Mobile and Video Muscle Onto Ad Exchanges

Until this year, the ad exchange ecosystem has been ruled pretty much exclusively by that workhorse of digital formats, the IAB-standard display unit. No longer.

A slew of companies have lately begun supporting new formats, in particular mobile and pre-roll ads. Among them are Microsoft, Adap.tv, BrightRoll, demand-side platform DataXu, and Research in Motion. As with display, ads are auctioned on a real-time basis through ad exchanges and other “sell-side aggregators,” with assets provided by ad networks and demand-side platforms.

Here’s a rundown of the most recent offerings and their implications for media buyers:

Video Exchanges From Adap.tv and BrightRoll

At least two firms are aggregating in-stream video inventory, making it biddable in real-time via an exchange model. Back in February Adap.tv opened its marketplace. Initially available only in pre-roll, the company now allows buyers to bid on mobile video and video interstitials.

Video ad views on Adap.tv’s exchange have grown an average of 92 percent per month since its launch. In September it claims to have delivered 440 million impressions, and this month it surpassed a billion.

In August, video ad network BrightRoll rolled out its own self-serve exchange for video ads and, like Adap.tv, it supports real-time auctions. Called BRX, the platform appears to have gained early momentum, brokering $1 million in video ad inventory in its first month. It’s selling inventory to advertisers directly, as well as to ad network go-betweens like ContextWeb and Media6Degrees and DSPs like DataXu.

“If we can pool a large amount of inventory it will be a significant step,” BrightRoll CEO Tod Sacerdoti told ClickZ back in August. “Buyers just don’t have that inventory access.”

Microsoft Prepares Mobile Exchange

Microsoft has put the pieces in place to create a mobile ad exchange, called Microsoft Advertising Exchange for Mobile. The launch is part of an aggressive push in real-time bidding that the company hopes will save it from becoming an also-ran among ad exchange players.

Geared toward developers, Microsoft’s mobile exchange debuted in conjunction with the mobile advertising software developer kit for the Windows Phone 7 operating system. It will allow developers building apps for Windows Phone 7 devices to plug into demand from mobile ad networks like Millennial Media, InMobi and MobClix.

At launch, the mobile ad exchange will be specific to Windows Phone 7 handsets. But the company left the door open to other devices, claiming its mobile Web properties reach 59 percent of iPhone, 45 percent of RIM, and 53 percent of Android users in the U.S.

“It’s interesting they went from not much of a mobile play right into an exchange mobile play,” said Ed Montes, managing director of Havas Digital’s AdNetik trading desk, of Microsoft’s effort.

Mobile Aggregators Proliferate

Aside from Microsoft, a number of companies are seeking to fill demand for mobile inventory by pooling inventory from publishers and app developers.

Just last month RIM announced its Blackberry Advertising Service, an exchange-like product that allows developers of Blackberry apps to plug into demand for inventory through a number of mobile ad networks.

Another firm, Mobclix, is similar to RIM and Microsoft in that it offers developers the opportunity to draw from multiple sources of demand for mobile advertising without building relationships with individual ad networks. It’s different from them in that it’s owned by an agency. The firm announced its acquisition by U.K.-based Velti earlier this month.

Also on the list of mobile aggregators is Nexage, an aggregator of mobile and online ad sources. And, browser maker Opera hopes to use adoption of its mobile browser as a foundation for a mobile ad exchange of its own.

Yet media buyers are cautious about applying the principals of exchange buying to mobile.

“The mobile space is full of aggregators right now,” said Havas’s Montes, who says scarcity and a lack of tracking standards may hinder exchange-based mobile media planning for some time. “We need to find inventory, but I don’t think there’s a ton of availability in that marketplace.”

DSPs Tap Into RTB Mobile and Video Ads

In October, demand-side platform DataXu upgraded its bidding tools for advertisers to enable mobile and pre-roll ads. More recently, it added expandable ads through a deal with Gannett-owned PointRoll.

DataXu does not operate an exchange marketplace itself but relies on distribution partners to make video and mobile inventory available. To supply video ad space, it’s working with BrightRoll and Adap.tv. For mobile it’s sucking inventory from Nexage and Mobclix. To support inventory for PointRoll’s expandable ads, it will lean on yield optimizer AdMeld.

DataXu and other DSPs wishing to tap into mobile and video-based sources of inventory are in some ways at a disadvantage in trying to become major hubs of buying activity – at least initially. That’s because they’re competing with established ad networks for inventory.

A source with knowledge of video ad exchanges, who asked not to be named, said DSPs are not yet significant players in pre-roll. “DSPs are essentially irrelevant from a spending standpoint,” he said. “It’s the ad networks that have all the demand.”

That may change with time. DataXu CEO Mike Baker said the company is preparing for a day when agencies and marketers seek consolidated exchange bidding across all online media – and eventually offline too. He believes the existing field of exchanges will greatly increase in the coming months, increasing DataXu’s value proposition as a potential aggregator of aggregators.

“As with mobile you will see additional aggregation partners added continuously,” he said. “We believe there will be double digit aggregators of mobile and video available for connection in 2011.”

Buyer Perspective: Scarcity Is an Issue

Many advertisers may be scooping up exchange-traded video and mobile ads already without knowing it. That’s because in large part, the exchanges and sell-side aggregators enabling these formats are being patronized by well-known video and mobile ad networks.

The ad networks’ customers don’t need to understand the intricacies of the exchange market to benefit from it. Yet over time the competitive advantage ad networks get from tapping into real-time inventory on mobile and video ad exchanges is reduced by the simple fact that they’re all competing for essentially the same pool of inventory.

“Exchanges take nearly all the competitive advantage away from ad networks buying from them, while also providing immediate and long-term economic savings,” said the video exchange observer who asked for anonymity.

Eventually, this dynamic may cause the exchange model to partly or entirely replace the ad network system – including for mobile and video advertising. For agencies and advertisers, that’s probably a good thing.

“We’ve got lots of people getting up to speed and familiar with the mechanics of exchange-traded media,” said Adam Cahill, EVP media at Hill Holiday. “Today that’s predominantly in the display space. There’s some growing portion of digital media that’s going to end up in exchange environments. Once we’ve adapted to working that way, the more that’s in there the better.”

The problem, according to Cahill and others, is that to date there’s still a relative lack of exchange-based inventory for both mobile and video ads. “If there’s not a lot of inventory available, the whole premise of an auction based model is a little bit challenged,” he said.

Havas Media’s Montes concurred, “You have an inventory problem in video.” Namely, a lack of transparent inventory.

“We’ve been saying pretty openly that we’ll pay a premium in an exchange marketplace if we have transparency from publishers in what placement is and where it is,” he said. “If the DSPs become big players in the video space, they’re going to have the same reaction from premium publishers as you have in the display space.”

That is to say, premium publishers and other video sellers may mount a backlash as CPMs are pushed down by a rising abundance of inventory and a corresponding lack of demand from ad buyers who formerly bought inventory direct.

BrightRoll CEO Sacerdoti shrugs off the matter of falling prices, suggesting it’s an inevitable result of the maturation of video. “Our CPMs have gone down every quarter since the company was founded,” he said. “Anybody who thinks CPMs are not going to decline is naïve.”