INDUSTRY REPORT. Real-time Bidding: The Online Ad Exchange

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INDUSTRY REPORT

Real-time Bidding:

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Attribution i parksassociates.com

Attribution

Executive Editor: Tricia Parks Editor: Harry Wang

Authored by Heather Way Published by Parks Associates © July 2012 Parks Associates Dallas, Texas 75248

Printed in the United States of America

Disclaimer

Parks Associates has made every reasonable effort to ensure that all information in this report is correct. We assume no responsibility for any inadvertent errors.

Quality Review

Analyst HW 6.13.12

EE Wang 6.30

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Table of Contents 2 parksassociates.com

6.0 Market Implications & Recommendations ... 39 Resource Book ... A-43 Appendix A Company Profiles: Media buying desks ... A-43 Appendix B Company Profiles: Demand-side Platforms (DSPs) ... B-45 Appendix C Company Profiles: Data Management Platforms (DMPs) ... C-48 Appendix D Company Profiles: Supply-side Platforms (SSPs) ... D-50 Appendix E Company Profiles: RTB Ad Exchanges ... E-51 Appendix F Company Index ... F-52

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List of Figures 3 parksassociates.com

List of Figures

Figure 1: Source of Data ... 7

Figure 2: Glossary of Terms ... 9

Figure 3: The Core Benefits of RTB ... 10

Figure 4: Real-time Bidding (RTB) Technical Workflow ... 12

Figure 5: Real-time Bidding Online Advertising Ecosystem... 13

Figure 6: Who's Who in Real-time Bidding ... 14

Figure 7: RTB Advertising Revenue Flow ... 15

Figure 8: Media Buying Desks (MBDs) ... 18

Figure 9: Demand-side Platforms (DSPs) ... 21

Figure 10: Data Management Platforms (DMPs) ... 23

Figure 11: Pubmatic Ad Price Prediction Workflow ... 25

Figure 12: Supply-side Platforms (SSPs) ... 27

Figure 13: RTB Ad Exchanges ... 29

Figure 14: Private Ad Exchanges ... 31

Figure 15: DoubleVerify's 6 Critical Areas of Media Verification ... 34

Figure 16: RTB Online Display Ad Revenue Forecast Methodology ... 35

Figure 17: Drivers and Barriers of Growth of RTB Ad Market ... 36

Figure 18: RTB Online Display Advertising Revenues North America 2012-2017 ... 37

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The Bottom Line 4 parksassociates.com

The Bottom Line

► _{The core market sectors comprising the real-time bidding (RTB) market include:}

 Platforms that serve the buy-side (media buying desks and demand-side platforms);  Platforms that serve the sell-side (supply-side platforms and private ad exchanges); and  Intermediaries that facilitate the exchange of data, bids, and ad expenditures.

► Ad networks are experiencing competitive pressure as RTB enablers offer greater transparency, control, and accuracy. Moving forward, ad networks must integrate RTB capabilities to avoid losing market share, as digital ad revenues will gravitate towards performance and efficiency.

► Reallocated ad spend, away from traditional online display advertising will shift to the RTB ad market as buyers become more comfortable with the concept and realize the benefits such as cost efficiencies, reduced ad waste, scalable reach, and control and transparency.

► _{In 2012, RTB advertising revenues in North America (U.S. and Canada) will reach $1.6 billion, rising to}

$6.9 billion by 2017 and growing at a five-year 34% compound annual growth rate (CAGR). At present, the U.S. RTB market accounts for 98% to 99% of RTB ad expenditures in N.A. The Canadian RTB industry is in its formative stages of development with few display ad impressions bought and sold in real-time.

► _{In 2012, Parks Associates’ forecast pegs total online display advertising at $13.7 billion, with that sector}

accounting for approximately 35% of total Internet advertising expenditures in N.A. Through the five-year forecast period, online display advertising revenues, including RTB, will grow to $20.1 billion, in line with the overall rise in Internet advertising. Of all online display ad revenues, RTB accounts for 12% in 2012; its share will increase to 34% by 2017.

► _{Agency demand for cross-platform ad synergies drives the development and adoption of RTB sell-side}

platforms for emerging media - online video, mobile, and social. Even so, Parks Associates predicts these new RTB markets will remain small with growth contingent on the maturation of the online display RTB ad market.

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Data Points 5 parksassociates.com

Data Points

► When placing bids on RTB ad avails, buyers set a maximum bid using a CPM-based pricing model on an impression-by-impression basis (e.g., $1.00 CPM = $0.001 per impression or 1/1000 CPM for each impression won). The highest bidder wins at $0.01 per ad impression above the next highest bidder. For example, if Brand A bids a $1.00 CPM and Brand B bids a $2.00 CPM, Brand B wins the auction and pays a $1.01 CPM.

► _{Demand-side platforms (DSPs) adhere to a service or technology fee business model (aka}_{buying fee}₎

based on the percentage of media spend. These fees typically range from 10% to 20% of total media budget (e.g., agency spends $100,000; DSP earns $10,000 to $20,000).

► Supply-side platforms (SSPs) assume ad revenue sharing models retaining a percentage, typically 10% to 15%, of ad revenues flowing to the RTB ad inventory owner. For example, the SSP receives payment from an ad exchange, takes a 10% to 15% cut, and then sends remaining revenues (around 85% to 90%) to the online publisher.

► Ad exchanges generate revenue by charging DSPs a percentage fee on ad revenues processed by the exchange. The fees range from 10% to 30% and vary based on the size of media budget. Some ad exchanges deduct a flat fee from the CPM paid by the winning bidder. In both cases, the ad inventory holder (online publisher) receives the remaining revenue.

► Facebook Exchange is a driving force of RTB ad inventory availability through the five-year forecast period. According to comScore’s U.S. Digital Future in Focus 2012, the social network serves approximately one-third of U.S. display ad impressions, which opens up a large source of display ad inventory to the RTB market.

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Report Summary 6 parksassociates.com

1.1 PURPOSE OF REPORT

This report provides an assessment of the major business segments comprising the real-time bidding (RTB) online display advertising market in North America (N.A.). 1 The study serves as an educational tool for executives who are unfamiliar with the inner workings of RTB and provides industry insight and strategic direction for companies operating in the space.

1.2 SCOPE OF REPORT

Real-time Bidding: The Online Ad Exchange evaluates the online RTB landscape from two viewpoints primarily– the buy-side (ad agencies and advertisers) and the sell-side (online publishers). While real-time bidding technology exists for online video and mobile media, this report focuses on online display

advertising. The strategic analysis is as follows:

 Evaluation of the primary market sectors including ecosystem positioning, business role, and technical workflow

 Review of the key companies using competitive profiling

 Identification of industry segments influenced by RTB-enabled technology platforms  Assessment of factors defining market growth

 Projection of five-year online display advertising revenues generated from RTB methods in North America (N.A.)

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1.3 RESEARCH APPROACH

1.3.1 DATA SOURCES

This report uses data for analysis from the following sources (Figure 1):

Figure 1: Source of Data

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To protect the anonymity of our industry partners, and depending on the research topic, Parks Associates does not directly source individuals or companies who provide industry insight and perspective in company interviews.

SOURCE OF DATA

Public Information

 Company websites, press releases, and blogs  Industry-related news articles

In-depth Company Interviews

 Interviews with approximately 20 top-level executives employed at leading ad agencies, demand-side and supply-side firms, ad networks, ad exchanges, and online publishers.2

Industry Sponsored Research

 comScore, Inc., U.S. Digital Future in Focus, 2012

 Digiday and Google, Real-Time Display Advertising: State of the Industry, 2011  BlueKai, Data Management Platforms Demystified, 2011

 Google, The Arrival of Real-Time Bidding and What it Means for Media Buyers, 2011  comScore, Inc., The 2010 U.S. Digital Year in Review, 2011

 Interactive Advertising Bureau (IAB) of Canada, 2010 Actual + 2011 Estimated Canadian Online Advertising Revenue Survey DETAILED REPORT, 2011

 PubMatic, Ad Revenue Report, 2011

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Report Summary 8 parksassociates.com The following glossary, Figure 2, defines key industry terms used in the report.

GLOSSARY OF TERMS3

Term Industry Definition

Above the Fold Industry term referring to the top area of a webpage that a consumer sees without having to scroll down.

Ad Avails Industry term describing ad inventory such as display ad units, commercial time slots, etc.

Ad Call Technical function when a web browser asks an ad exchange or ad server

to send an ad. The ad call includes information from browser cookies and ad tag information such as publisher ID, size, location, referring URL, etc.

Ad Exchange Ad marketplace where multiple ad buyer and seller platforms meet to exchange media in real-time bidded auctions. Ad exchanges provide technical workflow and reporting tools for demand and supply sources.

Ad Tag HTML area located on a webpage that communicates with an ad server

and requests an ad.

Media Buying Desk (MBD) Buy-side platform employed by ad agencies to consolidate the process of planning, buying, serving, and reporting online media campaigns in real-time. MBDs typically integrate with a demand-side platform (DSP) to leverage the technology stack offered by DSPs in lieu of building the technology required to access RTB inventory.

Below the Fold Industry term describing the bottom portion of a webpage that is obscured from the user requiring them to scroll down to access it.

Cookies Small text files that websites place on web browsers to detect when a

user returns to a website or interacts with an ad.

Cost-per-thousand (CPM) Method of evaluating media efficiency and payment. CPM is a ratio based on how much it costs to reach or achieve 1,000 persons/viewers/ad impressions.

Creative Actual graphical or video advertisement. Common creative formats

include GIF, JPEG, JavaScript, HTML, and Flash.

Customer Relationship Management (CRM)

Business strategy used to help a company understand its current and prospective customers. Customer data is captured, stored in a central database, analyzed, and distributed to internal touch points such as sales divisions, call centers, websites, point-of-sale, and direct marketing channels.

Data Management Platform (DMP) Centralized data management platform that allows ad agencies to create

customized audience segments based on first party and third party data sources.

Demand-side Platform (DSP) Buy-side technology platform that allows ad agencies to manage multiple ad exchanges and data exchanges through a centralized interface.

3_{The report summarizes the industry terms based on information obtained from secondary sources including, but not} limited to, AppNexus Display Advertising Glossary, https://wiki.appnexus.com/display/industry/Display+Advertising +Glossary

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Report Summary 9 parksassociates.com GLOSSARY OF TERMS3

Reach Number of unduplicated viewers exposed to a video program or TV

application or an advertiser's schedule over a specific time period. Also known as cume. Formula: Reach = Unique Target Audience ÷ Target Universe Size

Real-time Bidder Server-to-server optimization engine that allows MBDs, DSPs, and ad networks to evaluate and bid on individual ad impressions

instantaneously.

Real-time Bidding (RTB) Industry term used to describe the technology infrastructure and

management systems that enable the automated purchase and selling of online display advertising in real-time.

Real-time Bidding API Software-to-software interface provided by ad exchanges that connects RTB-enabled ad inventory offered by SSPs and ad exchanges to buy-side platforms such as Media Buying Desks (MBDs) and demand-side

platforms (DSPs).

Remnant Inventory Low-cost advertising space or time that is relatively undesirable or otherwise unsold.

Supply-side Platform (SSP) Sell-side technology platform that allows online publishers to increase advertising revenue and manage ad inventory.

Yield Optimization Technique that boosts the performance of online display ad inventory by linking online publishers to various ad networks and ad exchanges to maximize ad inventory fill rates and increase ad revenues.

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WHAT IS RTB?

Real-time bidding (RTB) describes the technology infrastructure and management systems that enable the automated, real-time purchase and selling of online display advertising. RTB is neither a technology nor an ad platform but rather a term describing the entire process. Real-time bidding is a data-driven buying model through which ad agencies place auction-based bids for individual ad impressions instantaneously. The alternative buying model is a static auction through which audience segments are purchased in bulk of 1,000 ad impressions. By contrast, the RTB auction process takes place in milliseconds (one thousandth of a second), hence the label real-time.

WHY RTB?

The evolution of the RTB market began with the emergence of ad networks. For the past decade, ad networks have been the primary way ad agencies reached online audiences at scale and ad sellers monetized remnant (aka

unsold) ad inventory. In a manner similar to traditional media buying practices (e.g., TV buying), agencies pay ad networks a CPM-based rate to reach audience segments with the understanding that a portion of the online ads will not reach intended consumer

targets. However, as algorithms and data analytic strategies began to support the digital advertising market, advertisers’ quest for cost efficiencies and greater media campaign control and transparency intensified. As a result, a new breed of advertising tool (media buying desks – MBDs, DSPs, SSPs, and ad exchanges)

emerged in 2007 to facilitate a more precise and timely digital media placement and sales approach. However, it was not until around 2009 that these platforms began to offer real-time bidding (RTB) solutions, providing even greater efficiencies, and control over the online display adverting process. Since then, ad buyers and sellers focus on leveraging the benefits of RTB (Figure 3).

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HOW DOES RTB WORK?

In an RTB environment, ad buyers analyze the multiple variables of an ad impression such as demographics, geography, and publisher attributes. To do this, they overlay first4 and third party audience data to

determine the value of online display ad impressions. The pre-determined inventory value guides the bidding process. RTB also allows agencies to reduce the time required to scale media buys as well as the complexity of scaling media buys across multiple supply sources (e.g., supply-side platforms, ad exchanges, ad networks, and publisher websites). Today, there are four primary ways agencies execute RTB-based advertising strategies5:

1. Acquire or license a media buying desk (MBD)6 that uses demand-side platform (DSP) technology 2. Buy from a DSP direct that provides a built-in real-time bidder

3. Partner with an ad network which supports real-time bidding 4. Develop a real-time bidder into a MBD to access RTB APIs

While there are several paths for agencies to take when employing RTB, most use a media buying desk (MBD) that relies on demand-side platform (DSP) technology to access and bid on RTB ad impressions. In most cases, ad agencies prefer to leverage the technology stack offered by DSPs in lieu of building the technology required to access RTB inventory. Additionally, greater control is obtained when planning and buying media through an agency-owned MBD. Therefore, option 1 is the most common way large ad agencies set up RTB ad campaigns. Presently, only a few small and medium agencies buy RTB inventory due to lack of

knowledge regarding the emerging ad space as well as limited required company resources to develop or license the technology to facilitate RTB media buys.

There are two core technology elements encompassing the real-time bidding process – the RTB application-programming interface (API) and the RTB bidder:

 The RTB API is a software-to-software interface provided by ad exchanges that connects RTB-enabled ad inventory offered by SSPs and ad exchanges to buy-side platforms such as MBDs and DSPs;

 A RTB bidder is a server-to-server systems integrator that connects all RTB-enabled APIs between buyer and seller platforms. These enable the automated exchange of ad dollars in real-time.

4_{First party agency data may include customer relationship management (CRM) sources.} 5

See Figure 4: Real-time Bidding (RTB) Technical Workflow

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Report Summary 12 parksassociates.com While this report focuses mainly on RTB business sectors, operations, revenue models, and key market

trends, Figure 4 outlines the RTB technical workflow from a high-level perspective.7 The RTB workflow includes the following:

1. User visits a website

2. Web server delivers HTML code to web browser with direct to ad server via ad tag link

3. Ad server returns ad tag for RTB-enabled SSP or ad exchange 4. User cookie ID sent to SSPs 5. Ad exchange begins auction

using RTB APIs

6. Buyers (MBDs, DSPs, ad networks8) value the ad

impression using first party and third party data based on user’s cookie ID and sets bid using RTB bidders

7. Ad exchange determines winning bid and delivers ad server redirect to user

8. User calls the winning bidder to obtain ad server location 9. Ad server delivers ad to user’s

browser

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The graph intends to illustrate the technical workflow; however, Parks Associates acknowledges that demand-side platforms can choose to purchase RTB ad inventory from either an ad exchange or SSP (i.e., SSPs are not dependant on ad exchanges to sell impressions).

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Traditionally ad networks are the sellers of online ads; however, in RTB these firms assume the role of ad buyer bidding on RTB ad impressions competing directly with MBDs and DSPs.

Figure 4: Real-time Bidding (RTB) Technical Workflow

Real-Time Bidding (RTB) Technical Workflow

© 2012 Parks Associates Publisher Ad Server 1 DSP 1 DSP 2 DSP 3 Advertiser Ad Server 6 8 9 8 Website Ad Network 7 MBD MBD 2 3 SSP Ad Exchange 6 6 6 6 7 2 5 SSP SSP 4

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Report Summary 13 parksassociates.com When placing bids on RTB ad avails, buyers set a maximum bid using a CPM-based pricing model. The

highest bidder wins at $0.01 per ad impression above the next highest bidder. For example, if Brand A bids a $1.00 CPM and Brand B bids a $2.00 CPM, Brand B wins the auction and pays a $1.01 CPM. Unlike traditional CPM buying models where ad rates are based on the cost to reach 1,000 ad impressions in bulk, buyers place bids on an impression-by-impression basis (e.g., $1.00 CPM = $0.001 per impression or 1/1000 CPM for each impression won).

WHO ARE THE KEY RTB PLAYERS?

Figure 5 provides an illustration and description of the core business sectors comprising the RTB advertising market. The ecosystem is segmented by platforms that serve the buy-side, sell-side, and the intermediaries that facilitate the exchange of data, bids, and ad dollars between them.

Figure 5: Real-time Bidding Online Advertising Ecosystem

Ad Networks

Aggregator of ad inventory for multiple web sites or applications. Ad networks service both advertisers and publishers Ad Exchanges Automated auction based ad-pricing system facilitating real-time ad exchanges between multiple demand and

supply sources

Real-time Bidding Online Advertising Ecosystem

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Demand-side Platforms (DSPs) Centralized system that allows ad agencies/ advertisers to manage multiple supply sources and data management accounts

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Ad Verification

Service employed to ensure RTB ads are displayed in brand-safe content and adhere to media campaign goals and guidelines

Media Buying Desks (MBDs) Internal agency ad management platform used on top of a demand-side platform (DSP) or other bid-based buying technology

Data Management Platforms (DMPs)

Intakes, aggregates, and outputs data from multiple sources to design custom audience segments Supply-side Platforms (SSPs) System that enables content owners/ publishers to manage and optimize ad inventory

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Report Summary 14 parksassociates.com Figure 6 highlights the main RTB players by type.9 The report profiles firms in the MBD, DSP, DMP, SSPs, and

ad exchange sectors in full10 and in summary11.

Figure 6: Who's Who in Real-time Bidding

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Modeled after LUMA Partners Display Advertising Technology landscape infographic. Available at http://www.luma partners.com/resource-center/

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Resource BookAppendix A-E

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Summarized company profiles included by report section.

Who’s Who in Real-time Bidding

© 2012 Parks Associates A d A g e n c i e s B U Y S I D E S E L L S I D E Ad Agencies Media Buying Desks (MBDs) Demand-side Platforms (DSPs) Supply-side Platforms (SSPs) Ad Verification

Data Management Platforms (DMPs)

Ad Networks Ad Exchanges

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HOW DO RTB AD REVENUES FLOW?

To provide a holistic view of RTB economics, Figure 7 illustrates the RTB advertising revenue streams. The buy-side and sell-side analyses found in Section 2, Section 3, and Section 4 of the report offer a full

description of each business model approach.

Figure 7: RTB Advertising Revenue Flow

RTB Advertising Revenue Flow

Brand Advertiser

$100,000 Budget

Ad Agency

Media Buying Desk (MBD) Demand-side Platform (DSP) Ad Exchange Sell-side Platform (SSP) Online Publisher $85,000 Ad Spend 15% Agency Commission 10% Service/Tech Fee $76,500 Ad Spend 10% Buying Fee $68,850 Ad Spend 10% Service Fee $61,965 Ad Spend $55,168 Ad Revenues 10% Revenue Share $15,000 $8,500 $7,650 $6,885 $6,797

Indicates the sector that is charged the fee/commission

B U Y S I D E S E L L S I D E

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The Buy-side 16 parksassociates.com

2.0 THE BUY-SIDE

2.1 MEDIA BUYING DESKS (MBDS)

Ad agencies employ media buying desks (MBDs) to consolidate the process of planning, buying, serving, and reporting bid-based online media campaigns.12 By leveraging the power of technology, agencies eliminate labor-intensive media planning and buying processes. Additionally, media buying desks (MBDs) compile proprietary audience intelligence profiles and integrate these data models into third-party DSP decision-making processes.

Revenue models vary by agency holding company type; however, most MBDs operate under a service or technology business model with fees for their use based on total media spend. The exact percentage of media spend charged is unknown as many agencies negotiate MBD fees as part of agency commissions. Those are historically 15% of the client’s total media budget. Parks Associates presumes MBDs charge clients an additional 10% to 15% of media spend for the right to use the platform to reach audiences in real-time ad markets.13

While MBDs offer multiple benefits such as enhanced audience targeting, consistent workflow, site-level transparency14, and impression-level control15 to agencies and their clients, the sector nonetheless endures client scrutiny. For instance, agency clients express concern that they are being charged double by agencies - first for media planning and buying services via agency commissions and then again, to employ the

agency’s proprietary MBD. Additionally, some platforms, like WPP’s Xaxis, buy ad inventory in bulk and resell it to clients at a premium rate (similar to the ad network model) leaving clients questioning overall cost efficiencies. Finally, agency holding companies are accused of mandating that proprietary MBDs are used by sister agencies to process all online display ad transactions. In this case, agencies are able to secure

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Parks Associates labels the sector media buying desk because ad agencies are sensitive to the term agency trading desks as it implies that the platform manages ad impressions like a stock market exchange and competitively trades inventory between client accounts.

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Based on knowledge of demand-side platform service fee percentages

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Gives ad agencies full disclosure on the number of ads served to exactly what types of sites helping them evaluate the quality of publisher partners.

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Allows ad agencies to purchase individual ad impressions that met specific campaign goals versus in bulk of 1,000 impressions.

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The Buy-side 17 parksassociates.com incremental revenues on media buying services that are typically covered in the standard agency

commission rate.

Many MBDs consider themselves system integrators because of their platform’s ability to connect digital marketplaces. As a result, MBDs focus on establishing cross-platform RTB capabilities and support investments in display, online video, mobile, and social media technology infrastructure to scale media strategies. Most, if not all, solutions enable multiplatform real-time bid-based buying to achieve this goal. In addition, because full-transparency (when, where, and how an ad is displayed) is a benefit of RTB,

industry compliance recognition is valued among buying and selling platforms. Using multiple ad verification criteria, media monitoring firms report non-compliance incidents.16 Non-compliance occurrences include, but are not limited to, ads displayed on inappropriate websites,

ads served outside of designated

geographic regions, and ads appearing on the same web page as a

competitor. Industry compliance confirms the RTB ad platform adheres to media campaign guidelines and goals

.

This is a critical aspect to ensure overall transparency and trust required by ad buyers to justify media budget allocation to the RTB market. Three of the four agency-owned MBDs met industry compliance standards measured and reported by leading ad verification firm, DoubleVerify.

Figure 8 provides an overview of the leading agency and independent media buying desks.17

MEDIA BUYING DESKS (MBDs)

AGENCY-OWNED

Ad Agency 2011 Agency

Revenues18 Product Metrics Launch

Proprietary Agency Platform19 Most Compliant Platform20 $14.4 billion Executed 4,000+ campaigns for 700+ clients 2011 $12.5 billion na 2009

16_See_{Figure 15: DoubleVerify’s 6 Critical Areas of Media Verifications}_in_{Section 4.3 Ad Verification Services} 17

Full company profiles found in the Resource Book, Appendix A

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Ad Age DataCenter, April 2011, worldwide revenues 19_{Used solely by agency holding company sister agencies} 20

DoubleVerify Trust Index Insights, Benchmarks and Findings on Online Advertising Compliance 2H 2011 DoubleVerify Trust Index Insights, Benchmarks and Findings on Online Advertising Compliance 2H 2010

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The Buy-side 18 parksassociates.com $7.18 billion impressions served 2008 $6.5 billion 50+ billion ad impressions served 2009 INDEPENDENT

Private Audience Optics

3,000+ fully-managed media campaigns to date

2010

Private na 2009

Figure 8: Media Buying Desks (MBDs)

Omnicom’s Accuen and IPG’s Cadreon function like independent MBDs, making their service available for use by third-party agencies whereas WPP’s Xaxis and Publicis Groupe’s Audience on Demand (AOD) are proprietary to the agency holding company. The independent status of Omnicom and IPG allows these firms to extend service to small or medium sized agencies that do not have the internal resources to build a proprietary RTB technology interface. While this strategy seems advantageous, today, Accuen and Cadreon process far fewer RTB ad impressions and revenues than Xaxis and AOD.

Typically, agencies integrate one to three DSPs along with a MBD to maximize RTB buying opportunities. This strategic approach gives MBDs access to large pools of RTB ad inventory as well as the technology infrastructure provided by DSPs. Industry use of MBDs will increase as firms focus on educating internal and external agencies on the ways MBDs can drive value for brand advertisers as well as on the benefits of using an MBD to replace historically used solutions for buying online display ads (e.g., ad networks).

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The Buy-side 19 parksassociates.com

2.2 DEMAND-SIDE PLATFORMS (DSPS)

Demand-side platforms (DSPs) aggregate and manage multiple ad inventory sources and help agencies determine the relative value of different supply sources. DSPs connect to ad inventory using RTB APIs provided by ad exchanges.

DSPs’ primary functions are as follows:

 Serve as a centralized access point to RTB inventory across all ad exchanges  Evaluate websites and ad impressions against media campaign goals

 Add a layer of first party and/or third-party user data to identify and develop custom audience segments

 Provide ad serving and post-performance reports

DSPs adhere to a service or technology fee model (aka buying fee) based on the percentage of media spend. Interviews with leading providers indicate these fees typically range from 10% to 20% of total media budget (e.g., agency spends $100,000; DSP earns $10,000 to $20,000). Large DSPs place a minimum monthly spend requirement of $50,000 per brand while smaller providers’ fees range from $2,500 and $10,000 per month. DSPs also offer self-service tools and managed service support.

DSPs provide enhanced control over the media planning and buying process, including the ability to

reallocate media budget at a moment’s notice based on campaign performance. This speed is much better than that of working with an ad network. It may take days to weeks to change an underperforming media schedule using an ad network. In addition to the advantages of integrating real-time bidding for new digital mediums – online video, mobile, and social, the ability to offer data management solutions sets the major DSPs apart. Nearly half of the leading DSP providers offer integrated data solutions reducing the need for third party data partnerships and, most importantly, eliminating service fees required to use such services. One variable potentially limiting the long-term growth of RTB is DSPs’ inability to access non-display ad supply offered by online video, mobile, and social media publishers. The ability to access new media and develop cross-platform ad campaigns through a single buying interface is increasingly in demand by ad buyers - particularly in high-growth digital markets with ever-growing audiences. To the industry’s delight, such needs are beginning to be addressed as many RTB-enabled systems on both the buy-side and sell-side are adding features to monetize new media via the real-time bidding ad models. For instance, WPP’s

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The Buy-side 20 parksassociates.com video ad network SpotXchange offers RTB capabilities alongside its traditional online video ad network

service. In early 2012, DSP and SSP provider, AppNexus and BrightRoll Exchange (BRX), a video ad exchange announced a strategic partnership to integrate BRX’s online video inventory into the AppNexus platform. This partnership creates new opportunities for ad buyers to extend RTB features for online video buying. Parks Associates believes DSPs with early RTB launches (in 2009) that offer integrated data management services and multiplatform presence will achieve long-term sustainability. DataXu, Triggit, Turn, and AppNexus meet these criteria. These DSPs also have strong ad exchange partners, which give RTB buyers access to large swaths of inventory. Early on, AppNexus formed partnerships with the leading ad exchanges - Microsoft, Google, Admeld, and OpenX. The firm also offers an end-to-end solution not offered by any other DSP; AppNexus also powers the sell-side via its SSP and offers data management solutions. DataXu is another market leader. Alongside its wide-range of ad inventory, technology, and service provider partners, DataXu, offers a data management solution and receives recognition from DoubleVerify as one of the most compliant DSP platforms.

Sorted by RTB launch date, Figure 9 highlights the major DSP providers including ownership, product, data competencies, and industry compliance recognition.22

DEMAND-SIDE PLATFORMS (DSPS)

Company Parent Company Product Company and RTB Launch Data Management Platform (DMP) Most Compliant Platform2324 Private DX3 2007 RTB launch in 2009 Private Full-service, Self-service, Data Management & Analysis 2005 RTB launch in 2009 22

Full company profiles found in the Resource Book, Appendix B

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Top Most Compliant Platform, DoubleVerify Trust Index Insights, Benchmarks and Findings on Online Advertising Compliance 1H 2011

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Top Most Compliant Platform, DoubleVerify Trust Index Insights, Benchmarks and Findings on Online Advertising Compliance 2H 2011

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The Buy-side 21 parksassociates.com Private

Turn Media, Turn Audience, Cross-channel 2004 RTB launch in 2009 Private AppNexus Technology 2007 RTB launch in 2010

Google Bid Manager 2007

RTB launch in 2010

Private TerminalOne 2007

Private The DESK

The ADSERVER 2009 RTB launch in 2010 Private SiteScout RTB Platform 2000 RTB launch in 2010

Private Origin Digital

Marketing Hub

1999

Private RTB launch 201225

Figure 9: Demand-side Platforms (DSPs)

A potential disruptor to the DSP sector is the entry of established ad planning, buying, and billing system, MediaOcean26. MediaOcean executives assert that ad agencies no longer need ad network partnerships or DSP integration to process real-time online display ad campaigns. In summer 2012, MediaOcean will roll out a cross-platform media product based on an open platform with universal APIs. The product plugs into a wide range of agency-managed services and platforms. This interoperability allows an agency to customize services to create and maintain a competitive advantage and increase company margins by eliminating DSP service fees. The ability to add new media services directly on top of an MBD in a plug-and-play manner is a compelling option for agencies. MediaOcean’s open system may prove a formidable disruptor to the DSP industry as nearly 70% of all agency ad dollars in the U.S. pass through Donavan Data System (DDS) or MediaBank (rebranded MediaOcean) billing systems. Its entry may give agencies a turnkey and more efficient approach to RTB advertising in the long-term.

25_Canada’s_first_{demand side platform- integrated with Casale Media, Doubleclick and AppNexus platforms}

26

In late 2011, Donovan Data Systems (DDS) and MediaBank announced a merger to form MediaOcean, a universal, open operating system for advertising management technology.

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The Buy-side 22 parksassociates.com Data is the single most important element supporting the RTB value chain. Data variables include, but are

not limited to, purchase intentions, household demographics, and behavioral patterns. Primarily used in buy-side services, DMPs collect, manage, and evaluate online user information obtained from multiple media sources to identify and create audience segments. These data sources determine the value of ad inventory relative to the advertiser’s campaign goals. They also enable the delivery of the right ad unit to the right consumer on the most effective media channel. While DMP services are essential to the RTB process, DMP also provides audience intelligence across the entire digital ad ecosystems - not just the RTB ad market.

DMPs collect anonymous, non-personally identifiable information (non-PII), such as age, gender, education level, and household income. Personally identifiable information (PII) or other sensitive personal

information, such as name, phone number, e-mail address, Social Security Number, or credit card information is never collected or used to develop targetable audience segments.

DMPs mine online user metrics via cookie IDs or pixel tags obtained from a user’s web browser. It is important for DMPs to adhere to self-regulatory practices established for online data collection and supply consumer privacy controls in order to maintain trust with agencies and consumers alike27_{. All of the major}

DMPs offer opt-out tools for users.

DMPs generate revenues in one of two ways:28

1. Technology License Fee: Fixed monthly or yearly rate based on the number of service modules licensed as well as the volume of data processed

2. Service Fee: Fixed monthly or yearly fee based on unique visitors. This may be ½ cent per cookie or a set fee based on the number of ad impressions processed

The single most important factor when assessing DMP value is whether the platform has universal access to all sources of digital media including direct publisher sites, ad networks, and ad exchanges. The leading DMPs have comprehensive networks of industry alliances including media and data partners. These

27

Consumer opt-out tools available via Network Advertising Initiative (NAI), an industry self-regulatory program for online behavioral advertising.

28

In order to access and sell data, DMPs share a percentage of revenues with publisher partners that produce the user metrics.

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The Buy-side 23 parksassociates.com networks are essential for obtaining a unified view of audience behavior so buyers are able to establish and

achieve RTB campaigns goals. Parks Associates rates BlueKai, eXelate, and Lotame as the top performing DMP providers based on strong industry alliances, universal data access, and media platform reach.

Figure 10 lists leading DMP providers with service launch dates, products, and notable industry alliances.29

DATA MANAGEMENT PLATFORMS (DMPS)

Company Product Launch Notable Industry Alliances

Contextual Data Brand Protection Data Audience Interest Data

2006

eBay, Admeld, TubeMogul, AppNexus, Bizo, Dedicated Media, adBrite, Pubmatic

BlueKai Data Management Platform

BlueKai Data Exchange

Late-2007

24/7 Real Media, adBrite, Adap.tv, BrightRoll, Collective, DataXu, Dedicated Media, FreeWheel, Fox Digital Media, Interclick, Insight Express, MediaMath, Meebo

Omnicom, Tremor Video, TubeMogul, YuMe, Expedia, Forbes

maX Data  Adaptive Audience Intelligence  DataLinX  Premium Data 2007

Adap.tv, BrightRoll, AppNexus, Google Display network, Collective, Interclick, MediaMath, PubMatic, Turn,

Videology, Invite Media, Alliant, Bizo, Nielsen, Forbes, Acxiom

Crowd Control 2008

Alliant, Acxiom, Bizo, TARGUSinfo, BrightTag, LiveRail, AppNexus, adBrite, Adap.tv, Audience Science, Interclick, Xaxis, Videology, Turn

Adobe Audience Manager

(formerly Demdex) 2009

Acxiom, Bizo, datalogix, eXelate, TARGUSinfo

AdAdvisor 1999/2009 Dealix, Leads360, LeadPoint Source: Real-time Bidding: The Online Ad Exchange

Figure 10: Data Management Platforms (DMPs)

While several leading DSPs - such as AppNexus, DataXu, Triggit, and Turn - provide data solutions, co-development and strategic partnerships are forming between agency-owned MBDs and DMPs, giving agencies even more control over the RTB process. Publicis’ VivaKi Nerve Center30 recently announced an agreement with leading DMP BlueKai to develop a solution that synchronizes BlueKai data with agency

29

Full company profiles found in the Resource Book, Appendix C

30

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The Buy-side 24 parksassociates.com reaction to major brands (agency clients) recently taking an interest in the RTB process. Some brand

advertisers now approach DMPs with interest in licensing data management services. Consequently, DMP providers are beginning to target agency clients directly. While the negative impact appears minimal, agencies must determine whether data evaluation at the client level (the brand advertiser) breaks down established workflows and, more importantly, damages agency/client relationships. Will brands take the data obtained by DMPs and work directly with DSPs or ad exchanges to circumvent MBD service fees? Parks Associates considers this unlikely since brand managers rely on agency expertise. Even so, ad agencies must demonstrate to their clients their expertise skill sets required in managing the online ad exchange process in a way that is superior to the client’s skills. Agencies must also reposition ad planners and buyers as media strategists with deep understanding of advanced ad technology and markets.

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The Sell-side 25 parksassociates.com

3.0 THE SELL-SIDE

3.1 SUPPLY-SIDE PLATFORMS (SSPS)

Supply-side platforms are algorithm-driven systems used by online ad sellers to monetize remnant, or unsold, ad inventory. Sellers employ SSPs to increase the value of indirect ad inventory through yield optimization31 techniques. SSPs enable sellers to pinpoint and bundle the most valuable audiences and sell individual ad impressions at premium rates typically achieved only by direct ad sales (in-house ad sales division working with ad agency). While SSPs initially assisted publishers in unloading remnant ads,

publishers are beginning to release premium inventory avails to SSPs to capture larger shares of ad budgets processed in RTB markets. Online publishers rarely plug into more than four or five SSPs to monetize ad inventory.

SSPs allow publishers to select demand partners (i.e., who gets access to inventory such as an MBD, DSP, ad network, or ad exchange) and manage supply selection (i.e., when buyers get access, volume of RTB ad avails, and pricing minimums). SSPs manage many types of ad inventory levels – not just RTB. For example, PubMatic’s’ Ad Price Prediction service accepts bids from non-RTB enabled demand sources such as ad exchanges, ad networks and direct-to-agency orders. As such, an RTB bid wins only if it is the highest demand-side price entering the system (Figure 11).

31

Yield optimization is a technique that boosts the performance of online display ad inventory by linking online publishers to various ad networks and ad exchanges to maximize ad inventory fill rates and increase ad revenues.

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The Sell-side 26 parksassociates.com flowing to the RTB ad inventory owner. For example, the SSP receives payment from an ad network, ad

exchange or DSP, takes a 10% to 15% cut, and then sends remaining revenues (around 85% to 90%) to the online publisher.

Unlike the DSP market sector, which contains privately owned firms, several major media companies (or publishers) control the SSP industry. Yahoo! acquired Right Media in 2007, Rubicon Project purchased News Corp.’s Fox Audience Network in 2010, and Google followed suit in 2011 with the acquisition of Admeld. These acquisitions served to strengthen and expand the advertising portfolios of major media companies; evidence of their market dominance is present in comScore data. In 2011 Yahoo! sites delivered more than 500 billion ad impressions, Google sites served around 175 billion ads; and both were behind the leader, Facebook, which delivered 1.3 trillion ad impressions.32 These acquisitions also bring sell-side services closer to the content owner, thereby reducing or eliminating the ad revenue sharing required by ad networks.

Figure 12 highlights key SSPs provider information pertinent to RTB.33

SUPPLY-SIDE PLATFORMS (SSPS)

Company Parent Company Company and RTB

Launch Demand-side Platform (DSP) Service Google (Acquired in 2011) 2007 RTB launch in 2009 Private 2006 RTB launch in 2009 Private 2007 RTB launch in 2010 Private 2007 RTB launch in 2010 Yahoo! (Acquired in 2007) Late-2006 RTB launch in 2012

32_comScore_{U.S. Digital Future in Focus 2012} 33

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The Sell-side 27 parksassociates.com

CasaleX RTB launch in 2012

Figure 12: Supply-side Platforms (SSPs)

Moving forward, sell-side stakeholders will embrace RTB and holistic service approaches to gain greater control over the RTB process. For example, Yahoo!’s Right Media offers DSP, SSP, and ad exchange services. This allows Yahoo! to maximize margins by providing a one-stop buying and selling experience, long an attractive value proposition for stakeholders seeking to navigate and manage complex media markets. AppNexus, too, offers services for both buyers and sellers via its DSP and SSP platforms. Finally, Admeld stepped outside of its role as a SSP provider to develop private ad exchanges on behalf of its publisher clients - The Weather Channel and NBC Universal. These strategies permit these firms to capture the highest margins from both the demand and sell sides of the RTB ecosystem; they also signal strategic plays by Google and Yahoo! to attain the highest possible RTB market share.

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Online Buying/Selling Intermediaries 28 parksassociates.com

4.0 ONLINE BUYING/SELLING INTERMEDIARIES

4.1 RTB AD EXCHANGES

RTB-enabled ad exchanges aggregate ad impressions across many online channels and connect ad sellers to buyers. Primarily a sell-side service, ad exchanges provide ad inventory details, such as website type, ad unit size, and user geography to the ad bidder (e.g., MBD, DSP, ad network). They also manage the entire ad auction process – receiving the bid, determining the winner, and facilitating ad placement.

Ad exchange benefit sellers by controlling price, reducing or eliminating ad network revenue shares (ranging from 40% to 50%), and assisting in filling otherwise unsold ad inventory. While ad exchanges benefit ad sellers most, buyers use ad exchanges to their advantage as well. Benefits include:

 Providing full-transparency in ad pricing and placement;

 Optimizing ad inventory and strengthening return on advertising spend (ROAS) via RTB-enabled audience targeting capabilities; and

 Expanding audience reach.

Ad exchanges generate revenue by charging DSPs a percentage fee on ad revenues passing through the exchange. The fees range from 10% to 30%, varying based on size of media spend. Some ad exchanges deduct a flat fee from the CPM paid by the winning bidder. In both cases, the ad inventory holder (online publisher) receives the remaining revenue.

Ad exchanges process non-RTB ad impressions as well. It is difficult to ascertain the exact number of RTB ad impressions passing through ad exchanges on a monthly basis, as most firms do not publically release these metrics. They do however release the total number of ad impressions exchanged on a daily and monthly basis (non-RTB and RTB). In early 2011, Parks Associates obtained executive insight from a leading ad exchange; the firm indicates that RTB accounts for around 35% of the ad exchange business (at least in 2011).

Based on the number of annual ad impressions served34, Parks Associates postulates that the large

publishers such as Yahoo!’s Right Media Exchange and Google’s DoubleClick Ad Exchange are the leaders in

34

comScore U.S. Digital Future in Focus 2012

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Online Buying/Selling Intermediaries 29 parksassociates.com the exchange of RTB ad impressions and achieve the largest revenues of all ad exchanges. In addition,

OpenX is proving to be a formidable competitor posting remarkable growth since its RTB launch in 2009. In 2011, the company achieved revenue growth of nearly 700% compared to 2010 and claims to process close to 200 billion ad impressions each month.35

In order of RTB launch date, Figure 13 highlights the leading RTB ad exchanges. 36

RTB AD EXCHANGES

Company Parent Company Company and RTB

Launch Operational Metrics

Private 2008

Around 1 billion ad impressions exchanged per day/ 30 billion each month

Google RTB launch in 2009

Average eCPM increase of 130% across unsold inventory pool compared with directly booked deals with ad networks

OpenX Limited 2007

More than 200 billion ad impressions per month Private Formerly ADSDAQ/Contextweb 2009 (ADSDAQ) RTB launch in 2010

Reach: 154 million unique visitors37

Microsoft Corp. (Acquired in 2007)

Formerly AdECN

2009

Around 8 billion ad impressions per month

Yahoo! (Acquired in 2007)

Late-2006

More than 11 billion ad impressions processed per day/ 330 billion each month

Facebook Exchange RTB launch in 2012

Partnering with eight DSPs including Triggit, Turn, DataXu, MediaMath, AppNexus, and TheTradeDesk

Figure 13: RTB Ad Exchanges

35

OpenX Becomes First Ad Exchange to Support The Interactive Advertising Bureau's "Rising Stars" Ad Units. Available at http://openx.com/content/openx-becomes-first-ad-exchange-support-interactive-advertising-bureau%E2%80%99s-%E2%80%9Crising-stars%E2%80%9D-ad-u (Accessed June 2012).

36

Full company profiles found in the Resource Book, Appendix E

37

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Online Buying/Selling Intermediaries 30 parksassociates.com marketplace, a significant announcement for the market. For the first time, brand advertisers can target

Facebook users based on web browsing history (i.e., ad is displayed on Facebook page based on third party web browsing habits). Facebook Exchange opens up a large source of display ad inventory to the RTB market; comScore estimates Facebook’s share of U.S. display ad impressions reached approximately 28% in 2011.38 Facebook Exchange connects with eight leading DSPs including AppNexus, DataXu, MediaMath, Triggit, Turn, and The Trade Desk.

According to TechCrunch, the Facebook Exchange workflow includes:39 1. User visits a website that uses a DSP linked to the Facebook Exchange

2. Cookie is placed on the user’s computer, typically when purchase intent is identified 3. DSP contacts Facebook and gives them the anonymous user ID they wish to target 4. Advertiser pre-loads ad creative to be displayed to the user

5. User visits Facebook and DSP installed cookie is recognized

6. DSP is notified and makes a real-time bid to target individual Facebook users 7. DSP with the highest bid displays ad to targeted Facebook user

8. Facebook user can click ‘X’ on the display ad, which links to an opt out tool that blocks future Facebook Exchange ads

Another recent trend in RTB is the formation of Private Ad Exchanges. In late 2010, select online publishers initiated white-labeled private exchanges to balance premium, direct ad sales efforts with the monetization strategies of unsold ad avails. In private ad exchanges, content owners assume the role of an ad network and ad exchange, making premium inventory available to groups of buyers via an exclusive, invitation-only marketplace. Moving forward, premium online publishers will develop private ad exchanges, or at the very least create joint ventures, in lieu of using a third-party ad exchange or ad network. In doing so, publishers eliminate ad network revenue shares and increase the value and fill rates of ad inventory. This approach will attract buyers that seek high quality RTB ad impressions over remnant avails.

Listed by launch date, Figure 14 lists the notable private exchanges.

38_comScore_{U.S. Digital Future in Focus 2012} 39

TechCrunch, Facebook Exchange: A New Way For Advertisers To Target Specific Users With Real-Time Bid Ads. http://techcrunch.com/2012/06/13/facebook-exchange/(Accessed June 2012).

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Online Buying/Selling Intermediaries 31 parksassociates.com

PRIVATE AD EXCHANGES

Content Owner/Exchange Parent Company Launch Product/Technology

Time Warner

November 2010

Category 5: Digital marketplace that connects advertisers to more than 50 million consumers across Time Warner’s web and mobile properties Powered by Admeld

Private January 2011

Tech Media Exchange (TMX): First private ad exchange focused on the technology vertical

Powered by Admeld Joint venture of

Tribune Company, Gannett Co., Inc., Hearst Corporation

and The New York Times Company

February 2011

Q-Exchange: First private ad exchange targeting premium local audience

Powered by Admeld

Comcast Corp. Mid-2011

Universal Audience Platform (UAP)

Powered by Admeld Joint venture of

CBC/Radio-Canada, Rogers Media and

Shaw Media

May 2012

Canadian Premium Audience Exchange (CPAX)

Powered by AppNexus Source: Real-time Bidding: The Online Ad Exchange

Figure 14: Private Ad Exchanges

In November 2010, major SSP technologist Admeld introduced the industry’s first private ad exchange on behalf of Time Warner Cable’s The Weather Channel. TWC seeks to increase the overall value of its online display and mobile ad inventory. By setting up a private ad exchange, TWC is taking control of ad pricing levels and fostering closer relationships with advertisers, with the end goal eliminating ad network deals. NBC Universal created the Universal Audience Platform (UAP) to do much the same - evolve agency relationships and reduce sales channel conflicts (i.e., ad networks selling against its media brands). Presently, Admeld powers all of the U.S.-based private ad exchanges. In pursuit of this growing market following Admeld’s success, another SSP provider, PubMatic introduced private exchange management services targeting premium publishers in 2012.

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Online Buying/Selling Intermediaries 32 parksassociates.com For years, ad networks were the main sales agent of remnant online advertising, aggregating multiple supply

sources providing advertisers with a scaled, cost efficient means to display advertising. As RTB advertising technology platforms penetrate the market, ad networks experience intense competitive pressure to remain relevant as RTB platforms offer increased ad impression value, transparency, control, and accuracy. These advantages are the catalysts for agency re-routing media budgets from ad networks to MBDs and DSPs. They also drive publishers to release more inventories to SSPs and open and private ad exchanges. As ad spending continues to shift to real-time bidding systems, ad networks must compete for ad dollars historically earmarked for purchase via ad networks.

For online publishers, the central issues are margin and increasing the value of ad inventory. Ad networks are an intermediary in the online ad buying and selling process but take upwards of 50% of publisher ad revenues while ad exchanges and SSPs receive a managed-service fee – typically, around 10% to 15% of media spend. Additionally, publishers employing RTB strategies realize better CPM rates when their ad inventory is placed in an RTB market versus being sold by an ad network. Performance data released by Pubmatic, a major SSP, indicate RTB increases publisher CPMs by 100%, on average.40

For ad agencies, the core issues are improved campaign effectiveness, transparency, and control. For agencies, the ad network model has its drawbacks. First, ad networks are considered blind-buys; that is,

buyers do not have control over ad placement so ads can appear on any website located in the network. Additionally, if an ad network underperforms to media campaign goals, it can take weeks to adjust the campaign strategy. The automated nature of RTB allows buyers to adjust media schedules immediately based on the performance of individual sites and ad impressions. RTB ad placement methods also lift ROAS with the use of dynamic, customized ads based on real-time feedback on campaign performance. According to PubMatic, agency executives report increasing campaign performance from 20% and 150%41 when using RTB.

40_PubMatic,_{Ad Revenue Report}_{, 2011} 41

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Online Buying/Selling Intermediaries 33 parksassociates.com Presently, there is confusion regarding the role of the ad network within the RTB landscape as well as the

long-term effects of RTB on ad networks’ business models. The core question is with what do ad networks directly compete? To put it in another way, which RTB segment is most likely to displace ad networks – MBDs, DSPs, SSPs, ad exchanges, none of the above, all the above, or a combination thereof? The

conclusion is all of the above. Any solution that enables ad inventory and ad revenues to enter and exit the RTB platform while bypassing the ad network is a direct threat to incumbent networks, despite their seemingly different business roles and motives.

Because of RTB adoption and growth, ad networks are experiencing an identity crisis. Within the RTB, ad networks now assume the role of the buyer, competing directly with buy-side platforms (MBDs and DSPs) for RTB ad impressions. In this role, ad networks buy via RTB exchanges then resell the impression to a client based on a variable markup. From an ad sales perspective, ad networks are beginning to lose ad selling and revenue share opportunities as online publishers make more ad inventory available to RTB-enabled sell-side platforms. Interestingly, almost all ad networks now secretly buy their inventory from major SSP, AppNexus, which serves as a wholesaler of RTB inventory for ad networks.

Despite established relationships with agencies and publishers, ad networks will eventually realize their business is vulnerable to RTB systems. Ad network survival is dependent on investing in RTB technology to match the efficiency, transparency, and scalability offered by RTB. An immediate competitive approach is to collaborate with leading DSP and SSP providers that offer ad network RTB integration. For example,

AppNexus, a major DSP and SSP provider, offers ad networks the technology to manage both demand- and sell-side partners and RTB-enabled systems. Another major SSP, PubMatic, extends its service offering to ad networks so they can access to the same ad inventory released to ad exchanges.

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Online Buying/Selling Intermediaries 34 parksassociates.com For advertisers, ad monitoring and

verification services are employed to ensure RTB ads are displayed in brand-safe content and adhere to media campaign goals and guidelines. These services also allow content owners to block unwanted ads or unsavory

advertisers from displaying on a website. Due to the automated process of RTB, ad verification services give industry stakeholders – particularly ad agencies - a level of transparency, trust, and accountability on ad impressions bought and served. Non-compliance includes measures such as the number of ad impressions verified as non-compliant, rate for inappropriate content, off white list42, on black list43, and incorrect geographic targeting. Figure 15 outlines DoubleVerify’s media verification criteria.

DoubleVerify and Adsafe are the leading online monitoring and verification services. DoubleVerify processes and verifies more than 60 billion online ad impressions each month (non-RTB and RTB ads). The company publishes a free, biannual benchmark compliance standards report highlighting non-compliance measures among major publisher sites and ad buying and selling platforms.44_{Industry compliance assurance is a}

crucial component for the growth of the RTB market because it ensures platform accountability and establishes advertiser trust. Once trust and accountability exist, more dollars flow through RTB systems.

42_{Off white list: Ads}_not_{displayed on a set of predetermined websites that are preferred by the agency.} 43

On black list: Ads displayed on a set of predetermined websites for which ads should not be served. 44

DoubleVerify Trust Index Insights, Benchmarks and Findings on Online Advertising Compliance 2H 2011

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Real-time Bidding Online Advertising Revenue Forecasts in

North America (N.A.) 2012 – 2017 35 parksassociates.com

5.0 REAL-TIME BIDDING ONLINE ADVERTISING REVENUE FORECASTS IN

NORTH AMERICA (N.A.) 2012 – 2017

5.1 FORECAST METHODOLOGY

Parks Associates forecasts include RTB ad revenues generated from online display ads in North America (U.S. and Canada) from 2012 to 2017. Figure 16 provides an illustration of the bottom-up forecast methodology used to estimate revenues.

5.2 FORECAST ASSUMPTIONS

Parks Associates applies assumptions and crosscheck references to the revenue forecasts based on the following primary and secondary research sources:

 Parks Associates GlobalDigital Living Forecast Workbook, December 2011 Edition

o Total households

o Internet households

o Broadband households

o # of unique Internet users  Industry executive interviews

o % of ad-supported Internet sessions

o % of RTB ad impressions

o RTB CPMs

Figure 16: RTB Online Display Ad Revenue Forecast Methodology

Total Households

# of Internet users per household

RTB Online Display Ad Revenues – N.A.$

RTB Online Display Ad Revenue Forecast Methodology

Internet Households

Source: Real-time Bidding: The Online Ad Exchange, 2012

# of Internet sessions daily/monthly/yearly per user

Total # of Internet Sessions Annually

% of ad-supported Internet sessions # of unique monthly adult Internet users

# of Internet Display Ad Impressions/Annual

% of RTB Display Ad Impressions

RTB CPM

U.S. Canada

# of RTB Display Ad Impressions Broadband Households

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 Industry sponsored research and press releases from comScore, Interactive Advertising Bureau (IAB), DataXu, Turn Media, Accordant Media, PubMatic, and SiteScout45

o # of yearly Internet sessions per user

o % of ad-supported Internet session

o % of RTB ad impressions

o RTB CPMs

Figure 17 provides a snapshot of the key drivers and barriers taken in to account when estimating the growth of the RTB ad market.

Figure 17: Drivers and Barriers of Growth of RTB Ad Market

In 2012, RTB advertising revenues will reach $1.6 billion (Figure 18). Revenue growth will accelerate, rising to $6.9 billion in 2017, representing a 34% five-year CAGR. Within the forecast period, the U.S. RTB market represents the vast majority of RTB ad expenditures, accounting for 98% to 99% of total revenues. The Canadian RTB industry is in its formative stages, with few display ad impressions yet bought and sold in real-time. According to industry estimates, the Canadian RTB ad market lags 12 to 18 months behind the U.S.46

45

Referenced in 1.3.1 Data Sources

46

Microsoft Advertising, May 2012, Behind the Buzz: When Will Real-Time Bidding Break Big in Canada? (Accessed June 2012)

http://advertising.microsoft.com/canada/en/WWDocs/User/en-ca/ForAdvertisers/RTB%20Cdn%20Whitepaper% 20-%20FINAL%20PRINTED.pdf

Improved audience targeting

Increased campaign performance rates

Transparency (site-level) and Control (impression-level) Improved yield optimization

Increased CPMs

Facebook Exchange launch Lack of Agency Education

Devaluation of premium ad inventory

Withholding of premium ad inventory from RTB market Displacement of publisher ad sales divisions and ad networks Noncompliance of ad placement standards

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Figure 18: RTB Online Display Advertising Revenues North America 2012-2017

1.6 2.7 3.6 4.6 5.7 6.9 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 2012 2013 2014 2015 2016 2017 In B ill io n s

RTB Online Display Advertising Revenues - North America

2012 - 2017

Source: Real-time Bidding: The Online Ad Exchange

$15.1