Publisher s Guide to Growing Online Ad Revenue. OpenX s Strategy for Monetizing Publisher Inventory

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1 Publisher s Guide to Growing Online Ad Revenue OpenX s Strategy for Monetizing Publisher Inventory

2 Table of Contents About this Paper 2 One platform to manage all ad revenue 2 State of the Digital Ad Industry 3 Are publishers at a disadvantage? 3 Crush Your Revenue Goals with First-Party Revenue Optimization 5 We hate daisy chains (and so should you) 5 Move the marketplace into your ad server 6 Unlock the DNA of your impressions 6 Calculate your true CPMs 6 Track which demand channels actually fill inventory 7 Tap into Global RTB Demand 7 Whitelists/blacklists to stop channel conflict 8 Price floors prevent the race to the bottom 8 Transparent buyer reporting 9 OpenX Ad Server: Breakthrough Ad Serving Technology 9 Single platform to support all demand channels 9 Set and enforce powerful sales controls 10 Simplified workflows 11 Get paid for your audience data 11 Flexibility 12 Conclusion 13

3 About this Paper Why did we write this paper? Since 2007, OpenX has worked side-by-side with publishers to help manage advertising on their websites and to optimize their digital ad revenues. In that time we ve seen far too many publishers struggle to keep up with innovations in our industry. And we ve seen numerous third-party networks and data providers profit from publisher ad inventory, not the publishers themselves. In our view, traditional ad serving and yield optimization technologies are the culprit. The infrastructure and processes that most publishers rely on don t support both guaranteed and non-guaranteed sales; they can t accommodate new formats, such as mobile and video, very well. And they fail to help publishers respond to evolving buyer requirements such as audience targeting, real-time buying, and multi-device frequency capping. Innovative companies have sprung up to address these unmet needs; for example, SSPs were designed to bring automation and intelligence to daisy chain management. Other companies provide standalone solutions for mobile device identification, RTB enablement, tag management, etc. All of these solutions are really just features features that belong together in the publisher s ad server. Without a system to connect all the dots, publishers can t earn what their inventory is really worth. One platform to manage all ad revenue But worst of all, traditional ad servers don t provide publishers a holistic approach to selling, viewing, managing, and optimizing all of their advertising revenue. Most publishers have separate systems for each demand channel, and inventory is sold via highly inefficient daisy chains that stifle true competition, bleed impressions, confuse reporting, and lead to costly discrepancies and latencies. To make strategic decisions, ad ops teams must export data from their various systems into spreadsheets hardly the best way to analyze demand and determine which demand class performs best for the company. Ad serving and revenue optimization come together This paper explores the changes publishers should implement to grow revenue and maximize yield. Most importantly, we believe they should select an ad platform that integrates yield optimization for non-guaranteed demand channels with their direct sales efforts. You may notice that when discussing the issues facing the publisher s online advertising efforts, we often blur the line between ad server functionality and monetization strategies. That s because we see ad serving and revenue optimization as one function, and anything less than thorough integration between the two will result in lost revenue. Until publishers enable all of their demand channels to compete for their inventory at the same time, in the same place, they can t maximize the yield from each impression. Bottom line, without a system to connect all of the dots, publishers can t earn what their inventory is really worth. Page 2

4 State of the Digital Ad Serving Industry Are publishers at a disadvantage? The past ten years have brought enormous advancements for digital advertisers, but fewer improvements for publishers. The legacy ad technology providers have offered little in 37% the way of material improvements to ad serving and revenue optimization, putting publishers at a disadvantage in a number of important ways. First, to keep up with innovations in digital advertising, publishers have had to acquire, install and maintain separate solutions for inventory forecasting, data management, and yield optimization. And as new channels such as mobile and video gain traction, publishers have little choice but to purchase and maintain additional ad servers to support them. The result is a highly fragmented and complex ad-serving environment that forces publishers to become technology integrators (rarely a function they are good at). Worst of all, the fragmented operating environment has led to selling non-guaranteed inventory via daisy chains, which in our view is disastrous for publisher revenues. Second, while many publishers send unsold inventory to ad networks and ad exchanges, most traditional ad servers support direct sales only. Once again the publisher must work with an additional system this time for indirect sales. With two distinct systems managing their inventory, publishers cannot enforce global price and sales controls, avoid channel conflict, or optimize revenue across their digital inventory. But worst of all, the fragmented operating environment has led to selling non-guaranteed inventory via daisy chains, which in our view is disastrous for publisher revenues. Sequential selling (i.e. offering non-guaranteed inventory first to one demand-channel, then to the next until an impression is finally filled) results in a steady loss of revenue. By most estimates, each hop between demand-channels can result in a ~10% loss of revenue due to a variety of accounting discrepancies between the ad server and the recipient demand-channel. What other industry in the world tolerates a sales model that wastes so much of its product by simply bringing it to market? And yet that s not the worst of it. Sequential selling reduces competition by offering all impressions to the first buyer in the daisy chain, when further down the chain may be a demand partner willing to pay a higher price. Moreover, sequential selling strips data from impressions, turning them into generic inventory. This process makes it impossible for publishers to determine the true market value of its inventory (thus, a publisher may unwittingly turn down a $3.45 CPM from a retargeting advertiser while accepting a $0.40 CPM from an SSP). Third, most traditional ad servers can t deliver the kind of audience data or impression-level detail that advertisers demand (and are willing to pay top dollar for). Lacking the means to identify, target, package, and sell specific audiences to their buyers, publishers resort to third-party aggregators to create robust audience profiles, giving up a lucrative revenue stream in the process. Page 3

5 Finally, publishers are forced to struggle with archaic and cumbersome workflows of the traditional ad servers. With these ad servers, such tasks as creating ad products on the fly, forecasting inventory, trafficking campaigns, and reporting on campaign performance require significant manual intervention for both sales and ad ops teams. Moreover, these workflows often result in disconnects between what direct sales representatives sell to brands, and what the ad ops team can easily traffic. Due to rigid zone structures, sales teams add line items for targeting and other advertiser-driven requirements that the ad server s zone structure cannot support. The ad ops team struggles to traffic these campaigns according to the advertisers expectations, leading to frustrated customers and make-goods. Cumbersome workflows also limit the number of RFPs a sales team can respond to, as well as restrict the publisher s ability to productize its inventory strategically. Ad packages provide publishers with a strategic opportunity to bundle underperforming inventory with highly desired products and boost their revenue. Bottom line: virtually every workflow touches revenue in some way. OpenX Ad Serving and Revenue Optimization How should publishers maximize revenue? We provide a threepronged approach to revenue optimization: OpenX Yield Optimization: First-party yield optimization built directly into your ad server OpenX Ad Exchange: An ad exchange with global RTB demand but strong sales controls OpenX Ad Server: An ad server that consolidates guaranteed and non-guaranteed sales into a single unified platform These are discussed in detail in the following chapters. One final note: While each of these solutions work seamlessly to form OpenX s revenue-optimizing platform, publishers may also opt to use them separately if desired. For instance, OpenX Ad Exchange and OpenX Yield Optimization may be integrated with any ad server, not just OpenX Ad Server. In short, most publishers today rely on technology that obstructs rather than enhances their ability to develop a coherent revenue strategy, get the best price for their inventory, and increase efficiencies. Publishers need an ad-serving and revenue optimization platform that lets them assess the market value of their inventory, then package, traffic, manage, and optimize inventory across all of their channels in a holistic manner. Page 4

6 Crush Your Revenue Goals with First-Party Optimization What is first-party optimization? The short answer: It s the exact opposite of third-party optimization, which performs all revenue optimization activities outside of the ad server. With first-party optimization, the tasks traditionally associated with managing indirect demand channels take place within the ad server the moment an ad call occurs. First-party optimization is a fundamentally better approach to determining the best ad to serve at any given time, and therefore requires a fundamental change in the way inventory is managed. Daisy chains are astoundingly inefficient: inventory bounces from one demand channel to the next, delaying page loads shedding impressions, and reducing the overall value of a given impression. We hate daisy chains (and so should you) Most publishers today rely on daisy chains to fill the inventory they have not sold directly. However, daisy chains are astoundingly inefficient: inventory bounces from one demand channel to the next, delaying page loads, shedding impressions, and reducing the overall value of a given impression. They also award impressions to the first demand partner that wants them, even though a demand partner further down in the daisy chain may be willing to pay a higher price. Figure 1 : OpenX Yield Optimization uses a broad array of variables to calculate predictive prices in real-time. Discrepancies Defaults Fill Rates Session depth Performance Pricing Intelligence To eliminate this sequential selling, we ve enabled publishers to collect pricing data from all demand partners simultaneously including traditional SSPs and ad exchanges so they can decide on the best buyer from within the ad server at the moment an ad call occurs. Selecting the best buyer for inventory prior to it leaving the ad server will eliminate many of the inefficient hops of a daisy chain. It also increases ad quality and yield. Page 5

7 } Move the marketplace into your ad server As noted earlier, a publisher may sell an impression to a demand-channel for a $0.40 CPM that is ultimately filled by a buyer willing to pay a significantly higher CPM. To ensure that publishers reap the benefits of their inventory s true value, all demand channels should compete in a super auction, which is essentially a unified ad selection process, within the publisher s primary ad server. Of course, some buyers rely on rules-based bidding while others purchase inventory via real-time auctions. To reconcile these different bidding models, OpenX Yield Optimization has developed an innovative approach where the ad server leverages predictive algorithms to determine the price the rules-based demand channels are likely to offer (see below for further discussion), and simultaneously uses that CPM as a price floor in real-time auctions. Unlock the DNA of your impressions The inherent value of inventory lies in a combination of the content that publishers develop and the audience that sees it (their demographics, household income, behavior and intent, etc.). Therefore, we believe that inventory should be priced on an impression-by-impression basis. We use sophisticated predictive algorithms to accomplish this realtime valuation process. Our algorithms assess the user, frequency, volume, geography, time of day, and session depth in hundreds of scenarios to determine a market-tested price for all non-guaranteed impressions. Then, whenever an ad call occurs, the ad server uses those predictive algorithms to determine what each of the publisher s demand partners will pay. But CPM alone isn t enough to determine an impression s true value. The ad server must also factor in each partner s historical fill and discrepancy rates. Ad Request Any Ad Server with Lift Direct-Guaranteed $5.00 RTB Retargeted $3.25 Direct-Non-Guaranteed A $1.00 Network A $2.00 Direct-Non-Guaranteed B $.25 RTB $1.25 Networks $.25 CPA $.10 All non-guaranteed demand competes in the ad server at the same time Calculate your true CPMs A price offered by a buyer does not necessarily predict how much revenue a publisher will ultimately get for their inventory. The offered price must be balanced against the buyer s historical discrepancy and fill rates. A buyer may offer a CPM that s 20 percent higher than a competitive bid, but if, historically, that buyer has a 15 percent discrepancy rate and a 50 percent fill rate, the publisher may be better off placing the impression with a lower bid from a partner with better discrepancy and fill rates. In short, we believe that the ad server should help the publisher determine the true CPM offered by buyers based on historical fill and discrepancy rates. This process makes it possible for real-time bidders and rules based bidders to compete for impressions simultaneously, leading to higher publisher revenues. Page 6

8 Track which demand channels actually fill inventory We ve shown that publishers can significantly reduce discrepancies by understanding which buyer is likely to fill impressions at the moment an ad call is served and offering those impressions to that buyer first. To accomplish this, we ve developed a process where the ad server tracks the types of impressions each demand partner fills and what they send back. If a partner passes on a specific type of user two or three times, the ad server no longer offers that partner those types of users. In other words, the ad server learns each demand-channel s preference and buying habits, adjusting and testing over time. The result is less inventory waste and more revenue earned. The next section looks more closely at the real-time bidding market place. The solution highlighted, OpenX Ad Exchange, may be deployed in conjunction with OpenX Yield Optimization as part of OpenX s ad serving and revenue optimization platform, or used separately. Figure 2 - OpenX Yield Optimization adjusts the CPMs offered by networks to account for discrepancies and latencies, which often leads to very different inventory allocation decisions. Adjust for Discrepancy Fill Rate Option 1 Option 2 Option 3 25% 12% 10% 50% 60% 65% Network Network Network A $1.50 B $1.25 C $.80 12% 9% 50% 35% Total Discrepancy 10% Network D $.60 Network C $.80 12% ECPM $ % Total Discrepancy 30% Network D $.60 ECPM $0.66 Total Discrepancy 18% ECPM $0.78 Tap into Global RTB Demand Today s sophisticated advertisers are opting to compete for high-quality inventory on ad exchanges using real-time bidding (RTB). RTB demand is driven, in part, by impressionlevel buying which allows advertisers to purchase only those impressions that meet their campaign goals and avoid the impression waste of bundled sales. The result is excellent campaign ROI. In fact, according to research by Turn, RTB improves click-through and conversions rates by 135% and 150% respectively. And in a paper titled Media Buying Goes Real Time, Forrester Consulting showcases an insurance company that decreased its online cost per lead from $200 to $100 thanks to RTB. Thus, it s no surprise that advertisers are flocking to ad exchanges to launch their campaigns, and thanks to the growing number of quality publishers that offer their inventory for sale via RTB, advertisers can easily get the scale they need. Any integration must also include strong controls that let publishers eliminate channel conflict, maximize CPMs, and ensure ad quality. Page 7

9 RTB bidding is here to stay, and publishers are wise to embrace it. After all, ad exchanges expose the publisher s inventory to a global pool of advertisers their sales teams may not have had the time or mandate to target previously. For example, RealClearPolitics, a leading news site, credits OpenX Ad Exchange OpenX s global ad exchange for bringing premium retail advertisers to its sites. Moreover, RTB-enabled ad exchanges deliver a well-documented boost to publisher revenue. This should come as no surprise considering the competitive nature of the exchanges. But for many publishers, RTB ad exchanges carry risks. For instance, a publisher s direct sales team targets specific brands and can spend months, if not years, developing relationships with them. For that reason, publishers are keen to prevent those brands from buying its inventory via an ad exchange. Channel conflict is a serious concern. Fear of CPM erosion is another concern; is RTB a race to the bottom? To maintain maximum inventory value, publishers need to establish minimum price floors for their inventory. A final concern is ad quality. Publishers don t want to expose their audiences to advertisers that are inappropriate or harm the user experience. So while OpenX is a strong advocate for frictionless integration between a publisher s ad server and the open RTB market, we appreciate and agree that any integration must also include strong controls that let publishers eliminate channel conflict, maximize CPMs, and ensure ad quality. Whitelists/blacklists to prevent channel conflict OpenX Ad Exchange offers whitelist and blacklist capabilities that stop channel conflict. Publishers can use blacklists to prevent any brand from purchasing inventory via OpenX Ad Exchange. And the blacklists can be leveraged to protect ad quality. For instance, publishers can block categories of advertisers liquor, firearms, gambling, etc. from buying ad space on their sites. Or, publishers can use whitelists to select which brands can purchase their inventory via OpenX Ad Exchange, essentially creating a private exchange for a select group of buyers. Price floors prevent the race to the bottom OpenX provides easy tools to help publishers set minimum price floors for their inventory. We ve found that in all instances, price floors increase yield for publishers that use them. A simple way publishers can boost revenue for nonguaranteed inventory immediately is to determine the average CPM they receive from their third-party partners and use that CPM as the price floor when sending inventory to OpenX s ad exchange. In other words, the average the publisher receives from its other partners becomes the minimum it receives from OpenX. Other publishers have used the price floors more proactively to justify higher CPMs in their direct sales. Our sales teams see the CPMs our inventory gets in auctions, and they use it to justify higher CPMs with their advertisers. The competition has been good for us, explained Kristyn Lyons, Ad Operations Manager at Lycos, a global publisher. When OpenX set out to help publishers monetize their non-guaranteed inventory, we created an ad exchange that directly addressed publisher concerns. While the OpenX Ad Exchange ad exchange provides publishers with instant access to global demand, we put strong sales controls in place. Those controls include: Page 8

10 Transparent buyer reporting OpenX eliminates any uncertainty about what ads appear on publishers websites, helping them ensure ad quality. Realtime reporting lets publishers see who buys their ad space and what they paid for it. This real-time information helps publishers assess the true value of their inventory and price it according to what the market will bear. The next section looks at the requirements of an ad server and describes OpenX Ad Server, OpenX s breakthrough ad serving platform. Figure 3 - A holistic view of inventory is essential for publishers seeking to optimize revenue. OpenX Ad Server provides publishers with an Inventory Report that lets them understand how revenue is spread across various dimensions of inventory, by sales channel, by day, and other criteria. A simple user interface enables publishers to generate these reports easily. OpenX Ad Server: Breakthrough Ad Serving Technology Single platform to support all demand channels As we noted in the introduction, traditional ad servers have not kept up with the needs of online publishers. Nowhere is this felt more than in direct vs. indirect sales. Because traditional ad servers support direct sales only, publishers must acquire, implement, and maintain a separate solution for indirect sales. This dual system approach is inefficient and prevents the publisher from getting a single and complete view of inventory. As a result, publishers can t optimize revenue across all revenue channels. We believe a better solution is to combine all of the functionality of an ad server with monetization in a single platform. We call this approach revenue-driven ad serving because it encompasses all of the publisher s demand channels within a single solution. OpenX Ad Server, our ad serving platform, was built from the ground up to focus on this mission. DIRECT SALES Exclusive and guaranteed inventory INDIRECT SALES PRIVATE TRADING Competitive realtime auction to select advertisers with strict inventory controls INDIRECT SALES NON- GUARANTEED Real-time auctions via ad exchanges and trading desks Page 9

11 Benefits of a revenue-driven ad serving system such as OpenX Ad Server include: Optimize revenue across channels, getting the highest possible value per available impression Reduce discrepancies as all ad calls are handled within the system Establish and enforce controls over who can buy what inventory and at what price Eliminate channel conflict See all direct and indirect buyers in a highly transparent unified dashboard Additionally, because advertisers prefer to launch integrated campaigns, OpenX Ad Server supports all ad types, including rich media display, mobile, video, and IPTV. And it enhances operational efficiencies by providing a single, comprehensive report for sales teams to deliver to their clients. Set and enforce powerful sales controls OpenX Ad Server puts publishers in control of their inventory by providing easy-to-use, menu-driven workflows to enforce: Which inventory should be sold directly, via private trading, or in an open exchange Which advertisers and classes of buyers can bid for all categories of inventory Minimum prices for all inventory Timing (determine when certain classes of inventory are open to intermediaries, etc.) Powerful sales controls ensure that publishers can fulfill contracts, optimize revenue, avoid channel conflict, and forecast inventory accurately. Due to serious constraints in today s ad servers, sales and ad op teams must rely on spreadsheets and manual steps to sell and traffic ads. As a result, sales teams spend too much time preparing proposals. Page 10

12 Simplified workflows Due to serious constraints in today s ad servers, sales and ad op teams must rely on spreadsheets and manual steps to sell and traffic ads. As a result, sales teams spend too much time preparing proposals. Moreover, to meet advertiser requirements, sales teams add line items for targeting, frequency capping, etc. often creating proposals with 30 or more line items. The ad ops team, in turn, must spend an inordinate amount time forecasting available inventory and trafficking these complex campaigns. To resolve these problems, OpenX Ad Server has: Replaced zones with ad products. Publishers need an ad server that reflects the way their ad products are actually described, sold, targeted, and experienced. That s why we designed workflows that make it easy for them to create categories of ads homepage takeover, for instance quickly, as well as ad packages that boost ecpm. Moreover, the workflows automatically attach the attributes (size, ad type, frequency capping, audience targeting, etc.) that are essential to those ad products, reducing the burden on Ad Ops. Why is this so important? Given the quirks and eccentricities of most ad servers, publishers have teams of employees dedicated to understanding how the technology functions. This is not the best use of the publisher s resources. Get paid for your audience data Media buyers increasingly rely on data to drive their buying decisions, but publishers have been slow to respond to that trend due to the constraints of their ad servers. OpenX Ad Server enables publishers to develop and sell their audience, as well as import data from data management platforms (DMPs) and other third parties. OpenX Ad Server also supports retargeting. With these targeting and retargeting tools, publishers can sell valuable audience segments and command higher CPMs. Figure 5 - OpenX Ad Server offers publishers a simplified user interface for creating ad products and setting sales controls. In this example, the publisher can restrict advertisers by simply checking the appropriate boxes. Simplified the user interface. Legacy ad servers are extremely difficult to use. A simplified user interface (UI) helps publishers increase both efficiency and profitability by simplifying training and operations. Figure 4 - OpenX Ad Server offers publishers a simplified user interface for creating ad products and setting sales controls. In this example, the publisher can restrict advertisers by simply checking the appropriate boxes. Page 11

13 Flexibility Today s ad servers are notoriously rigid and difficult to use and prevent publishers from responding to changes in the marketplace. A robust API and tools to distribute content help OpenX flex with your needs. Figure 7 - OpenX Ad Server offers publishers a simplified user interface for creating ad products and setting sales controls. In this example, the publisher can restrict advertisers by simply checking the appropriate boxes. Accessible API. The OpenX API gives developers a way to control the ad server so they can automate common tasks and integrate with other applications in a stable and reliable way. Everything that can be done in the user interface for OpenX Ad Server can also be done via the API. The API lets publishers customize their ad server easily and integrate it into their existing business systems. Content. The term ad server implies the display of advertisements, but many publishers would like to use their ad server to deliver a range of content that extends beyond display, video, or mobile ads. For instance, today s publishers are interested in using their ad servers to support cross-site promotions to their own customer base (e.g. airlines promoting specific fares to website visitors and frequent flyer members). That s why OpenX Ad Server doesn t limit the types of content it can support. Figure 8 - The process for creating audience segments should be menu-driven and streamlined, enabling publishers to offer targeting quickly and easily. Figure 6 - OpenX Ad Server features a flexible design built on a robust API. Anything that is available within the Enterprise UI is also accessible via the API. Enterprise API Core Technology Page 12

14 Conclusion Ad serving technology has not kept up with the innovations in the online advertising industry, putting publishers at a significant disadvantage. Limitations prevent them from fully capitalizing on global RTB demand and capturing the full value of their inventory. The result: lower revenue. To reverse this trend and enable full revenue optimization, publishers need an ad serving and revenue optimization platform that: Leverages first-party yield optimization the ad serving platform itself should perform all of the tasks traditionally associated with selling to non-guaranteed demand channels the moment an ad call occurs. Taps into the global RTB market, but with strong sales controls in place to eliminate channel conflict, boost CPMs, and offer transparent reporting. Consolidates direct sales and indirect sales into a single, unified platform for a holistic approach to monetization. But most important of all, an ad serving platform should be built around optimizing revenue across all revenue channels. It isn t just an operations system; it s a critical revenue driver. Most important of all, an ad serving platform should be built around optimizing revenue across all revenue channels. It isn t just an operations system; it s a critical revenue driver. Page 13

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