2012 Debate: Will RTB Lift CPMs

We’ve asked various industry leaders for their takes on what’s going to happen in 2012. Yesterday, on Twitter, a debate broke out over the contention from ComScore svp of campaign verification Kirby Winfield that the growth of real-time bidding would not increase CPMs in 2012.  Winfield’s contention was disputed by Triggit CEO Zach Coelius. The two even wagered a steak dinner on the outcome. Digiday invited both executives to expand beyond 140 characters on their response to the question: “Will real-time bidding lead to an increase in ad prices in 2012?”

Kirby’s View:
Zach’s wrong. Real-time bidding CPMs will be flat, at best. Here’s why:
1. There is a display inventory surplus. A good chunk of display advertising inventory is like factory-reject apparel, and the exchanges are the outlet mall. It works, it sells, but at the end of the day prices aren’t going up unless quality does.
2. The 50 percent fallacy. We often hear that 50 percent of ad revenue comes via indirect sales. But I’d guess 80 percent of that 50 percent comes from undifferentiated inventory, while top branded publishers have the opposite revenue split profile.
3. Transparency is an issue. Third parties can now enable entire tranches of referral URLs to be alphanumerically obfuscated, while still providing advertisers impression-level data showing their ads are safe, viewable, and insertion-order compliant. So why isn’t this embraced?
I’m not a flat-earther. The best platforms are innovating the way data is used to increase value for the whole ecosystem. And the factors above won’t stop RTB from growing mightily in 2012. As more than one DSP told me, “Big budgets are already set for next year.” But big budgets just mean more volume, not higher CPMs.
Sure, if traders manage out the efficiency and scarcity issues, CPMs will go up, but with seemingly endless inventory, I don’t see the supply-and-demand imbalance resolving itself quickly enough to materially increase RTB prices in 2012.
Zach, I like my porterhouse medium rare and my Bordeaux first growth.
Zach’s Take:
Beyond all the hype, ignorance, stupidity and outright lies about exchanges, DSPs, SSPs, DMPs, RTB and BFFs, there is only one number that really matters: CPM. It all comes down to the money. In our industry the most significant metric is the prevailing CPMs on the exchanges. As those CPMs rise, more inventory flows into the exchanges, which, in turn, attracts more budgets, creating a virtuous cycle. When the real-time bidding exchange first came out three years ago, the average CPM was about 20 cents, and only about 20 million impressions a day flowed through the pipes. Many impressions later, the prevailing CPM is about 10 times higher, and now substantially more than 20 billion impressions a day are available through RTB. That exponential growth happened as individual publishers saw that RTB would make them more money at higher fill rates, so they moved their inventory over.
Helping to drive that process has been the equally exponential shift of budgets to automated buying as advertisers realize the tremendous efficacy and efficiency gains over the old manual processes. As the DSP space has gone from virtually zero in 2009 to expectations of over $2 billion in 2012, the new money pushed up CPMs. That growth is viral and indisputable and broad based across thousands of participants. Because there is absolutely no difference between an ad impression sold for a premium directly over the phone and that same ad impression sold transparently via RTB, basic economics tells us that until those prices reach parity, we will see continued growth in the exchange space.
For 2012 our forecast is that growth will continue as we see large brand advertisers shifting budgets in the hundreds of millions into exchanges. Those new budgets will push up CPMs and attract more inventories, perpetuating the virtuous cycle.
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