Ad tech has become a dirty phrase. The industry’s pursuit of programmatic banner ads has paved the way for ad blockers, privacy laws like GDPR/CCPA, banner blindness, user attrition, and slow websites/apps. It’s forced even Google to phase out third-party cookies in Chrome to stay competitive with more privacy-focused browsers like Firefox and Safari.
It’s no wonder, then, that so many sites and apps avoid ad monetization of any type (relying instead on subscriptions, commissions, etc). The understandable concern is that implementing ads could cause user attrition and erode other revenue streams.
At the same time, these brands (we call them 'Utility Publishers') have exactly what advertisers pay premiums for: unique first-party data, engaged users, and high traffic volumes.
While ad revenue would likely never surpass their other forms of monetization, Utility Publishers could use ads as a high-margin revenue stream to grow faster and/or drive down their prices.
If the ad experiences are integrated with care and with users in mind, it could be a win for everyone involved: the publisher (more revenue); advertisers (right audience, right time); and users (lower prices).
For that to happen, though, Utility Publishers cannot rely on the current, broken ad tech tools - and instead will have to innovate the whole ad serving process. This article looks into why that is, what exactly Utility Publishers are, and what the 2020s has in store for them.
What is a Utility Publisher?
A Utility Publisher is a brand with a large digital presence and whose revenue is predominantly non-ad-based, such as subscriptions, commissions, purchases, and so on.
Examples include digital services like AirBnB, Ticketmaster, Grab, Expedia, Netflix, Amazon, Match, Cars.com; brands with physical products but lots of digital traffic like Marriott, Disney, United, NBA.com; even SaaS products like Salesforce and Trello.
This is compared to a Traditional Publisher, which has long been synonymous with just ‘publisher’ in ad tech. These are brands that make their money almost entirely from ads and include:
- Well-known media companies like Vox and Buzzfeed
- Free content producers like Dictionary.com and WebMD
- Free-to-play games
- The long tail of the Internet: small digital magazines, individual bloggers, and niche content like Horoscope.com and Lotterypost.com
These Traditional Publishers fuel the majority of programmatic ad spend; as such, ad tech has coalesced around them, striving to solve their problems: how to streamline ad unit sizes; monetize without much first-party data; and maximize an impressions’ value through access to many bidders.
But these aren’t the problems of Utility Publishers, who are looking for incremental revenue streams that don’t come at the cost of user experience (UX).
This means they want fast, privacy-first, brand-safe ads that blend seamlessly into their site/app. Obtrusive banner ads that could populate with any off-brand advertiser is a non-starter.
Because ad tech has failed them, the few Utility Publishers who show ads have historically built their own bespoke ad platforms from scratch, such as Amazon’s Sponsored Products, Etsy’s Promoted Listings, Tinder’s Branded Dating Profiles, and WeTransfer's native ads.
As a side note, a third type of publisher - Social Communities - also exists, but these are limited in number, and most of their traffic is monetized via ad platforms they built - such as Facebook, Twitter, Quora, Pinterest, and Reddit. While these select companies monetize mainly with ads, they generally use native ads and don’t rely on third-party ad tech vendors, thus straddling the boundary between Utility and Traditional Publishers.
How do Utility and Traditional Publishers differ?
Traditional Publishers, as a whole, share several characteristics:
- They have little first-party data. Without requiring log-ins, and beyond tracking basic reading habits, they have a limited ability to track and store data on visitors.
- Their traffic is predominantly new versus recurring - either from a viral news article or someone only periodically needing an answer to a question (think: dictionary and medical sites).
- They monetize via ads almost exclusively. Ad optimization is thus vital to them, with a focus on best practices like header bidding, video, and so on. For sites that aren’t big enough to have an in-house ads team, they rely almost entirely on Google’s Adsense for traffic.
- They have UIs and page layouts built with programmatic ad formats in mind - which is why many content brands look so similar. This manifests in uniform ad placements like a 728x90 banner across the top, a 300x600 banner on the right, and Taboola/Outbrain “faux native” recommended articles at the bottom.
Exceptions include the largest news outlets who can monetize through subscriptions (NYTimes, The Washington Post) or who have cable revenue (CNN, Fox). While such brands are high-profile, they are few compared to all the long-tail content publishers out there.
Utility Publishers, on the other hand, share these characteristics:
- They have troves of user data. Uber, for instance, knows a lot about where you go, when you do it, how often, etc. This is information that could be valuable for advertisers, without any PII needing to be shared. For instance, Uber could have an ad platform where advertisers like Lululemon could target anyone currently heading to a mall.
- Their traffic is predominantly repeat. Their customers have already signed-up and/or downloaded an app, or they’re a shopping site with a loyal customer base.
- Most of their revenue is from non-ads. Some Utility Publishers do incorporate ads of course, but the bulk of revenue are from subscriptions (Netflix, WeTransfer), a cut of purchases (Uber, eBay, Stubhub), or a finder’s fee (Zillow, ZocDoc).
- They pride themselves in innovative, bespoke web and app experiences. Fast page/mobile speeds are imperative, and their designs are polished and unique. Go to Spotify.com and remove the logo, and you’ll still know what site it is. Compare this to the below screenshot (which is the #136 most visited site in the US), which is harder to discern.
(Hint: it’s USAToday.com. Note the giant ad that takes up a third of the above-the-fold space (but awkwardly doesn't even fit into the whole box). There was also a whopping 85 tracking codes on the homepage. That’s not something, say, Zillow could afford to do.)
Utility Publishers will force Ad Tech to innovate in the 2020s
Ads don’t have to be a dirty word or anathema to user experience. Indeed - many companies have already proven there are ways to build innovative ad platforms that don’t insult the viewer. Twitter’s Promoted Trend Spotlight ads seamlessly fit into their Explore Tab; Instagram’s native ads flow well in the feed; and Amazon’s Sponsored Products blend right in with organic products.
Not only that, but such ad platforms could actually improve the Utility Publisher’s standing with customers. Take Amazon, whose ad revenue (mainly fueled by their native Sponsored Products) is estimated to have driven a staggering $3.6 billion in Q3 2019.
This is incremental revenue they can use to keep product prices lower, leading to faster growth and a wider competitive moat - without having to use obtrusive banner ads.
It's no coincidence that Amazon is the market leader with the lowest prices AND makes $12B+ a year from sponsored listings. That ad revenue gives them new funds to innovate and expand; companies that don't have it, on the other hand, have had trouble keeping up. In fact, we're starting to see other eCommerce sites recognize this, with Walmart releasing a self-serve portal to buy ads on their site, and Target marketing a similar product.
We expect ad revenue to increasingly become vital to Utility Publishers due to more competition and the lower costs of starting a business. As growth starts to slow down, investors will demand new revenue streams, and ad monetization is an obvious first choice.
To get there, though, these brands won't use OpenRTB programmatic banner ads for the reasons listed above (not to mention that as Google, Amazon, and Facebook grow what industries they’re in, using them to monetize likely means funding a competitor).
Instead, Utility Publishers will focus on integrated native ads and sponsored listings. These ad units will blend into the UX and enable advertisers to sponsor standard content (sometimes as simple as tacking on a logo). The best native ads don’t feel like ads - instead, they are curated pieces that capture the spirit of the product and don’t require layout changes to the site/app.
Some great examples of Utility Publishers building innovative ad products include:
Etsy - Sponsored Product Listings
Tinder - Branded Profile Cards
Waze - Sponsored Locations
Atom Tickets - Homepage Takeover
Yelp - Sponsored Business Listings
The 2020s will be the rise of new Walled Gardens
The term ‘Walled Garden’ arose to refer to ad titans like Google and Facebook.
Specifically, a Walled Garden is an ad platform where the buying, serving, tracking, and reporting are handled by the publisher.
These brands use proprietary first-party data to augment their targeting options, but do not share this data with advertisers, nor do they generally allow buyers to bring in their own data or use custom tracking codes.
For example, Snapchat is a relatively new Walled Garden. They focused on building a robust native ad product, with Sponsored Story Ads and Sponsored AR Lens. Then they layered on valuable targeting options, such as behavioral/demographic segments like Music Fans and Business Travelers.
But to access this traffic, you have to buy through their self-serve dashboard. You don’t get access to ad serving logs, can’t hook it into your DSP, and have no visibility into what happens at time of impression (without impression pixels, you can’t verify someone saw the ad).
Regardless of this buying limitation, Snapchat is already 0.7% of total digital ad spend, with $1.53 billion in ad revenue in 2019.
What makes a Walled Garden so powerful is that:
- Utility Publishers get to own the ad unit. By not relying on IAB ad formats, they can build ads that are as native and integrated as they would like. They can also set rules on what advertisers can buy - ensuring brand-safe content.
- By using third-party codes, they can deliver ads server-side, limiting the risk of malware and slow pages/app loads.
- With the rise of privacy laws like GDPR/CCPA (and we can expect a federal US privacy law in the 2020s), publishers are naturally worried about the programmatic supply chain and third-party pixels. Owning a Walled Garden ensures they are sharing little to no data with third-parties.
- Unique first-party and intent data greatly increases the value of an impression. A Utility Publisher may make $1.00 - $2.00 CPMs (if lucky) through an ad exchange, but potentially orders of magnitude more for very targeted ads.
- Publishers control their future. With Google phasing out third-party cookies in the coming years (and enforcing SameSite cookie settings this year), any publisher that is reliant on revenue from ad exchanges will struggle. Having your own ad server makes you less vulnerable to the whims of browsers and other ad tech players.
Walled Gardens Will Actually Be Gated Gardens
In the Snapchat example, I point out how opaque the platform is. This is the same with Facebook, Twitter, and others.
We don’t expect this to be the case with all Utility Publishers. They will understand that their advertisers may expect to place impression pixels or will want to purchase inventory through a DSP. Being totally blackbox may be a no-go to securing larger deals.
This will lead to Walled Gardens integrating with DSPs/Exchanges via Private Marketplaces and Programmatic Direct - allowing large media buyers to handle invoicing through one portal while also layering in their own buy-side ad serving pixels and first-party data.
We thus see Utility Publishers building Gated Gardens: ad products that mirror walled platforms but also find ways to integrate with the major DSPs to simplify life for their advertisers.
It’ll take time for these Walled Gardens to appear
It’s no surprise that companies like Pinterest, Quora, Twitter, Facebook, etc rushed to build ad platforms: if ad revenue was how they were going to monetize, they needed to build scalable, custom ad platforms.
But this isn’t the case for Utility Publishers. eBay, for instance, is never going to make the bulk of their revenue from ads; its transaction fees will dwarf it. Given this, most Utility Publishers have not prioritized building an ad platform, and changing this status quo will take time.
It’s also no easy engineering task to design a Walled Garden when it’s not your core product. It needs fast server-side ads, an ability to handle millions or billions of daily requests, reporting tools, pacing, targeting, integrated first-party data activation, relevancy scores, etc. Any brand would be lucky to release something within a year, even with a large team of engineers. Further maintenance and having to adapt to a changing space (like complying with new privacy laws) then requires that team to stay around.
This is where a service like Adzerk provides value, as we offer infrastructure APIs that make it easy for companies to build their own ad platforms. Utility Publishers like Yelp, WeTransfer, Ticketmaster, Bed Bath and Beyond, and Mozilla all use us to create scalable, robust ad products in a fraction of the time and cost as building from scratch.
Regardless of how they are built, though, these Walled Gardens will come in the 2020s.
This shift is ultimately a reflection of how ad tech, in its relentless pursuit of programmatic assimilation, went wrong.
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