Mobile Advertising - Emergence of Mobile Private Exchanges

In my previous blog, we talked about the history of mobile advertising, and how simple banner ads served on WAP phones gave way to rich media advertising served within mobile Internet, application and video environments in mobile. In this piece, I wanted to talk about Private Mobile Ad Exchanges(Private Exchanges), which are likely to become extremely important in the U.S. mobile advertising market over the next few years. Private Exchanges – as the name indicates – allow publishers to 1) specify who is able to see and bid on their inventory, and 2) exert greater control (such as pricing floors) over the types of ads that could be served on their digital properties. These exchanges are also “Transparent”, meaning that advertisers specify exactly where their ads should run and they can also see full detail of where they did run following a campaign. Demand for such exchanges is led by leading publishers, who want greater efficiency, quality, scale and overall control over the advertising experience delivered to their customers.

Companies such as Medialets and Nexage have launched Private Mobile Ad Exchanges in the United States. Medialets Private Marketplace is a fully transparent exchange – meaning advertisers know exactly where their ads will run, how many impressions will be delivered to each property and can verify this following a campaign as well. Both application and web inventory is available in the Medialets Private Marketplace across next-generation mobile and tablet devices. Publishers can granularly control impression levels and pricing in Medialets Private Marketplace, and two or more publishers may even combine their inventory to monetize it jointly. In short, Medialets hopes to offer greater flexibility, control and quality to both the buy and the sell side with its private exchange.

Existing mobile real-time bidding (RTB) solution providers offer additional value to users of private market exchanges by leveraging several other assets already at their disposal. For example, Nexage’s Private Exchange directly leverages its Public Exchange assets (RTB exchange and the mediation platform). In Nexage’s case, the Private Exchange provides for high value liquidity on top of the public exchange. Initially, publishers participating in the Private Exchange would send impressions to the Private Exchange against a set of pre-decided rules. If those impressions don’t sell, they roll over automatically into the Public Exchange and there they fall into the governance of a new set of rules.  In this Public Exchange, the impressions will be tapping into the full liquidity of Demand-side Platforms (DSPs) and real time buyers that are integrated into the RTB. Finally, if these impressions did not sell there, it would then roll over the Nexage Mediation platform, where it may fall under a different pricing floor and be able to tap into the demands of the full ad networks that are tied into mediation. So, as Nexage launches a Private Exchange, it is accretive to liquidity since it provides a solution that has behind it the full power and liquidity of the Public Exchange.

Roadmap for Mobile Advertising

Looking at entire spectrum of mobile advertising, there are three main business models for inventory monetization. There is the Direct Sales model, where the publishers have direct sale teams and sell to advertisers directly. Then there is the Network business model which has ad networks such as Millennial Media and JumpTap (though they may also have other products as well) selling directly. Then there is the Programmatic Market, defined as mediation and RTB which is really going forward as RTB dominated space. Frost & Sullivan believes that the Private Exchange model logically complements the Direct Sales model for mobile advertising – especially since scaling the Direct Sales model can become an issue due to the requirement of adding sales people which comes at a cost. This is not the say that publishers participating in a Private Exchange will always get same price for their inventory – however they will likely command a CPM that is comparable to what they are able to get by going Direct.  This could very well mean that Private Exchanges may end up taking some business away from ad networks – though ad networks themselves are working to build RTB bidders( or integrating with RTBs).

Conclusions

Let us summarize all this discussion into a few key points.

• The exchange concept is going to be increasingly important in the ultra-competitive (and complex) mobile advertising space. Overall, Frost & Sullivan expects the mobile DSP/RTB/Private Exchange ecosystem to emerge at a rapid pace and support a majority of rich media ads in future. While I won’t hazard a guess about how much would these platforms contribute to the total market (in terms of ad impression volume or revenue contribution). However, existing industry participants are already serving billions of ad impressions on their mobile exchanges, and it is not unreasonable to expect a double-digit revenue contribution to mobile advertising revenues from these platforms within the next 18 months.
• Publisher participation in Private Exchanges could come at a premium. Right now, this is done more on a qualitative basis where publishers that can command a premium appropriate for a Private Exchange participate in the marketplace.
• Both branding and performance campaigns are supported in the Private Exchange, though there is obviously some performance expectation even in branding ads. Additionally, a Private Exchange could also be positioned as a ‘liquidity enhancement’ service, where a tiered or a layered architecture helps to ensure that inventory is monetized well.
• A key challenge is to ensure end-to-end system performance – especially for rich media ads – and ensuring that the ad creative is rendered properly and the user experience is consistent with the advertisers’ expectations. Ongoing industry standardization initiatives will go a big way in helping address this issue.

A picture is worth a thousand words – hence my attempt to depict the evolution and roadmap for the U.S. mobile advertising space. Hopefully, this helps explain what’s going on with mobile advertising.