by Andrew Casale (VP Strategy)
When evaluating and eventually buying private exchanges, there still seems to be considerable confusion from desks, and the DSPs powering buys about the practical usage of this channel. In my view the confusion is fueled by the lack of standards for the usage of the term ‘private exchange.’ There are several widely used tactics that create very different value to the buy side that, in my view, need to be better differentiated. And, only one tactic is fitting of the “private” label. I’ll compare two of the more commonly used approaches to the model and how they differ.
“First look” is a tactic widely offered by sellers who operate private exchanges. It effectively means prioritized access and prioritized bidding. Impressions are made available to the open RTB market and then cleared via a second price auction. Meaning the highest bid received from DSPs participating in the auction is cleared at the second highest price set by the sell side platform (SSP) representing the publisher.
However, publishers also want to incite buying and offer up rewards in return for commitments, and this is where the first look tactic comes in. Instead of the winning impression going to the highest bid, if a bid comes through from a preferred or prioritized buyer, that buyer wins the impression at whatever the pre-negotiated floor or fixed price is. The buyer is guaranteed to get the impression whether they would have paid more for it or not in the open auction. This privilege is typically granted in return for a commitment – perhaps a guaranteed quarterly or yearly spend that the buyer has made to the publisher, or just a commitment in spirit that the buyer will push more budget towards the publisher. Since RTB is still clearing a minority of display impressions (estimated at 25% of all impressions), price may be important but fill is equally important, if not more.
Depending on the buyer, the first look model is either very interesting or not interesting at all. Some buyers would rather take their chances in the open market and see what impressions they can get at presumably the lowest price, with no committed budget. Others have such a narrow targeted audience who they absolutely have to reach – and that’s when it is worth paying a higher average clearing price, and even commit some budget, to be guaranteed access to those valuable audience segments.
On the other hand, there are private exchanges in market today that are actually private exchanges. Meaning their impressions do not go to the open market to bid. These impressions are only made available to select buyers who have a pre-negotiated deal with a publisher. These private exchanges represent the rare case where a buyer can’t just take their chances on the open market and see what they get, as they’ll never access the publisher’s impressions. Every conversation that I have been privy to between a buyer and a publisher who operates in this capacity has been extremely positive because it brings something to the table that everyone wants – unique, unduplicated, differentiated impressions. Despite the massive size of the supply pool today, buyers are still seeking unique and premium inventory because their needs are not entirely satisfied by what they have access to today.
I’m not suggesting one approach is better than the other. Depending on the publisher, the optimal model will differ. My intent is to reorganize what we define as a private exchange. Doing so adds more credibility to both the usage of first look tactics and true private exchanges, as expectations will be set at the outset and less confusion will arise. This may hopefully serve to remove some of the fuel from the continued debate over this model.