The Display Ad App Model: Transforming Platforms, Investment And Agencies

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It’s still early in the online advertising “app” model business, but the reasoning for it is clear from a platform’s perspective. The more app companies that you have building products for your platform, the more robust and differentiated your platform becomes -which presumably leads to rising demand and, best of all, makes your platform that much more indispensable.

Increasing numbers of companies have let loose with their own flavors of app business in display advertising including Flite, AppNexus, Adzerk and PubMatic among others. And then there are those companies who haven’t used the “app” word but nevertheless are signing up dozens of partners such as MediaMath, Turn and x+1 to name a few. Interesting to note that Google has remained silent about “apps,” but I’d hazard to guess that they’d say, “We’ve already got it.” The app model has a transparency theme running through it that Google would likely approve of.

The benefit of the “app” appears to be a pre-built integration with a platform that will allow any buyer or seller to easily use what had been previously known as a “point solution” - third-party targeting data, segmentation tools, analytics tools, verification capabilities, etc. No longer will there be a need for the buyer or seller to contract with each point solution. The platform takes care of that and, what’s more, it distributes favorable app pricing to platform buyers and sellers while trading scaling demand with the hungry point solution company.

Bad news for the point solution? To date, point solutions have had a less than favorable reputation: “They’re a tax!” “There are too many!” “A sign of commodotization!” But from here, point solutions largely show innovation and entrepreneurialism have been hard at work while opportunity abounds in an inefficient, digital media marketplace. And yes, it doesn’t hurt that an investing community has seen fit to pour millions of dollars into the ecosystem, too. Still, the point solution is starting to hurtle out of its supposed trough of shame and into a respectable trajectory.

Much like user-generated content (UGC) was a scary place for brands until Facebook’s platform came along and changed the game by providing scale and a degree of brand safety, the point solution is starting to see a renaissance with the app model. The ad platform is creating an easier way to test, try and buy. From the point solution’s POV, it may no longer have to develop for multiple integration scenarios and its direct salesforce may go away in trade for a less expensive platform services team. What’s more, the direct connection simplifies and provides focus for the ad app company. Rather than building for far and wide, it can go deep. Efficiency!

The Investor

Another app-related development is the use of investment by the platform to help grow its app ecosystem. Expect more of this - again, it helps provide platform differentiation which lures demand from publishers and marketers alike.

Nobody knows ad technology better than the people who are actually making it. Why not put that competitive advantage to use? What if the ad tech company was in charge of the VC purse strings?

That’s one of the ideas behind AppNexus’ Accelerator program which looks to incentivize developers on its platform by providing access to AppNexus’ ad technology and people - and even provide a little funding through venture partners. With hooks (APIs) built into the AppNexus platform, app developers can do some of the heavy lifting and make AppNexus even more relevant to buyers and sellers. Another way to read this is: let’s invest in point solutions for our platform. In the app world, it’s A-OK to be a feature.

It will be interesting to see how this app investment layer plays out for the venture capital world in the long run. App developers won’t need a lot of cash. Investment will likely depend more on the relationships an investor can offer the app company. It will be more about the bennies, than the benjamins.

The Agency

The agency world is on the verge of a similar shift inspired by the app model.

Historically, I’ll suggest that the agency has served as media’s platform. If you wanted to do business with brands, you went through the agency which managed the plug and play of vendors, strategy and media. Today, though it’s very early, owners of technology platforms are now slowly automating the agency platform. And in turn, agencies are becoming the app. But, that doesn’t mean the “people” layer doesn’t matter anymore - it does more than ever. Agency holding companies and tech platforms are merging.

MediaMath’s plunge into the agency business with Kepler Group and Spree7 in Europe is a microcosm of how media technology platforms need to be fed. It likely won’t be long before a tech platform takes its company stock plus VC funding and starts buying independent, digital agencies - another example of platform as investor. The platform needs the agency “app” and it has the growing programmatic buying trend and technology at its back.

The dealings of traditional ad agency holding companies can be the model for the emerging agency holding company owned by the platform. WPP Group saw this trend coming early on with its acquisition of ad tech company 24/7 Media in 2007. MediaOcean (formerly DDS/MediaBank) is looking to do this for the entire ad agency ecosystem with its advertising OS.

Some of the keys to success for the platform holding company remain similar to its agency precursor: keep founders and employees in place by incentivizing them with ownership in a growing, mostly autonomous company. Also, the platform’s holding company will provide efficiencies to its satellite agency by giving direct access to continually innovating technology for doing its business - cross-channel, programmatic buying.

At the same time, in addition to ownership, the tech platform benefits by getting access to demand through a contractual agreement such that the agency will use the platform’s products and services. “Pour me some demand, Agency!” says the platform.

Some may see the new holding company model as a way to “exit” for certain tech companies - the reason being that the tech companies can sell their satellite system of agencies to an existing agency holding company. Maybe. But, in 2-4 years, it could work the other way around. This is no slight against the agency world. Platforms are spawning or drawing in agencies because they have clients who require specialized help. This core group of platform clients is best represented by today’s top e-commerce publishers - think D.R. - who leverage their significant datasets to drive digital campaigns. The brand awareness marketer will be next as the ecosystem continues to grow solutions in this area.

The unanswered question for some will be, “How does the client feel about all this?” Or how about this one - “What happened to agency as agent of the client?” How can an agency truly be an agent if they are biased toward using one platform in particular? As long as the agency is up front about these perceived biases, it would seem it all comes down to performance. And if all a client’s procurement officer cares about is performance, then there won’t be an issue. Easier said than done for some big brands. That’s a big “if.” I’d guess that the classic “agent of the client” agency won’t go away because some clients will like it, and some agencies will be willing to deal with the procurement officer who likes to beat down a markup.