Part of our RMX Direct product will be the ability for publishers to add in 3rd party networks to compete in an auction format for their inventory. When a publisher’s ad impression comes into RMXD, we must decide which network to send that impression. But how do we determine where it should go?
For the networks and advertisers already on Yield Manager, we have all the data so we can make a accurate prediction of what every available creative is going to pay. However, how do we know how this compares to what the 3rd party networks will pay for that impression?
Let’s break this down for discussion:

Goal - To sell every impression for the highest amount of revenue possible. This should be easier to manage and earn a higher revenue than traditional daisy-chaining.
Main Obstacle - We don’t have access to all the advertiser, campaign, and creative data with 3rd party networks. We can’t predict the amount each impression will pay like we do in Yield Manager. Therefore, we must use what data we can to make the best prediction possible.

Available Data - It’d be nice if networks would all agree to output a publisher’s reporting data in XML, but until that happens all we can do is ask the publisher for their login and pull their past historical data to help us predict.

What Determines The Revenue - The factors that might determine the amount of revenue a 3rd party network pays for an impression are:

• Revenue share with publisher
• General Average eCPM (Quality of Advertisers)
• Quality of user causing impression (Geo, connection type, domain type)
• Frequency of user causing impression (First ad seen?)
• User click/conversion history
• Quality of publisher’s site/section
• Average Frequency of total impressions publisher is sending
• Total impressions publisher is sending

Am I missing anything there?

What Can We Use - Out of those factors that determine revenue, we can only have access with automated login to a few of them:

• General Average eCPM
• Frequency of user causing impression
• Average Frequency of total impressions publisher is sending
• Total impressions publisher is sending
• We know the quality of user, but we can’t tell how they pay based on that information from a total amount of revenue earned

What We Can Learn From It - Using that data, we can learn the following things about how a network pays for an impression:

• True eCPM for a publisher over whatever period of time we’d like to know
• Number of unpaid impressions to give us an average percentage of defaults with each network
• By testing varying average frequencies we can see what user and publisher frequency level generates the highest CPM and fewest defaults for each network.
• By testing sending a specific user attribute to a network we could see if there’s a correlation in CPM. For example, sending all USA users to one network for a day and noting the results, then testing another country or region and seeing the results. This could be done for each network to get a picture of what networks perform best for each user attribute. However, is this type of testing and analysis really practical?

What Do We Do - This is probably better for our technology team to answer. Based on the historical results of revenue earned combined with frequency testing we should be able to come up with a way to test, learn, and predict what network is going to pay the most for an impression. While each impression might not be 100% correct, it should be able to continually optimize over time and get better, while also adjusting to any swings in eCPM from the 3rd party networks.

This is an open discussion. If you have thoughts on this, please chime in. Am I missing any data we may have? Is there something else we should test?

It’s not easy to be growing faster than even analysts predict, but Bloomberg reports that’s what online advertising is doing.

The market for online ads will increase 32 percent to $16.6 billion next year, fueling growth at companies including Google Inc. and Yahoo! Inc., Credit Suisse First Boston analyst Heath Terry said in a research report. He had previously forecast 21 percent growth.

That is impressive growth, and what’s fantastic about this is that the money filters down to publishers through the various ad networks and direct ad sales. With RMX Direct, what we’re trying to do is give the publisher the best fighting chance possible to get the biggest possible piece of that money pie available from your impressions.

We feel like we’ve accomplished quite a bit in the short existence of Right Media. We’ve built an advertising marketplace in Yield Manager that is now serving over 30 billion impressions a month with thousands of publishers, hundreds of advertisers, and over 20 ad networks.

Yield Manager has managed to do quite a bit for the efficiency of advertising relationships, but it is a complicated marketplace in some ways. We feel like we can tap into the power of Yield Manager to build an advertising management solution that focuses on making life easier for web publishers while also earning them more money.

Is that possible? Yes, we think it is. There isn’t anything out there that manages to maximize the amount of revenue you’re earning from your ad inventory without involving hours of work per day.

We invite you to come along with us as we build this product over the next few months. We want your feedback, we want to incorporate your ideas, and we’re looking for people who may be willing to test it out when ready. Stay tuned.

The more time I spend in the online media industry (and at Right Media), the more I see parallels between an online network and a financial market. The chasm between an efficient market such as NASDAQ and the online media network space is equally apparent.

So, what parallels can be drawn between a financial market like the NASDAQ and an online media network, or even the aggregation of all the media networks? 

In the coming weeks/months, I’m going to dig into this more. I’ll look at the impact on buyers and sellers from a macro and micro perspective. Feel free to email me if you read this and find it interesting or worth discussing/arguing. My email is my first name, then @rightmedia.com.

Chapter 1 - Networks as Market Makers

Before coming to online media, I worked for Citigroup in the Debt Derivatives group in New York. Derivatives are financial instruments that increase or decrease risk based on the buyers/sellers view of a market. Each party in the transaction is attempting to minimize risk while maximizing return on investment (ROI). For example, if I own millions of dollars in GM bonds, and I believe that GM defaulting on their bonds will cause me to lose money, I can buy a derivative, or ‘protection,’ from a seller to cover a portion or all of the loss in the event of default. This protection comes at a price which is negotiated between buyers and sellers, either through a trading platform or through a customized financial agreement. The seller earns money by offering the protection and assuming the risk, and the buyer minimizes risk (loss of value) by ‘passing’ it to another party. Financial markets such as the NASDAQ, Instinet or even creditex.com thrive by serving both parties fairly based on their needs and outlook.

Much like a NASDAQ, an online media network facilitates transactions of somewhat standardized products between buyers and sellers. The network operates like a broker/dealer, such as Smith Barney, by aggregating supply and servicing the buyer directly or through their intermediary (an agency). Advertisers buy media to maximize ROI (through users’ actions or brand positioning), and attempt to minimize risk through targeting buys (content or behavioral), centralized ad serving, standardization of contracts and ‘optimization’ (which I’ll be writing about more later).

Historically bloggers have primarily done some pretty simple things with the advertising on their blogs.

Usually it’s Google Adsense. They paste the code into their template, and away they go.

You’ll see the occasional BlogAds placement, Adbrite, Chitika, YPN now, direct advertiser, and occasionally a display ad network.

While Adsense is definitely a good option, assuming it’s the one and only ad choice for your blog is probably a bad assumption. Here’s why:

1. You only get paid per click. Many blogs have a sophisticated audience that won’t click much on the ads. Sometimes it can pay better to have a display ad network that pays on a CPM basis so you get something for every ad impression.

2. Your topic area might not pay much per click. Different topics have vastly different payout rates per click.

3. Don’t put all your eggs into one basket. You never know what might happen with Google and Adsense. It’s never a good idea to be totally banking on one source of revenue.

4. Ad Blindness. Your visitors get used to seeing the same ads over and over, and they start to tune them out.

So if working with Google or just one ad network isn’t enough, what should you do?

1. Sign up with multiple ad networks. There are a wide range of ad networks out there, there’s no need to limit yourself to just one.

2. Get an ad server to manage your advertisers and networks. An ad server allows you to control your inventory. You can decide which parts of your site get advertising, rotate multiple advertisers into one spot, and do much more sophisticated things like geotargeting.

Using a system like Yield Manager is the way to go. Not only can you control your entire inventory, but Yield Manager can do a dynamic auction on every ad impression to determine which one of your ad networks will most likely pay the most for that impression. For CPC and CPA ads, it uses past history and user information to predict what the likely result would be and calculates an effective CPM to take part in the auction. Yield Manager has a ton of other features like being able to automatically link up with other ad networks using Yield Manager and get more competition for your inventory driving up your overall CPM.

The bottom line is that if you’re just plugging in Adsense you’re probably leaving money on the table. But if total simplicity is what you’re after, that may be the best solution. If you’re looking at maximizing the amount of advertising revenue you can make from your blog, an ad server is the way to go.