March 30, 2017
About the author : Joni holds a PhD in marketing. He is currently working as a postdoctoral researcher at Qatar Computing Research Institute and Turku School of Economics. Contact: joolsa (at) utu.fi
A major fallacy publishers still have is the notion of “quality supply” or “premium inventory”. I’ll explain the idea behind the argument.
Introduction. The fallacy of quality supply lies in publishers assuming the quality of certain placement (say, a certain website) is constant, whereas in reality it varies according to the response which, in turn, is a function of the customer and the ad. Both the customer and the ad are running indices, meaning that they constantly change. The job of a programmatic platform is to match the right ads with right customers in the right placements. This is a dynamic problem, where “quality” of a given placement can be defined at the time of match, not prior to it.
Re-defining quality. The term “quality” should in fact be re-defined as relevance — a high-quality quality ad is relevant to customers at a given time (of match), and vice versa. In this equation, the ad placement does not hold any inherent value but its value is always determined in a unique match between the customer, ad and placement. It follows that the ad itself needs to be relevant to the customer, irrespective to the placement. It is not known which interaction effect is stronger, ad + customer, or placement + customer, but it is commonly assumed that the placement has a moderating effect on the quality of the ad as perceived by the customer.
The value of ad space is dynamic. The idea of publishers defining quality distribution a priori is old-fashioned. It stems from the idea that publishers should rank and define the value of their advertising space. That is not compatible with platform logic, in which any particular placement can be of high or low quality (or anywhere between the extremes). In fact, the same placement can simultaneously be both high- and low quality, because its value depends on the advertiser and the customer which, as stated, fluctuate.
Customers care about ad content. To understand this point, quality should be understood from the point of the customer. It can be plausibly argue that customers are interested in ads (if at all) due to their content, not their context. If an ad says I get a promotion on item x which I like, I’m interested. This interest takes place whether the ad was placed on website A or website B. Thus, it is not logical to assume that the placement itself would have a substantial impact on ad performance.
Conclusion. To sum up, there is no value in an ad placement per se, but the value realizes if (and only if) relevance is met. Under this argument, the notion of “premium ad space” is inaccurate and in fact detrimental by its implications to the development of the programmatic ad industry. If ad space is priced according to inaccurate notions, it is not likely to match its market value and, given that the advertisers have choice, they will not continue buying such ad inventory. Higher relevance leads to higher performance which leads to advertiser satisfaction and a higher probability of repurchase of that media. Any predetermined notion of “quality supply” is not relevant in this chain.
Recommendations. Instead of maintaining the false dichotomy of “premium” and “remnant” inventory, publishers should strive to maximize relevance in match-making auctions at any means necessary. For this purpose, they should demand higher quality and variety of ads from the advertiser. Successful match-making depends on quality and variety at both sides of the two-sided market. Generally, when prices are set according to supply and demand, more economic activity takes place – there is no reason to expect otherwise in the advertising market. Publishers should therefore stop labeling their inventory as “quality” or “premium” and instead let markets decide whether it is so. Indeed, in programmatic advertising the so-called remnant inventory can outperform what publishers initially would perceive as superior placements.