Navigating The Modern Ad Serving Stack, Part 3: Private Marketplaces (Deal ID)

In the previous installment of this series, we examined programmatic direct, a method of buying media space directly from publishers in a guaranteed, but automated, manner.

This automation removes most of the drudgery of typical direct buys, but still has its own drawbacks for marketers. One of the many tradeoffs involves the locus of control, which still skews heavily towards the publisher.

Programmatic direct demonstrates that both advertisers and publishers have an appetite for the benefits of automation. However, in the world of direct orders, inclusive of programmatic direct, the overall benefits remain tilted towards publishers and a small percentage of advertisers.

What if there was a way to retain some of the privileges of direct orders, but make the whole process even more efficient? What if the locus of control over campaigns could be shifted even closer to the advertiser, while still giving publishers discretion over deal terms and whom they work with?

That’s where private marketplaces come into play, and where real-time bidding (RTB) technology enters the picture as the underlying infrastructure and delivery mechanism. In this article, we will explore private marketplaces and “Deal ID” technology, examine the benefits and drawbacks, and how this method of media buying fits into the larger landscape.

How Private Marketplace Technology Works

According to estimates from eMarketer, ad spending via private marketplaces will surpass $3 billion by 2016, and will represent roughly 28 percent of all programmatic display ad spending.

It also happens to be the next level down in the ad server waterfall (shown in the illustration below), and our first foray into the real-time bidding (RTB) ecosystem.

How modern publishers typically organize their ad serving stack

Private marketplaces are made possible by a component of the RTB technology standard (OpenRTB) known as “Deal ID,” which allows publishers to take their inventory off the open auction of the public marketplace (which we’ll cover in the next and final installment of this series) and place it in an invitation-only area.

Since Deal ID is a component of the RTB tech stack, publishers who have an RTB exchange partner can leverage this technology without having to introduce a new vendor.

Private Auctions Vs. Preferred Deals

Within the realm of private marketplaces, there are generally two types of deals in which an advertiser can participate: private auctions and preferred deals.

A preferred deal is when a single buyer enters into an agreement with a publisher to purchase inventory with specific deal terms. In a preferred deal, advertisers essentially bypass any kind of auction or competition and immediately purchase the inventory that was agreed upon, before it enters the open public auction.

Since there is no auction, transactions are handled using typical CPM rates, as opposed to the effective CPM (eCPM) pricing of biddable inventory found on the open exchanges. For example, if the publisher sets the price floor of the deal at $3, the advertiser will win at $3 for every single impression. ^[1]

While this doesn’t provide a guarantee with respect to reserving inventory volume, like with direct orders, it does add an element of predictability for advertisers, knowing that their win rates will not fluctuate.

Also, when impressions pass into the RTB ecosystem, preferred deals get the “first look” at them before they go into the open public auction. Because of this privilege, you could consider preferred deals as the VIP of private marketplaces.

An illustration of how private auctions differ from preferred deals

A private auction, on the other hand, is when multiple bidders participate in an invite-only auction. Only those advertisers who have been explicitly white-listed by the publisher will be allowed to bid on that inventory. Private auctions are essentially a way for publishers to easily create de facto private exchanges.

In many cases, publishers will create “evergreen” deals for a specific pool of their inventory, to which advertisers can request access. This reduces the amount of manual work needed to get deals set up, while also making it easier, in some cases, for advertisers to discover deals that are available.

Advertiser Benefits

Why would an advertiser want to purchase advertising via private marketplaces?

• “Premium” Inventory: Even though I generally avoid using the word “premium” because of how much ambiguity it’s loaded with, this usage is apt for our purposes. At the end of the day, private marketplaces allow advertisers to purchase differentiated inventory (whether that’s by price, predictability, performance, or some other characteristic) from publishers over programmatic RTB pipes.
  
• First Look: Private marketplaces are a great way for advertisers to get the first opportunity to purchase inventory before it ends up on the open market. Before Deal ID, the only way to accomplish this was by going directly to the publisher and securing the inventory before it ended up in the RTB marketplace.
  
• Integrated Buying: A major benefit with private marketplaces is that they operate within the RTB ecosystem, meaning campaign data sits alongside other RTB campaigns, giving a holistic view of campaign performance, as well as making global frequency capping and cleaner attribution possible.
  
• Powerful Targeting: Another advantage of using private marketplaces is the ability to layer on additional targeting. While some publishers use private marketplaces as a way to essentially create private exchanges, by pulling their inventory off the open market, others use it as a way to bundle their inventory in novel ways. For example, some publishers package their inventory with proprietary data (like demographic or behavioral information), making the inventory truly differentiated.
  
• Human Relationship: Similar to direct orders, having a one-on-one human relationship with publishers, namely with preferred deals, does have its advantages — the feeling of knowing that you are not just a number to each other and that it’s more than just a transaction. Building such a relationship can prove to be beneficial over time.

Advertiser Drawbacks

From an advertiser perspective, there are also tradeoffs to private marketplace deals:

• Quasi-Automated: Programmatic generally means no emails, no phone calls, and no manual campaign setup by humans, but that’s where preferred deals diverge from the common definition of programmatic buying. Since they require some contact and negotiation with the publisher at the outset to firm up the terms of the deal, or to request access to private auctions, some of the luxuries of programmatic automation are negated. ^[2]
  
• Non-Guaranteed Inventory: One major drawback of private marketplaces is the inability to really guarantee or reserve inventory in advance. This is because of the fact that campaigns are not being run directly on the publisher’s ad server, but rather the RTB stack. As a result, impression volumes cannot be reserved. This is probably why private marketplace inventory is generally discounted from direct rates.
  
• Limited Adoption: Just like with programmatic direct, the proliferation of private marketplace adoption amongst publishers is limited. It’s hard to say how many publishers support private marketplace over RTB, but, in theory, any publisher using a major SSP or exchange partner should be able to support this buying option.
  
• Higher Prices: As a result of getting access to private, differentiated inventory, in a way that gives advertisers first look at it before going to the public auctions, media prices are usually higher than in open RTB auctions. Since the prices are still reasonable, advertisers with strict performance goals have a better chance of achieving them.

Closing Observations

Private marketplaces are a way for publishers to protect the value of their inventory by making it scarcer, while at the same time making it available programmatically through the same “pipes” that power programmatic RTB buying.

If publishers can differentiate their inventory in these private environments, either by segmenting it in some way or by bundling it with data, they can theoretically demand higher rates and optimize their yield.

At the same time, by creating private marketplaces, publishers have a higher degree of control over the quality of the advertisers that buy their inventory. With Deal ID technology, publishers must explicitly permit advertisers to run campaigns against those deals, whereas in the public RTB marketplace, publishers must explicitly block advertisers with whom they don’t want buying their inventory.

On balance, it’s both good for advertisers — because it allows them to buy differentiated inventory through the exchanges in an integrated fashion with the rest of their RTB campaigns, and for publishers — because it gives them a mechanism for improving yield and maintaining advertiser quality.

However, private marketplaces have been criticized for creating the same inequality of power that existed in the pre-programmatic days of direct orders.

Only those advertisers with enough “clout” get the privilege of being accepted into private marketplaces and preferred deals. In general, this usually ends up being larger agencies and brands, especially those with an extra appetite for transparency and brand safety. This then creates a dynamic wherein second-class citizens are born, so to speak, and the promise of programmatic as the great equalizer quickly evaporates.

Next Up: Open Auction (Public Marketplace)

Private marketplaces have made it possible for publishers to create special enclaves in the RTB marketplace wherein they offer differentiated inventory to a more controlled set of buyers. By doing so in the RTB world, advertisers can execute campaigns against this inventory within the same buying platforms (DSPs) used to execute the rest of their programmatic campaigns.

However, in order to achieve maximum scale for data-driven, audience-based campaigns, and for complete programmatic efficiency, advertisers need to leverage the open auction of the pubic marketplace.

The next and final installment in this series will examine the open auction of the public RTB marketplace, exploring the benefits and drawbacks, and how it fits into the larger picture.

Notes:

^[1] _{Since preferred deals allow inventory to be sold in a non-biddable manner, wherein the advertiser pays a set price for the impressions, the whole rationale behind the RTB acronym, naming the “bidding” part of it, becomes questionable. My personal opinion is that the IAB should rename it to “real-time buying”, because of preferred deals.}

^[2] _{It’s very clear that private marketplaces and Deal ID still lack some key features like a standardized communication layer between publisher and advertisers, along with a standardized discovery layer for the simple exploration of deal availability and details. Right now there is an unnecessarily large amount of manual work required to get private deals off the ground, which needs to be resolved in the next year or two if private marketplaces, powered by Deal ID, are to remain a serious option for programmatic buyers.}

Some opinions expressed in this article may be those of a guest author and not necessarily Marketing Land. Staff authors are listed here.

About The Author

Ratko Vidakovic

Ratko Vidakovic is the VP of Programmatic at Centro, where he leads the product marketing efforts for Centro DSP: a cross-channel, mobile-first ad buying platform for marketers and agencies. He is a leading expert in programmatic advertising and real-time bidding (RTB) technology.

(Some images used under license from Shutterstock.com.)