• by Joe Mandese  @mp_joemandese, July 6, 2014

In a recent interview with Beet.TV, GroupM Chief Digital Investment Officer Ari Bluman dropped a bombshell on the programmatic marketplace, announcing that by year-end, GroupM was pulling out of RTB altogether and would deal exclusively with publishers via private exchanges. In the following candid Q&A, Bluman opens up on going private, asserting that it will give GroupM and its clients more leverage in the marketplace that will translate into higher quality and more cost-efficient reach of digital audiences.

Real-Time Daily: Why do you think getting rid of the open marketplace is a good thing for you and your clients?

Ari Bluman:  No. 1 is that digital supply and demand don’t meet. Any DSP or exchange out there will tell you there are up to 50 billion ad impressions a day that they can bid on. That would mean their are 400 to 500 ads per user per day, on average. If that’s the case, why would my brands bid it up?

No. 2 is that many of my brands are the largest brands in the world and we spend a lot of money. If we spend more, I’d like a more efficient or competitive advantage for these brands, and in an open exchange, you don’t get that.

Those are two of the big ones, but on top of that, bring in accountability. We’ve been preaching for 16-plus years that we’re the most accountable medium, except The Wall Street Journal writes a couple of articles saying we’re probably the least. And realistically, the more the technology advances itself, the more we realize there are some flaws we need to overcome.

RTD: On your first point, you’re saying you want to stay out of the riffraff, the long-tail of online audiences. But that riffraff is your audience. Consumers are on pages that ads are being served to.

Bluman: Hopefully, but 36% of it is fraud and 50% of it’s not viewed.

RTD: True, but there are some non-viewable impressions on premium publishers' sites too.

Bluman: And we’re not looking to pay for any of those either.

RTD: But wouldn’t the solution for that to come up with better systems and software to avoid bot fraud and non-viewable impressions? And there are some good solutions for that in the market now. As for your second point, to say that you’re not going to participate in the open marketplace because there are too many impressions out there is like saying you don’t want to buy search because there are too many people participating in it.

Bluman: Search is a good example. In search, there is supply and demand. But in the world of search, if I have a brand that wants to spend more money on search, they likely have to pay more money to get it. What other business in the world does that happen, and why would we possibly, as a brand, want to race to that? In most worlds, you pay more, you spend more, and you get it for a discount. We’re not getting that in search, or in display or in video. Why would we want to race into that type of business, when realistically there are all the advantages in the world of working with trusted publishers, getting the price discounts you want, and winnowing and cutting out a lot of the riff-raff that’s taking money out of the pockets of both of us.

RTD: In most markets outside of media and advertising, people pay more when there are more people competing for the same thing.

Bluman: But in search people pay more because it is built on an algorithm that people don’t know what it’s about.

RTD: There is that, but the premise is that when a lot of brands are chasing the same keywords or terms, demand outstrips supply and the price goes up. But let’s stick with the supply of audience, because that’s what the exchanges primarily are -- an opportunity for you to reach an audience. You say that your brands have more of a competitive advantage by participating in private exchanges and staying out of the open marketplace. Why? Why wouldn’t you get leverage in an open exchange if you know where to buy the most valuable impressions? If you know what the value of an impression is, why is there any less value if it’s in an open exchange than if it’s in a private exchange?

Bluman: We’ve certainly been doing that for a very long time. However, with that comes costs and labor and time and effort, which could be better spent doing quality deals with quality brands. Realistically, I’ve yet to see a brand that said: ‘Yeah, I’ve got the right price and I got the right audience, but I bought it on babaganoush.gov.’ No brand in the world is happy about that. They’d rather be on CNN or Fox or Hulu or you name it. If I can do deals with those brands and get the volume and scale I want, and get the price advantages I want, why wouldn’t I do that?

RTD: It certainly makes it easier for your organization to manage by focusing on premium players.

Bluman: And my brands feel better about it. They’re running on content that is deserved. With all this audience-buying stuff, it’s like content became irrelevant. But content is not irrelevant. It’s still a very important optimization part of our performance.

RTD: The content environment a user is on is definitely a weight and a factor and it seems that with your clients and in your organization it is a heavy one, but the swing we’re hearing from other organizations is that the most important value is the audience. That the audience is on whatever content it is on for a reason, whether it is “premium” content or not not. And some brand concerns aside, isn’t the best place to reach an audience on the content they want to be on? And if you only target consumers based on the context of premium content then you’re ignoring all the reasons they might be on other content.

Bluman: Again, 50 billion ad impressions. Four hundred ads per user per day. That’s not real. If you were to winnow down the 50 billion impressions per day to what is real users, on real sites to non-pirated content, it comes down to a number that is manageable. And that’s the number we’re going ot get to.

RTD: In other words, you are using the premium publishers’ direct private exchanges as a mean to winnow down the riff-raff?

Bluman: Never will fraud go to zero, but I can get piracy to zero.

RTD: But there are solutions in the open marketplace for managing non-viewable and non-human traffic, you just don’t want to go there because you see a better return on your investment by dealing directly with the premium publishers via private exchanges.

Bluman: Certainly. And so do the publishers. They like what I have to say, because they’ve been losing out to the long-tail and to fraud and to piracy. So they’ve been losing out to all of this, and I’m telling them I can bring it back. And they can get quality brands running on their site, which is what they really want. And they can potentially make a lot more money.

RTD: Okay, but explain why 100%? Essentially, you’re saying the open exchange marketplace has no value. And by the way, many of your clients’ competing brands are going to be competing in the open marketplace and buying audiences in the long-tail. And they will be competing for consumer attention in places your clients will not.

Bluman: Realistically, right now, what’s happening is I have a brand like Unilever and Unilever, right now is competing in the open exchange with Joe’s pizzeria.

RTD: And the reality in the non-digital world is that Unilever is competing for the attention of consumer’s against Joe’s pizzeria, and everybody else.

Bluman: Why would they? Why do they have to? They don’t.

RTD: They do, because that’s where their consumers are. They’re not just spending their time on the sites of premium publishers that you want to do business with. They’re in all the places consumers go. And if you don’t factor that, you’re not optimizing against overall consumer behavior.

Bluman: I can get inventory from the best publishers in the world, before it hits an open exchange. Every publisher in the world that participates in an open exchange has a waterfall effect. I can get above that pecking order -- before it gets to an open exchange -- and I’m already doing that.

RTD: But aren’t you paying higher rates when you buy those impressions higher up the waterfall, because that’s where the publishers are usually charging most of their premium.

Bluman: Not when you do the entire math equation. Not when you factor in that you can end up with a huge number of unviewable impressions in an exchange because of the iframe issues. Then you get to 50% viewable. Then you get to pirated. Then factor in the quality and the labor associated with managing it and all the tech fees you have to add in there. If you put that all together, then I’m getting better pricing and being on the quality pubs. And they’re making more money. So everyone wins in my scenario. There are no holes in my thinking here. There are no holes in GroupM and our thinking, and our brands are behind it, because it makes a hell of a lot of sense. I’m very interested to hear about any flaws in our logic.

RTD: I wouldn’t call them flaws. I would call it a philosophical approach. There is a view from some traders and advertisers that the real value that’s being exchanged isn’t publishers’ content impressions, but the attention of the consumers that happen to be looking at them. And if the best available consumer attention is somewhere down the waterfall and you are ignoring it because of your business models -- because it’s difficult to manage or there is some risk associated with the technology -- then from your clients’ point of view or the point of view of their competitors, you are ignoring some very valuable impressions out there.

Bluman: Impressions, yes. Audiences, no.

RTD: Some of the agencies and trading desks we’ve met with recently are starting to look at ways to optimize across the waterfall -- both up and down. Just like the supply-side is trying to do with the next generation of SSPs, to find out where the best demand for their inventory is at any point in time. Varick [Media Management] is doing this. So are others. They’re trying to understand if this audience impression -- at the bottom at the top or in the middle of the supply chain -- is worth more or less to us at this point in time. That’s what they’re trying to optimize, the entire supply chain. Based on the way you describe your approach, you’re just optimizing the supply you can negotiate directly with premium publishers.

Bluman: I’ve already done the mathematical analysis and we still come out way ahead of the game. I mean, before any DSPs or DMPs existed, we built the first one out of the Media Innovation Group in 2007. That eventually became the foundation for Xaxis, but we’ve been studying this business for a very long time. What got crazy very, very quickly, is that in 2009 and 2010, DSPs were going around and saying, ‘There’s 10 billion ads a day that we can bid on.’ And a couple of years later, all of a sudden it’s 50 billion a day. And what’s happened is the number of users in the U.S. hasn’t grown. All that’s happened, is a glut of inventory that’s not potentially real.

RTD: But it is possible to figure out what percentage is real or isn’t real.

Bluman: And I don’t think people are going to like what they see.

RTD: Isn’t a lot of this due to the fact that GroupM doesn’t want to participate in the long-tail of the business, because you don’t have any influence or leverage with it the way you do with big publishers?

Bluman: No. Not at all. For the last seven months, as I’ve been building these private marketplace deals, I’m not only selecting the top 50 or 100. There may very well be a thousand when we’re done. I don’t know what that number will end up being. A couple of weeks ago, I estimated it was 91. Now it’s a lot more than that and lists of them to get done. Realistically, we’re looking for best of breed. We’re looking for quality content. We’re looking for solid audiences that all of my brands need. So that includes B-to-B sites and places some of our brands might not use. But we’re looking for best of breed banding together to represent the 157 brands that we represent in the U.S.

RTD: Don’t you miss losing out on some marketplace intelligence by not participating in the RTB marketplace?

Bluman: I believe none -- no. I still reach every user in the U.S., every second and every day right now.

RTD: But you don’t see the bidding mechanisms if you don’t participate in the open RTB marketplace.

Bluman: So, people bidding themselves up? Yeah, I won’t see that.

RTD: Or bidding down depending on the supply and demand for those impressions.

Bluman: But the bidding algorithms don’t work that way -- they don’t bid down, they only let you bid up. And on top of that, with every ad network you use and/or site that exchanges its inventory -- which they all pretty much do now -- you actually bid yourself up by working with them as well, because they’re going into the exchanges and buying their own audience inventory so you have to compete with them. So you actually have to compete against yourself, all the bad, and the publishers. I’m eliminating all of that mess.

RTD: Do you agree that you’re becoming more opaque at a time when the rest of the marketplace is trying to create greater transparency?

Bluman: No, I think we are going to get more transparent than everyone else in the marketplace. Every brand is going to see what they are buying, where they’re buying, who they’re buying and the prices they pay. If brands thing the open exchanges are transparent today, when there’s fees going every which way from Sunday, that to me is not transparent.

RTD: So when you do this, you’re not working through Xaxis then? You’re buying direct through the publishers?

Bluman: I’m not speaking for Xaxis.

RTD: Theirs is a different business entirely?

Bluman: Correct.

RTD: But Xaxis will continue to participate in the open exchanges?

Bluman: They may.

RTD: I would think they would, because right now they make a lot of money on the spreads in that marketplace.

Bluman: Yeah, but the goal isn’t the spread there. The goal is performance. Retargeting the long-tail may make sense for some marketers. A couple of their tactics might make sense, but overall, they’re following our lead. They’re talking to the same publishers I am so that they can do bigger and better business.

RTD: To your point about transparency, in those trades the client doesn’t see all the mark-up and margin.

Bluman: Right, a client asks for an audience or the client asks for an outcome and Xaxis beats the price and performance.

RTD: Have you seen what we’re doing by publishing the RTB 500 and what do you think about that?

Bluman: Anything that can help educate the marketplace and evolve it is a good thing?

RTD: But the irony is that if more companies like yours don’t participate in the RTB marketplace it won’t be as representative as it otherwise would be.

Bluman: Okay. No offense, I’m not not participating to hurt the RTB 500. But we’ve seen it and we all understand. But most people don’t understand programmatic or RTB exchanges and at every level it differs in terminology and understanding. The overall education is lacking in a lot of places and we need more of it. I’m not saying that in three years or five years what’s going on in the marketplace won’t be very different. It probably will be. It would be foolish to think it’s not going to change. But in today’s environment, with today’s issues and the technology available, the exchanges are not a good place to be. We’ve been working on this for a while, and the reason we waited until now to announce this, is the technology that’s been developed so far has been developed for the networks -- they’ve always had this type of technology. Then 2.0, the evolution of the exchanges, is the evolution of where the networks were. But now it’s so pervasive that every brand has the technology to be able to enable automation so that they can trade without as much human element involved. And that’s what we’ve been waiting for. And the bottom line is that now every single publisher we’ve been talking to is ready to go. That’s why we announced it now, because the publishers are ready to go. Automation, to me, is what we are after. It’s not about exchange-traded media. We’re after ease, because it costs to much and it’s too laborious to run digital.

RTD: But you also don’t want to participate in an open marketplace?

Bluman: Yeah, my brands are the biggest spenders of media in the world, and my brands do not need to compete with smaller players that they don’t need to compete with.

RTD: Last question, what percentage of the open RTB marketplace are you now?

Bluman: I don’t comment on percentages.

RTD: Just roughly. We were just in Cannes and Martin Sorrell was talking about what share of Twitter you are. And your company constantly talks about how big it is, and how much of the marketplace you represent of the total pie, so why not say what your share of RTB is? It’s a fair question, since you say you are pulling out of RTB.

Bluman: It’s fair. I’m not offended by the question, but I don’t go near percentages.

RTD: So what’s the impact of you pulling out?

Bluman: You can read into that from the folks who are not happy with our decision and our brands’ decisions, and you can pretty much pick apart how much money they are potentially going to lose. But at the end of the day, digital, in our opinion, should be as accountable as any other medium, if not more. And if we make it more accountable, digital will grow to levels that we weren’t anticipating to happen for many more years.

RTD: On a final note, no one would argue that GroupM doesn’t have visibility in the marketplace, but isn’t having some position in the open RTB marketplace a healthy thing?

Bluman: When other people have the visibility and technology we have -- and the chops -- we’ll see how that plays out. But right now, we have every competitive advantage for our brands and we’re going to leverage it for them.