This is part of a series that explores the once lucrative and tumultuous ad tech industry. More from the series →
April 2007 is regarded as a pivotal month in ad tech’s development as it kicked off a spiral of events that embroiled some of the most well-known names in Big Tech.
The New York Times on April 4 noted how DoubleClick – a company “which delivers marketing messages to Web sites and monitors how many clicks they get” – planned to launch an ad exchange.
Journalists described the technology as “a Nasdaq-like exchange” for the buying and selling of digital advertisements,” taking in aspects of eBay and “the airline reservations system that travel agents use.”
As noted in an earlier installment of this series, DoubleClick’s ad exchange was not the first to market –Brian O’Kelley, then Right Media CTO, is credited with introducing such a service to market in 2005.
However, events of the coming weeks (see below) made April 2007 one to remember as two of the biggest names on the internet would collectively spend close to $4 billion on the sector.
- April 13, 2007, Google agreed to purchase DoubleClick for $3.1 billion
- April 30, 2007, Yahoo decided to purchase Right Media for $680 million
“There was a lot percolating,” recounts Marketecture’s Ari Paparo, then a DoubleClick employee, noting how Microsoft also got in on the act with its purchase of AdECN in July of that year.
He adds, “Right Media got a big investment [in 2006], and it was clear they had their sights on them, then that New York Times article got a lot of attention in general.”
After the launch of the ad server in the 1990s, the ad exchange was deemed by many to be the most significant piece of technology in this sub-sector of the economy.
Ad networks – typically sources of aggregated inventory from long-tail publishers – were the initial scaled customers of ad exchanges. However, this would change as the programmatic era took hold, and several tech standardizations helped spur the programmatic era.
Per First Party Capital’s Ciarán O’Kane, “That’s when programmatic really started to kick-off as you had the [supply-side platforms such as] AdMeld [later bought by Google] and [demand-side platforms] like MediaMath kicking around.”
Meanwhile, media agencies also paid attention to the wave of new technology, with parties pointing to Publicis Groupe’s 2009 purchase of Razorfish from Microsoft for $530 million as another significant transaction.
Joanna O’Connell, currently a consultant at R3 and then at Razorfish, claims this transaction led to the first agency trading desk. “They [ad networks] were black boxes, and the client would understandably ask, ‘Well, why is it working? Or why is it not working?’ And I had now just how zero-answer because I had zero-insight into what was happening with their dollars because I didn’t control it.”
Eventually, Publicis’ programmatic endeavors would become known as Vivaki. During this era, other holding companies made similar moves, with WPP creating Xaxis, Omnicom forming Accuen, and Dentsu Aegis responding to the ad tech revolution with Amnet. At the same time, IPG launched Cadreon and Havas Media Group founded Affiperf.
O’Connell further explained how holding companies wanted the ability to explain just how clients’ advertising budgets were broken down, which was a big motivator for this trend. “So, being able to log in to a DSP and make decisions for myself was enormously appealing,” she adds.
The development of such entities meant that holding companies could deal more directly with the long tail of media owners and not have to leak the margin that (otherwise) would have been deposited in third parties’ pockets.
Tom Triscari, an economist at Lemonade Projects, explains how the socioeconomic climate helped feed into this trend. “There was a clear trend for marketing procurement departments getting stronger and stronger within advertising organization,” he says. “So, pitches at that time became a race to get the best [or lowest] fee… it brought fees down to the three-to-five percent range.”
As a result, units such as Vivaki and Xaxias, et cetera, agency-holding groups could demonstrate to clients how they can still find their desired audiences, but not necessarily in the expensive environments of premium publishers.
“That pushed media agencies to figure out a way to maintain what they needed to make from media management to maintain themselves as an ongoing concern,” continues Triscari.
Through agency trading desks and the new wave of ad tech, agencies could rejuvenate their profit margins from single figures to as much as 20%, according to Triscari. “What they were doing was promoting this new channel and still be financially viable to their shareholders,” he adds.
Zach Rodgers, a journalist who has extensively covered this space, further explains how such entities operated. “Trading desks were effectively ad networks that sat inside the agency,” he says. “So, just like an ad network would use a DSP to buy ad impressions on an exchange, a Xaxis, Vivaki, or Accuen would then use them to acquire media for their clients.”
In the early-to-mid 2010s, this trend placated the shareholders of media agencies and the procurement departments of advertisers. However, after some time, marketers started to feel pressure from the latter.
Rodgers adds, “What were they charging the clients, and how did that compare to what they were paying for impressions was always a black box, and there was a growing pressure from advertisers to disclose that.”
The pressure to disclose such margins came to the fore as advertisers grew ever more stringent with their media budgets. During the same era, several VC-funded ad tech companies made initial public offerings, and it was the accompanying S1 filings of said outfits, such as RocketFuel, made these profit margins more apparent.
While not directly related to ad tech, many point to a 2016 Media Transparency Initiative from the ANA as indicative of this trend.
Rodgers notes how this coincides with how many of the industry’s holding groups started repositioning their trading desks. In the early days, many were centralized buying entities, which evolved into teams dispersed throughout the broader organization.
“There was a lot of rebranding going on,” recounts Rodgers. “Many of them just created new units as they needed their clients to see this as a totally new way of doing business… but at the same time, they still wanted the money associated with agency trading desks.”
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