Google's Ad Exchange 2.0: The high price of rebuilding online display markets

While I was away on holiday, Google formally unveiled its plans for an ad exchange in front of ‘key agencies and publishers’in late July.

This seems to be the latest stage in Google’s slow-burn launch of the successor to DoubleClick’s existing ad exchange, which (so far as I can tell) was always a US-only affair anyway.

New Media Age suggests we’ll see a ‘launch in two parts under the Google Ad Exchange 2.0 or AdX 2.0 umbrella”.

Working from home versus the office - how are you finding it?

View Results

Loading ... Loading ...

Spot Exchange will launch first and take real-time, non-guaranteed inventory – ‘a clearing market for remnant inventory”, according to an agency source. The second part, In Future, is in development and will allow buyers to reserve blocks of inventory rather than purchasing in real time.

Apart from that, the details are fuzzy: New Media Age, for example, carries the suggestion of ‘better targeting and reporting facilities, with publishers able to categorise their sites'(as what, I wonder?).

NMA does, however, mention the prospect of advertisers and publishers being able to use ‘existing audience data’within the exchange so that ‘they can target specific groups”.

Here lies much of the long-term attraction of Google’s ad exchange. If publishers can analyse and differentiate their audiences more effectively, they should be able to charge more for them. This remains a critical step in rebuilding the messy, Heath Robinson-style infrastructure of online display markets — a challenge that won’t go away any time soon, not even for publishers who sucessfully erect paywalls (they’ll still need to sell ads).

And then there’s this:

Google plans to take a 20% cut of publishers’ earnings via the exchange.

20%? It’s an interesting number. For one thing, it’s a good deal more than old 15% commission (now largely extinct) that agencies used to receive from media owners.

It seems to be around the same percentage that Google retains for itself before paying the mostly small publishers sell ads through its AdSense network.

But it’s also a lot more than Google pays out to agencies who buy search advertisements on its network. In this example, of course, Google is effectively the publisher. But it has also been a parsimonious one, progressively reducing the amount of agency commission to zero (or near-zero) since its arrival in the UK market.

Here, there and everywhere, Google is in the business of taking slices of the digital pie. There’s nothing wrong with that.

Yet in the long term, 20% is a lot of money to pay for a trading platform. What’s required is the kind of competition that will drive down commission to less than 10% on the basis of huge volumes.

That’s the job of rivals like Right Media (owned by Yahoo), Bid Place (owned by AOL), AdECN (owned by Microsoft) and OpenX (an intriguing start-up).

In all of this, there’s a balance of terror for publishers. They want Google’s Ad Exchange 2.0 to represent a quantum leap in terms of their ability to monetize inventory. But they probably don’t want AdX 2.0 to be so successful that it blows the competition out of the water.

In this respect, the news isn’t particularly good. Neither AOL nor Yahoo possess vast amounts of cash to develop their platforms, OpenX is strongly focused on small publishers and Microsoft. . . well, Microsoft’s ad exchange plans appear to be proceeding at a snail’s pace.

Questioned about trials of Microsoft’s AdECN exchange in the US, Zuzanna Gierlinska, head of Microsoft Media Network at Microsoft Advertising, tells New Media Age: “We haven’t confirmed how we’ll take it to market and it’s going to be at least a couple of years.”

The field, it seems, remains wide open for Google.



Our free daily round-up of the biggest news about the world of news

No comments to display

Leave a Reply

Your email address will not be published. Required fields are marked *

20 − twelve =