whom you ask, and how open they are about their motives. You'll hear them talk about how these exchanges help them better navigate fragmented online markets, improve ecosystem liquidity and be smarter, more data-driven buyers on behalf of their clients. Talk off the record, though, and economic realities come to the fore: As ad rates drop, and middlemen such as networks take a larger share of the profit, ad agencies are seeing their margins drop to 10% or lower. Taking more control of the buying process could reverse that trend.

Conflict of interest?
It's also unclear exactly to what extent such platforms will play the arbitrage model of buying inventory in bulk (for cheap) and applying a layer of data or targeting to make it more valuable before reselling it at a profit -- and how much that model will boost an agency's own profits vs. optimizing client-performance yield. It's clearly an opportunity, but agencies are careful not to describe their efforts in such an opportunistic manner. Indeed, they often accuse traditional ad networks of having just that conflict of interest.

Fueling these efforts is the fact that display supply is not only available in abundance but also thanks to networks and exchanges, extremely easy to access. For these demand platforms to work, they must span both guaranteed premium inventory and spot-market inventory. But all of those impressions will be more valuable than traditional remnant inventory.

What's less clear is how this trend will affect the other players in the ecosystem: Will such platforms commoditize publisher inventory or become an engine for more-automated but still creative-driven client/publisher relationships? Will they marginalize third-party ad networks and exchanges or drive crucial liquidity? And perhaps most important, will they ultimately benefit agency clients or simply line agency pockets?

"With the emergence of ad exchanges and networks, the agency universe is now saying, 'Hey, we can have our own equivalent of these. We are demand aggregators; we have the dollars and the data, and we can marry that up with different sources of supply," said Jay Sears, exec VP-strategic products and business development for ad exchange Adsdaq, a division of ContextWeb. Mr. Sears said he sees his company as both an enabler and beneficiary of demand-side platforms.

He added: "For agencies that are creating demand platforms, 2009 is the year of integration ... of systems connecting to one another and testing. Then in 2010, these agency-demand platforms will really start to come into their own. The great battle will be how these new demand systems connect to a supply that has been fragmented and what that means for publishers and marketers alike."

In the middle
Indeed, ad exchanges such as Asdaq are well-positioned to function as mediators between the buy and sell sides. Each party brings its own intelligence and rules to the table: The buy side makes a bid and the sell side either sets a floor or lets the highest bid win. A transaction happens when both a buyer and a seller capture value, at least ostensibly eliminating traditional-ad-network concerns about price erosion and lack of brand protection.

Some question the ability of traditionally creative (vs. technology-driven) agencies to cash in on this vision. Said one executive in the data business: "We love what agencies are doing, but when they talk about where they are headed, they tend to get out a little bit ahead of the skis. They are going to need networks; networks aren't going to go away. "

While many demand-side projects have been operating under the radar, all of the large holding companies are making some sort of play in this area. WPP has one of the most visible units: It has turned part of its 24/7 Real Media purchase into a demand-side platform dubbed B3. Publicis Groupe has also been visible with its VivaKi Nerve Center digital trading unit. Omnicom Group hasn't formally announced its platform, but executives familiar with plans say it's coming soon. Not to be outdone by the Big Four, smaller holding companies have been just as active, including Havas, with its Adnetik trading platform and Artemis data tools. While some agencies have built their own platforms, technology trading specialists such as MediaMath and X Plus One have also emerged with technology that can help any agency -- or even large brand -- build a trading platform of its own.