Monday, November 26, 2012

Online Video Ad Exchanges - How Viable?

Recently, Ted Sacerdoti applied the methodology of venture capital firm Benchmark Capital to the online video advertising exchange sector, to get a hint of the sector's long term viability.  (Benchmark's used this approach to consider which markets can give birth to successful online marketplaces).  The Benchmark approach looks at ten factors or attributes, and Sacerdoti gives the online video ad exchange A's in all but one (which earns a B+).
Here's a summary -

  1. New Experience v. Status Quo - the online exchanges offer advantages in inventory and flexibility.
  2. Economic Advantages - For now, the exchanges offer lower CPM, and better targeting reduces wasted spending.  Exchanges offer publishers opportunity to monetize, making exchanges advantageous from their perspective.
  3. Opportunity for Technology to Add Value - online offers better metrics, "which enables technology to provide inventory forecasting, pricing recommendations, performance optimization and workflow efficiencies for buyers."
  4. Fragmentation of Suppliers - digital video publishing is highly fragmented and is likely to remain so.
  5. Friction of Supplier Sigh Up - a new third-party standard (VAST) has made it easier to sign up a supplier - often in less than an hour.
  6. Size of market Opportunity - Online video ad is already a billion-dollar market, with forecasts of $5-10 billion in a few years.
  7. Opportunity to expand the market - digital video publishing is growing (expanding inventory), and better online audience metrics opens potential to smaller, highly targeted ad/reach opportunities.
  8. Frequency - exchanges minimize "dead air"
  9. Payment Flow - the exchanges serve as part of payment flow
  10. Network Effects - Incremental added value at the margins, while exchanges minimize transaction costs
Its pretty clear that there are several distinctive advantages for online video ad exchanges within the larger video-ad and advertising markets.  The potential efficiency advantages (speed, inventory, targeting) should make this sector somewhat competitive within the TV and general ad markets.  Still, its the ability to complement and expand those markets that is likely to really drive market growth in the future.  Online ad exchanges bring in a wealth of smaller, highly targeted content "publishers",  better metrics allow improved targeting opportunities for larger advertisers.  Moreover, when you combine those two factors with the small scale opportunities, this opens the market to small and local firms who otherwise wouldn't be able to consider video advertising.
  The opportunity is clearly there - unless or until the exchanges manage to screw it up.

Source  -  Video Ad Exchanges Make The Grade,  Online Video Insider

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