Pay Attention: Net-Neutrality Rules Could Shake Up Online Advertising

Tiered System Would Benefit Big Companies, Possibly Hurt Small Online Ad Firms

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At this point, the topic may make your eyes glaze over. But make no mistake: net neutrality is a big deal for that ad business, and in turn, the ad-supported media ecosystem.

The companies that control the last mile of the Internet -- the likes of Comcast and Time Warner Cable -- would like to be able to charge different prices for the use of their pipes into the home.

But while the net neutrality debate has focused on companies that provide entertainment or services on the web -- Google, Facebook and Netflix, for example -- it is also significant for marketers that use those pipes to communicate with their customers, like Unilever and P&G.

As the Federal Communications Commission comes closer to setting actual rules that might establish a multi-tiered system of fast lanes and slow lanes, they should be paying attention. If the FCC does allow Internet Service Providers to give speedier data delivery to companies willing to pay for the privilege, the online ad and publishing industries could look a lot different in the not-so-distant future.

The outlook
Small publishers and small ad tech firms could fall prey to large firms able to pay for fast-tracking. Digital audiences and ad inventory could be redistributed. Publisher revenue models could shift towards more ad-subsidization or more subscription offerings. It might take a lot longer to load a video ad than the page content around it, or vice versa depending on who pays for better service. And new competition in today's commoditized programmatic ad sector could become reality.

It's no surprise the proposed FCC rules governing delivery of Internet data have already elicited more than 45,000 comments from citizens and interested parties. Still, the majority of the conversation revolves around access to publisher content, the sell-side of the ad equation; meanwhile, there are serious implications for the buy-side.

"Pricing will go up for access from a marketing perspective in terms of CPMs," suggested Joe Apprendi, founder and CEO of ad-buying firm Collective and a digital ad industry vet. If a multi-tiered system forces more publishers away from ads to subscriptions, he said, that's also bad for marketers

While he agreed it makes sense for ISPs to want to recoup the cost of their broadband investments through premium offerings, Mr. Apprendi added that a tiered-system could redistribute audiences, making it more difficult to target them, whether through online or digital TV platforms.

Big ad players and ISPs could win
Finding targeted ad inventory may be more difficult, but ad serving itself could change. Consider the largest ad players -- like Google, Facebook and AOL -- which would likely be among the first to foster fast-tracking deals with ISPs, awarding them yet another leg up on a slew of smaller ad firms without speedy delivery deals in place.

Broadband providers also compete on the ad front. Comcast, for example, allows advertisers to target its customers online as well as TV. Others could follow suit if they see enough interest from advertisers. Verizon, for example, provides demographic data to advertisers. "What if they started doing that with household data," asked Jim Caruso, product strategy VP at programmatic ad buying firm, Varick Media Management.

"As an ISP it would behoove me to say, 'I've got all this data, all this user activity and very specific location information,'" said Andy Kahl, senior director of research at privacy tech firm Ghostery, which offers consumer software that exposes ad technologies present on websites. ISPs could subsidize fast-tracking with ads they serve on their systems. "That's a blank check for me as an ISP," added Mr. Kahl.

Milliseconds make the difference
Today, the backend technologies that deliver ads to web pages and phone screens have become commoditized, but a tiered-system could change that.

"Ad serving is so commoditized, all of a sudden [extra speed] becomes an actual competitive advantage for a company," said Mr. Caruso. "In the programmatic environment we're…trying to be able to make as educated a decision about whether or not to serve an ad when a browser sends a request, and we have to be able to do that within milliseconds," he said.

That means a lot of servers need to be pinged at a rapid pace to feed ad platforms that decide whether or not an audience target is worth bidding on in ad exchanges. "If there's only a few ad servers out there to actually deliver the assets to the page quick enough that's where you actually start to see a line, a divide," said Mr. Caruso.

The surfeit of ads cluttering the web today already clog up pages, slowing down page load time. Imagine a day when ad systems get preferred status but the content they're wrapped around doesn't, suggested Mr. Kahl. In any case when ad systems or content delivery is prioritized, he said, "It's probably not going to roll out in a transparent way."

Fast-tracking already happens today
Lots of editorial and ad content already is prioritized, said Susie Riley, CEO of Aquto, a company that serves fast-tracked mobile video ads that people view in exchange for discounts on their mobile data plans. "People have been fast-tracking all over the Internet for decades already," she said, referring to content delivery networks such as Akamai. The services store content assets in close proximity to ISP servers, enabling faster content and ad delivery for clients of the CDN.

Actual physical placement of servers contributes to the speed factor. For instance, according to Mr. Caruso, Varick partners with digital ad platform AppNexus, and has its own server sitting alongside AppNexus machines to enable rapid communication.

Ads served via the fast lane could demand higher prices for publishers, said Ms. Riley. "If the ads actually do perform better on these sites than ads on non-fast-tracked sites, then maybe it's justified that you pay a higher CPM because it performs better."

More ad offerings … or fewer?
It's not necessarily a glass half-empty scenario for advertisers, said Martin Smith, senior VP-solutions and development at ad targeter TruEffect. He argued that publishers may be willing to bolster their ability to serve richer ads that command higher prices.

Of course, if publishers struggle to pay for speedier ad and content delivery, they may create even more places for ads in order to subsidize the new cost. More interstitial ad spots that appear before page content loads are just one possibility.

However, Mr. Apprendi envisioned the opposite scenario, in which more publishers subsidize costs with subscriptions paid by consumers. "People are willing to pay for subscription based models," he said, mentioning video services Netflix and Hulu. "Consumer trends are such that they'd rather see less ads than more."

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