Expect more consolidation in online advertising in 2012

This year, one of the biggest stories in the online ad world was the partnership between AOL, Yahoo and Microsoft. Once rivals for online ad dollars, this partnership means that the powerhouses will work together to sell ad inventory on each other’s sites in an effort to compete with Google’s massive network.

While this might initially attract some web publishers, who lose dollars to ad networks with less-than-premium inventory, there’s still one lagging problem in the online ad industry– a lack of easy to use technology to analyze and optimize inventory.

Partnerships of this nature can have a positive impact on the market, but publishers have to be more strategic and increase the amount of analysis and technology used to maximize the value of their inventory. It is only through this process that they can sell ad space effectively and realize the full value of their inventory. (If you’re unfamiliar with the online ad game, I suggest you take a look at our Introduction to Online Advertising before diving into the rest of this post.)

We caught up with Jonathon Shaevitz, CEO of Maxifier, an online ad campaign performance optimization platform, to further discuss the technology solutions that can enable publishers to optimize their entire ad inventory.

CBM: Tell me a little bit about yourself and Maxifier.

Jonathon Shaevitz: I am currently the CEO of Maxifier and have successfully launched seven technology-related companies. Before Maxifier, I spent eight years as a consultant focused on helping online publishers monetize their business.

Maxifier’s platform allows publishers, ad networks and leading media companies to understand how campaigns are performing, make changes to optimize to the specific goal of the campaign and maximize the value derived from advertising inventory. With this platform, we help our clients improve the performance of campaigns, driving more value for advertisers and agencies, while in turn helping publishers sell more of their inventory at higher CPMs.

CBM: Could you expand upon how we have a lack of suitable technology to analyze and optimize inventory?

JS: Remnant, or non-premium inventory, is often very difficult for publishers to sell. It is not considered prime real estate and, therefore, ad operations may find it challenging to monetize. However, some of this real estate may be the perfect ad space for a particular brand – it’s all about having the right intelligence and analysis. With the correct technology in place to analyze campaigns, publishers can optimize campaign performance for any ad, making adjustments in real-time to ensure it delivers on its objectives. Indeed, it’s not simply about having the technology for remnant ad space, but having the technology to optimize ad inventory as a whole.

CBM: In regards to the partnership between AOL, Yahoo and Microsoft, what are the biggest benefits and drawbacks of forming such an alliance?

JS: The biggest benefit of this partnership is that it enables AOL, Yahoo and Microsoft to compete with the growing dominance of Google and Facebook, and gain market share by delivering scale. Indeed, Google is one of very few publishers that use ad space optimization technology correctly. This partnership alters Yahoo, AOL and Microsoft’s ad strategies from being very impression-focused to much more audience-focused, meaning that the alliance must focus on learning how to sell audiences. This requires greater use of technology, but by partnering together, all three companies will be able to increase the data they have on their audiences, and more accurately optimize their offerings.

On the other hand, the partnership does not require exclusivity from any of the players, and doesn’t prevent any of the companies from working with any ad network, ad tech company or even Google. Additionally, by selling each other’s remnant ad space, each of the partners will, in essence, be helping their customers stay afloat. This presents a situation which requires a lot of mutual trust – wouldn’t it be easy for one to take ad revenue, and not dish any out to the rest of the partners?

CBM: Have these kinds of partnerships worked before? Failed before?

JS: We have not seen a partnership of this magnitude in our space yet. Other networks have teamed up to sell remnant inventory, but never with the power of a name like AOL, Yahoo or Microsoft behind it. For instance, 5to1, a start-up that wanted to build “an online advertising alliance consisting exclusively of major media publishers,” was purchased by Yahoo in May. Similarly, a few years ago, News Corp. attempted to bring together MySpace, Microsoft MSN and Yahoo. However, this merger faced major hurdles, including the potential for increased complexity of any post-deal integration in areas such as combining systems, streamlining management and sorting out brand strategy, and potential shareholder fall out prevented the deal from going through.

CBM: What are the most important ways small businesses can sell ad space more effectively?

JS: Typically, small businesses have a data deficit in their relation to buyers, in that they know less about their audience, the context of ads and what ad space is worth. This is a technology business first and foremost, so in order to compete with the greater market, smaller businesses must develop the DNA to help them think about their business differently than traditional publishers have and position themselves differently to buyers.

CBM: This market is typically shrouded and opaque, reminding me of Wall St style selling. Do you agree or do you think there’s more transparency?

JS: I do agree that the advertising market tends to be very opaque. The premium ad inventory world is very similar to the bond world, in which everyone is cutting their own deals; there is a very obvious lack of clarity. However, in the lower end of the market – mostly with unsold remnant space – DSP’s, SSP’s, Data Management Platforms and exchanges are bringing more transparency to the market, although there still is often an over-reliance on ‘black box solutions’ that shroud transparency.

In general, technology should promote transparency, so the overall move toward incorporating technology into more and more aspects of the ad world, coupled with the growing demand for advertisers and agencies for a greater insight into what is happening, is opening up many of the “closed door” aspects of the business. There is a common saying that “50% of my ad money is effective, but I don’t know which 50%.” With some technologies, it is becoming much clearer through tests and tracking which of the dollars spent are driving sales. These technologies are allowing advertisers to measure where their ad budgets are making the most impact and, therefore, are giving them the ability to optimize and trim down their ad placements to get the most bang for the buck.

CBM: Why is it so difficult for everyday people to understand the online ad space?

JS: Online advertising is hard for consumers to understand because they do not understand what is going on and what they hear is often based on privacy scares. The unethical behaviors of the few are often perceived as representative of the industry as whole, so most people do not know what to make of this industry.

In addition, there are many different players that participate in online advertising, and often more than one player is working to bring efficiency to the ecosystem. Many of these companies are alien to the average consumer, which again leads to fears, as they do not understand their role in delivering advertising.

The current market situation is unsustainable so over the next few years, we’ll see consolidation, making it much easier to understand each player’s role in the online advertising process. Indeed we are already seeing this if we look, for example, at acquisitions in the dynamic display ad platform space of the likes of Teracent, Dapper and Tumri, and the recently approved purchase of AdMeld by Google.

CBM: If you were a startup or small business, what would you do to optimize your online ad inventory?

JS: I would do my homework on the publisher that I am advertising with. Small businesses must be certain that the publisher they advertise with has the tools and technologies in place to analyze their campaign in real-time, and make adjustments if necessary. It’s not enough to provide a creative to a publisher and let it run, keeping your fingers crossed that it will succeed. Small businesses, and any business for that matter, need to make certain their publishers have the back-end technology to support the optimization of all their ad campaigns. This includes lots of data, analysis and the ability to do something about key findings.

Image Clive Watkins via @Shutterstock