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Yahoo, AOL and Microsoft’s premium ad exchange just might work September 19, 2011

Posted by David Card in Uncategorized.
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Last week, Yahoo, AOL and Microsoft pitched the idea of a premium online display-advertising exchange to advertisers and brand-name publishers. The object would be to raise the value of their ad inventory and compete more effectively against Google and Facebook, which are both gaining share in online ad sales. Could this trio of portals pull it off and rejuvenate their sluggish businesses?

An ad exchange is a “network of ad networks” that allows advertisers to buy big volumes of “remnant” inventory in real time in a highly automated fashion. Online publishers reserve their best ad spots, like large-format rich-media units that run on topic home pages, to be sold directly by their sales force. As I write this, Yahoo is showing a top-of-the-page banner plus related a rich-media unit from Transamerica on its personal finance home page.

Ad networks and exchanges can suffer from quality problems by mixing in mediocre content sites and not giving advertisers control over where their ads run. That matters a great deal to brand advertisers who want the halo effect of associating their messages with classy content.

How they could make it work

To address that quality issue, topic specialists and traditional media companies like NBC Universal and IDG have created private exchanges. But much of the industry momentum is toward the big, automated offerings like Google’s DoubleClick Exchange. So how could this trio succeed?

Outlook

Google claims it already offers a premium exchange. But if that’s the case, why does it have to buy AdMeld? Most of Google’s display prowess doesn’t come from brand advertising but from cost-per-click DoubleClick and AdSense network sales. Facebook doesn’t have an ad network yet, so it keeps every dollar spent. But Facebook’s strength comes from volume rather than price, due to the huge amount of time its users spend online.

If the trio could put such an exchange together within six months, they would have distinct advantages over Google and Facebook in servicing brand advertisers: similar or better reach, high-quality inventory and potential bundles with direct sales and sponsorships. Right now, the advertisers do not seem to be blown away. But few have actually heard the pitch yet, and no doubt the trio is still working out a lot of details.

Besides solving technology and governance issues, it’s always difficult for online publishers to manage an ad network alongside its sales force. The trio themselves — as well as their potential partners — will have to apply sales management and analytical discipline to make a premium exchange work. They’ll need to double down on page yield management processes and tools from companies like PubMatic, Maxifier and Microsoft. And they should consider protecting sales bonuses from “competitive” network sales to designated customers. If the portals can deliver the premium platform as described, advertisers and other publishers won’t ignore it. That could shift several hundred million dollars and two or three percentage points of market share per year away from Google and Facebook.

Question of the week

How do you rate the portals’ chances?
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