One of the problems with venture capital is that it can launch and perpetuate bad ideas that would not otherwise survive in a competitive marketplace.
Remember Adkeeper? Venture capitalists poured $43 million into the company on the premise that people would “keep” ads. While I understand why advertisers loved to dream about people scrapbooking their ads like a cherished family photo album, it ignored the inconvenient truth that people have no interest in collecting ads. Adkeeper has since pivoted to a new business model and I’d never bet against Scott Kurnit turning it around with his Midas touch. However, there’s a valuable lesson to be learned from Adkeeper’s initial iteration: a business model that’s centered on a seller’s fantasy and ignores the needs of the buyer is destined for failure. I’m seeing a similar story playing out today in advertising technology with sell-side technology vendors building buyer interfaces.
Before we explore the problem, let’s review the situation.
Many sell-side advertising technology vendors work on pure commission. They get paid a percentage of the deals that flow through their system. If deals don’t flow, they don’t get paid. This is just like a salesperson with no base salary working on 100% commission. When you have mouths to feed (payroll), a mortgage to pay (rent and other expenses), and bosses to please (VC investors and a board of directors), working on this basis makes you really hungry for deals.
The key to deal flow is tapping into the sources of demand. In Programmatic RTB, where there are established marketplaces, tapping into demand means connecting to one or more exchanges. However, since RTB buying is only a small part of advertising budgets, the demand available there is limited.
The lion’s share of demand is pent up in direct buying methods with “paper” insertion orders and a traditionally manual process. As ad tech providers come to the realization that most of the demand will remain in direct buying for the foreseeable future, they’ve been hastily executing a Sutton Pivot and developing solutions for what is now known as Programmatic Direct – the automation of the direct buying process.
Unlike in Programmatic RTB, the marketplace for Programmatic Direct isn’t yet established. Standards have not yet been developed and adopted. Most media plans are created manually in Excel and locked away on somebody’s hard drive. Order management systems haven’t yet implemented APIs. So, there’s no easy way to tap into this big source of demand.
Meanwhile, sell-side ad tech vendors are under pressure by their investors to hit revenue and performance objectives. Their jobs are on the line. So, out of frustration with the absence of an established marketplace and the desire to control their own destiny, they are each starting to build their own buyer interfaces.
The move to create a buyer’s interface makes perfect sense from a seller’s perspective because it appears to solve the demand problem. However, it ignores the valuable lesson we learned from Adkeeper: unless you solve real problems for the buyer, they won’t use your tool.
Unless your interface has all the features they need, buyers won’t use it
The direct buying process is a complicated process. It’s not as simple as slapping a storefront on a catalog. Very smart, deep-pocketed companies have been at this problem for many years, yet nobody has managed to deliver a system that has been widely adopted. 80+% of media planners still use Microsoft Excel and manual methods to make their media plans. It’s naïve to think that a handful of smart engineers can solve this problem in a few months with a few iterations of MVPs. More likely, they’ll fall victim to the “IKEA Effect” – the phenomenon that happens when you make something yourself, you value it way more than you should.
Unless your interface provides access to the entire market, buyers won’t use it
Every sell-side technology vendor only represents a tiny sliver of the advertising products available on the market. As a steward of the advertiser’s budget, media planners need access to the entire market in order to build the best media plans. Limiting their options to a small subset of available inventory would violate their fiduciary responsibility to their client. In the typical situation where a buyer is working with many sellers, is it reasonable to expect the buyer to log into your interface and dozens of other interfaces to place the orders on their media plan? Of course not. Moreover, even if a buyer can access 99 sites through your platform, but has to purchase only one site “offline,” the entire efficiency benefit is lost. Therefore, if your system only includes a fraction of the market, they won’t use it.
Unless your interface covers all media types, buyers won’t use it
Digital media is typically only a small (but growing fast) percentage of a media plan. Most money is still spent on traditional offline media. Buyers don’t want to use one system for their digital media plan and another for non-digital. They want one system for all their media planning and buying. Therefore, if your system only covers digital, they won’t use your buying tool.
Unless your interface solves their problems, buyers won’t use it
Agencies can send insertion orders with a click of a button using the systems they already have in place today. Asking them to log into your system to place orders adds extra steps and labor to their already expensive buying process and introduces the additional risk of entering the order incorrectly into an unfamiliar system. As a seller, it’s your problem to get orders entered into your system and to execute them properly. Even high tech, high flying Rocketfuel makes most of its money from paper insertion orders—that’s one reason why they have so many people on staff: sourcing and handling these orders. Buyers want an “operating system” for their business that helps them source media, buy it, execute orders, and get paid. Unless your system is helping them solve those problems from one end to the other, then they won’t use it (but you may be using it for them).
Moving forward with direct buying automation and Programmatic Direct
Programmatic Direct adoption (and the technologies that will drive it) is still in the early innings, but progress is happening quickly. Buyers want more efficiency in securing guaranteed media, and sellers need programmatic ways to sell their higher classes of inventory. Siloed buyer interfaces will not bring them together. What will help grow the programmatic direct channel is working with the IAB on standards and cooperation among trading partners. The marketplace for Programmatic Direct isn’t going to develop overnight. It’s not going to develop fast enough to help you to reach this quarter’s revenue objectives. It’s going to require patience and a long-term perspective.
In the meantime, the fastest way to tap into the demand from direct sales is to take the old-school approach of sales people selling IOs and account managers delivering on promises. Use your technology to create unique inventory packages and to add a high level of service that’s helpful to buyers.
But if you think you can instantly change buyer behavior by aggregating a thin slice of digital inventory behind an online shopping cart, you are probably the person who still thinks that “keeping” ads is an awesome idea.
This article originally appeared in The Makegood.