Real-time bidding vs traditional web ad sales

Publishers have seen the yield of their online display inventories eroded as a result of buyers pitting them against each other to secure the best possible discounts for advertising placements.

As a result, most publishers are selling most of their inventory at discounts to their rate cards of upwards of 50%. Web sales teams accept this state of affairs as the only way that they can achieve their sales targets, with the result that publishers are not maximising their inventory's yield.

Against this backdrop, real-time bidding is starting to emerge as an alternative to the traditional sales model - despite resistance from web sales executives and digital publishers.

Paying more per click

Publishers are still wary of real-time bidding because they believe it will damage their yield. But this perception is changing as publishers look for ways to drive more revenues from their online properties.

As an example, the fact that advertisers bidding on insurance-related keywords in Google's paid search model are paying more per click today than they were three to five years ago.

The Google bidding model forces advertisers to bid against each other to secure the highest possible ranking for their ads, translating into a higher cost to advertise and more revenue for Google. There is no reason why the same real-time auction model should not work for display ads in the traditional publishing world.

For example, publishers could allocate a portion of their distressed or unsold inventory to an exchange that auctions it off to advertisers. These advertisers compete against each other to secure the best placements, increasing their bid amounts along the way and increasing yields for publishers.

In more mature web markets, selected premium publishers have already launched private ad exchanges (Condé Nast, for example), where specific inventory from these major publishers is auctioned to a selected list of agencies. There is no reason why currently commoditised display inventory should not be sold like this.

This model is frightening for sales teams because it means that commoditised inventory can be sold without human intervention through automated systems. But the benefits for publishers are hard to ignore.

From ad network to ad exchange

Kagisio, for example, is in the process of creating an ad network (ADFU) that in time has plans to evolve into an ad exchange, where selected agencies access selected niche publishers, in an eco-system where inventory is sold at a fair price for both the buyers and the sellers, through an automated auction model. Publishers who partner with ADFU benefit from a shared cost base, advanced analytics, and economies of scale.

It is scary for digital sales teams, perhaps, but essential in a world where fierce competition has dragged prices of online inventory to rock bottom. Yet sales teams will not become extinct as long as they evolve from 'discount jockeys' to packaging specialists.

Their shift must focus from deep discounting to selling value. They must understand their clients' needs, and package solutions that meet those requirements - for example, offering consolidated buys that bring together commoditised standard display inventory with higher valued site skins, email campaigns, editorial solutions and campaign activations.

An automated system cannot replace a salesperson who really knows the client's business. Sales teams that mature from knock-and-drop sales tactics to more sophisticated sales approaches will thrive in a changing market.