This weekend I wrote about Ads 101 as a basic primer on my learnings in being in the world of ads for so long.
Today, I want to talk about the ad players and the power dynamics...
Today, I want to talk about the ad players and the power dynamics...
1) In case you missed it, here was the original thread - sorry, I ended up threading it wrong, so most ppl saw a cut off version:
2) Let's talk about all the different roles in the ads ecosystem. At a high level, there are advertisers, publishers, ad networks, and ad exchanges.
3) Advertisers: these are marketers who want to spend money to try to make money. They can come from big companies and small startups. Sometimes there are whole teams dedicated to ad channels. Other times, there's one marketer support ALL channels...
3b) In addition, large companies may also retain agencies -- these are consulting companies that help their marketers with copy and branding and logistics of doing ad buys. Agencies are not the decision makers but they are often critical gate keepers.
4) Then there are publishers. These are blogs or newsletters. Or influencers who do videos. Or podcasters who record audio shows. Or even the search engines that show results as well as ads alongside. These are all the groups that show the ads.
4b) Most people don't think of Facebook or Google or Twitter as publishers, but that is exactly what they are.
5) Then there are ad networks. Ad networks are middle(wo)men who sit in between publishers and advertisers. They take a cut for coordinating in between the two sides.
5b) Google is both a publisher & an ad network. They have google.com where they themselves show ads. But they also have a bidding platform that allows marketers to take out ad campaigns that places those ads on other properties beyond google.com
6) Then there are ad exchanges. These do ad placements with publishers AND also with other ad networks. Basically an ad network of ad networks! This may sound absurd -- why do you need so many middle(wo)men?
6b) But here's a concrete example. Say I'm a marketer. Say I'm running a budget of $10m that needs to go across Google ads, Facebook ads, & Twitter ads. It's going to take me a long time to create lots of different ads to test within each of these channels.
6c) I'll need designers. Copywriters. I'll need to check each platform to see how the campaigns are doing. Turn on new campaigns. Pause ones that aren't working etc. This is a LOT of work.
6d) But if I go through an ad exchange, this software might help me manage a lot of campaigns in one interface and automagically create campaigns to speed up the work. I'm willing to pay for this additional middle(wo)man to save me time.
7) The fees of ad networks and ad exchanges vary quite a bit, For example, in 2010, Google announced their revenue share with their publishers here: adsense.googleblog.com/2010/05/adsens…
7b) They paid on ave $0.68 to publishers for every $1 a mktr spent with them on AdSense. (meaning GOOG made 32% cut) But for 3rd party search ads, they shared $0.51 to publishers & kept $0.49 for every $1 a marketer spent. Prior to 2010, Google took much bigger cuts!
7c) Why? This is because they have leverage. Advertisers are never going to go to a rinky dink blog to advertise directly. There's just not enough volume to deal with small fry. So for most publishers, Google ads was one of the better deals a small publisher could get.
7d) However, for larger publishers who do have the ability to directly work w/ advertisers, the deal is different. Many yrs ago, Google supposedly paid AOL over 100% take for their inventory (in other words - lost money). Bigger publishers have leverage.
8) Ok, so we have the lay of the land, and this is where things get really interesting around pricing. Let's say I run a blog. (actually I do! elizabethyin.com). Let's say I sell ad slots on my site. How do I know how to price my ads?
8b) Well I could take a shot in the dark based on what I see other blogs charging. Let's say I charge $1000 per placement on my blog. Is that too high? Or too low? What is the optimal price?
8c) Let's say I try it at that price. Most days, no one is interested in buying. But say 2x per month, an advertiser buys from me directly. So I make $2000. But my slots are still empty the other days.
8d) In addition, it yields poor signaling. Now advertisers see that they can negotiate with me, because I have too many unfilled slots. So they start to bid my price down.
8e) This is where supply-side platforms (SSPs) (who are basically a type of ad exchange geared towards publishers) can help. If I work with an SSP, they can help me optimize my ad slots. They will fill my extra slots with "remnant ads" at the last minute.
8f) Remnant ads pay pennies on the dollar, but now I have ads showing all the time, so advertisers don't know how popular my ad slots are & can make a couple extra bucks.
And those remnant ads show up only if I cannot find a premium advertiser to pay my $1000 price.
And those remnant ads show up only if I cannot find a premium advertiser to pay my $1000 price.
8g) Lastly, advertisers who buy "remnant ad slots" have no choice in where their ad ends up. So it's not as if someone can pay an ad exchange pennies on the dollar to specifically show their ad on my blog. They get whatever extra slots are left.
8h) This is how brand & performance advertisers can really differ. A brand advertiser may think my website is hip (ha!) & pay $1000 for an ad slot there. A performance advertiser just cares about putting $1 in to get $1.01 out. He/she may doesn't care what site he/she gets on.
9) On the flip side, the equiv platform for advertisers is called a demand-side platform (DSPs). These platforms enable performance advertisers to bid and get an ad into many different networks, but there are varying controls on exact placement depending on price paid.
9b) DSPs can be really good for retargeting audiences where you don't care what publisher your ad gets on -- you just care that you're showing your ad to someone who was on your site before & good likelihood of conversion.
10) The ads market is quite akin to financial markets. There are all kinds of middle(wo)men, because often they help with technology / operations in placing lots of ads. And you can command terms based on how big you are -- ie leverage as either a publisher or an advertiser.
11) Speaking of payments, a lot of payments traditionally have been on invoicing. I.e. advertisers pay 30-60 day net terms. However, IMO Google changed a lot of that with their ability to take credit card payments.
12) Invoicing is something that can make or break ppl in this space. If you are an ad network & you have to pay a publisher for ads today but then get paid only 30-60 days later, that's a big problem. You have a working capital gap, and your advertiser can default on payment too.
13) This is why many tech platforms charge you every few days for your clicks even if you are still running your campaign for many weeks. And many of these platforms then turn around pay publishers 30-60 days later reversing how things were traditionally done.
14) That being said, it's not as if ad networks want to make money on the spread between payment in & delayed payment out. If an advertiser retroactively & correctly complains about ghost clicks or being charged for things he/she didn't authorize, then a network needs that buffer
15) When I was running my startup, we once had a situation where an advertiser demanded a $45k refund from their campaign! There was a huge misunderstanding. And these kinds of situations are scary for ad networks -- it's not like we had $45k lying around!
16) Lastly, in terms of where in the stack you want to sit:
-Get as big as you can to get leverage (this is why there's so much consolidation)
-get paid first, pay others later
-build strong tech that makes ppl more $$ so that you can take a bigger cut
-Get as big as you can to get leverage (this is why there's so much consolidation)
-get paid first, pay others later
-build strong tech that makes ppl more $$ so that you can take a bigger cut
