The Private Exchange Game is Rigged

by Mike Siems, Director of Publisher Development
August 3rd, 2015

Love ‘em or hate ‘em, private exchanges continue to gain traction. A year ago, I spoke out about it, stressing that private exchanges aren’t for everyone. Today, I’m even more disillusioned. Through my own personal experience and partnerships with dozens of publishers here at Yieldbot, I’ve come to believe that publishers should steer clear of private exchange deals in all but a few circumstances.

Back in 2011 when the concept of private exchange was born, AdMeld (then independent) pioneered the first private exchange deals with publishers. They promised to protect publishers’ relationships with advertisers and agencies by giving them the ability to set specific terms with specific buyers, such as establishing price floors and determining the exact kinds of placements that are available.

The spirit of private exchanges – higher Publisher CPMs, quality inventory or audiences for advertisers, and better performance for everyone – continues to permeate. These deals have always looked great on paper, and continue to receive the blessing of brands, agencies, DSPs, and publishers. The unfortunate truth, however, is that these deals deliver marginal, and much more often than not, negative value to publishers. They distract ad operations teams from spearheading indirect revenue initiatives that deliver truly incremental revenue. They are nearly impossible to forecast, painful to deliver, and unable to be optimized. More often than not, both advertiser and publisher end up frustrated while the DSPs/SSPs sit in the middle unable or unwilling to help.

As a former publisher partnership manager at a major DSP, I’m here to tell you the truth: DSPs want private exchange deals solely to win new budgets. But the technology they built to protect performance advertisers prevents these deals from working.

To understand what is happening on the other side of the fence, let’s briefly examine how DSPs have evolved. Originally relegated by big brands in the low to mid-funnel direct-response realm, DSPs are now trying to be all things to all marketers. The reason? There are a lot of brand dollars out there, cookies are a challenge to scale, and advertisers want to stop buying cheap, blind open exchange impressions.

By citing their ability to set up private exchanges, DSPs can tell clients campaigns will run within well-lit, human, above-the-fold traffic. This seems like a no-brainer for brands who understand the benefits of transparency and quality over quantity.

DSPs use specific deployment tactics to maximize its ability to perform for the advertiser – and all at the expense of the private exchange publisher.

A $100K digital ad budget would typically be divided into 5 tactics:

  1. Prospecting – casting a wide net to find new customers with minimal targeting
  2. Contextual Targeting – serving ads based on the domains seen in the bid response
  3. Retargeting – targeting cookies that have converted during past campaigns
  4. Data Targeting – BlueKai, eXelate, think “frozen food intenders”
  5. Private exchange

By dividing the budget into 5 equal parts, the DSP gives itself the ability to optimize towards the best performing tactic (usually retargeting), at the expense of the other four tactics.

As noted earlier, DSP technology was originally built to optimize against cookies and cheap traffic. When DSPs start buying traffic that’s 10X more expensive – with a limited amount of cookie overlap – these deals are a challenge to deliver. DSPs know this, yet they still quote an “expected” revenue number to publishers to convince them to participate. They’re spouting the same lines to dozens of publishers simultaneously with the goal of running private exchange budgets across as many publishers as possible, hedging their bets.

When it comes to performance, the backend goals DSPs are tasked with hitting have not loosened to accommodate for the higher media costs that come with private exchange deals. With cost of media being significantly higher, and performance never offsetting the rise in backend cost, can you blame a DSP for consistently pulling budget out of their private exchange tactic? This lets the DSP shift performance blame to the publisher – DSPs have rigged the game.

So what can a publisher do? To start, publishers should invest in technology that allows them to improve campaign performance beyond the cookie. If publishers can meet or exceed advertiser KPIs (CTR, high-value onsite actions, etc.), they will recoup the lion’s share of private exchange dollars.

Secondly, publishers should control the negotiation with DSPs and stop shying away from the hard questions. Ask how many other publishers are being used to fuel the private exchange tactic. Ask what the goal of the tactic is. Ask if third party data or geo-targeting is being applied over the buy. Depending on these answers, ask how much revenue can be expected.

At Yieldbot, we believe that publishers need technology and tools to increase their own performance, control optimization, and beat out everyone else on the media plan without relying on the DSP. With this in mind, Yieldbot recently released Intent.ai to our marketplace, a platform that empowers publishers to leverage Yieldbot intent targeting technology and take back control of their own destiny.

The winningest coaches in sports history are the ones that rethink how they approach the game. If publishers want to win the programmatic game, they need to understand the rules and rethink their playbook.

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Mike Siems works with the Yieldbot Publisher marketplace and is responsible for identifying, signing and developing long-term relationships with digital publishers. He is also tasked with upselling current partners on Yieldbot’s latest, performance-focused technology offerings.

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