Over the past decade, Google has been on an especially long buying spree: from February 2001 until June 2011, the giant Internet company bought close to 100 companies in various fields connected to the Internet industry. Some of them have been integrated into Google's core businesses; others have found their place alongside it. But the rest of all this crazy shopping spree is overshadowed by the acquisition of advertising company DoubleClick in April 2007 for $3.1 billion, the biggest deal Google founders Sergey Brin and Larry Page have ever made.
Two and a half years after that giant deal, Google began to get some payback on its investment, when it launched an ad exchange based on DoubleClick's technology. The idea was to increase its dominance in the display advertising market (banner and video ads), the weakest aspect of the Internet giant's income model, which mainly relies of search-based ads. Google sought to take a bite out of rivals Microsoft and Yahoo!'s's market share, and since then it has indeed succeeded in wining a fair chunk of the market for itself. Within the next two years, Google is even expected to overtake Yahoo!, which for years has been the unchallengeable queen of display advertising.
So, what exactly is Ad Exchange? DoubleClick's Ad Exchange was intended to mediate between Internet sites and advertisers, and to provide both sides access to a wider variety of options for managing advertising more effectively. To put it simply, the exchange was founded as a marketplace for advertising space on websites. The platform is capable of utilizing space that has been under-exploited more efficiently, and as a result the websites benefit and the advertisers have more space on which to advertize.
How does it work? The ad exchange runs an automatic auction on advertising space the moment a surfer enters a specific site. The system chooses the best bid for the site, and uploads the ad onto it. All of this happens instantly. In this way, DoubleClick's Ad Exchange maximizes ROI (return on investment) through the market forces of supply and demand, which determine media prices.
The exchange has been operating in the US and in Europe for two years, and now Total Media, DoubleClick's representative in Israel, is launching one here. Total Media CEO Yaniv Levi says that the exchange has several benefits, the main one being improved revenue from advertising for Internet sites. "Analysis by DoubleClick over over the past two years has found a 188% improvement in revenue from advertising using Ad Exchange in comparison with manual methods," Levi says. "In addition, Ad Exchange helps websites utilize space more efficiently that up until now they had a hard time selling." Up until two years ago, according to Google, 40% of advertising space on websites were not utilized and were not sold, since there were no effective way s of selling it.
Levi, who became CEO of Total Media in March 2011, in place of Amitai Tafla, who was promoted to deputy chairman and executive director of the company, points to another advantage of Ad Exchange, in colleting payment. He says that Ad Exchange provides central, secure collection by Google, so that the sites themselves do not have to deal will the process of collecting payment at all, which reduces the risk of failing to receive money for ads that have already been published.
In addition, Ad Exchange provides a more secure environment for advertising activity. Anyone who uses Ad Exchange, whether it be a website, an advertiser, or an advertising network, is examined and approved in advance by Google and Total Media. Moreover, the fact that websites can specify in advance who can advertise with them and at what prices, is likely to prevent many unpleasant situations. A website for vegetarians, for example, can specify that companies advertising meat products will have no access to it.
There are currently two arenas in the global advertising market, DoubleClick, and Right Media, which Yahoo! Bought for $850 million in 2007. According to Levi, DoubleClick's exchange is the only one with representation in Israel, and it offers a more transparent platform offering greater control, such as over who can and cannot advertise on a site, than that of its rival. "With Right Media, there is no control over who advertises, because it is a network that brings together other networks into one advertising marketplace. In a chain like that, problems are liable to occur."
DoubleClick's Ad Exchange has considerably improved Google's position in the display ads market. According to data from research company eMarketer, in 2009, Google was in fifth place for display ad revenue, with a market share of just 4.5%. It was preceded by players such as Microsoft (4.6%) and AOL (6.4%), not to mention Facebook (7.0%), and long-standing leader Yahoo! (15.8%).
However, between 2009 and 2010, Google posted a 90% rise in its market share to 8.6%, and jumped to third place in the display ad revenue table. Google had revenue of $8555 million from display ads in 2010, and this year, it is expected to break the billion dollar barrier. According to eMarketer, Google will catch up with Yahoo! in 2012, with a market share of 12.3% to Yahoo!'s 12.5%, and could even overtake Yahoo! in 2013. There will be tough competition from Facebook, however, given the strengthening of the social network, which will overtake Yahoo! this year win 17.7% of the market in 2011.
DoubleClick makes money out of Ad Exchange through the commission it charges on every deal done through it. So the more the exchange improves the performance of websites and advertisers, leading to a higher turnover of deals, the more DoubleClick will benefit. According to DoubleClick's figures, more than 130 advertising networks use Ad Exchange. Ad Exchange also enables Google's previously existing advertising system, AdWords, which is Google's main revenue source, to compete for the stock of advertising space.
Total Media has begun to introduce Ad Exchange to Israel only in the past few weeks, but lively interest has been registered already. "At this stage, we have begun talking to Israeli sites, and we have already received applications to join the exchange, both from overseas advertising networks interested in global advertising stock, and which are not necessarily focused on particular regions, and from big Israeli advertisers that are familiar with Ad Exchange overseas and want to be part of it in Israel too," says Levi.
How does web advertising currently work, without Ad Exchange?
Levi: "Today everything is done 'manually' - if an interactive agency or a media buying agency wants to purchase advertising space on Israeli websites, it contacts them and closes a deal 'manually'. Then the agency sends it the ads and can control the stock that it bought. Today, it is not possible for a buying agency or for large advertisers to turn to one central place to buy stock that meets all of their requirements."
How will the exchange affect the Israeli advertising market?
"In my opinion, within two years, 50%-70% of digital media purchasing will be implemented using our Ad Exchange. We also expect the exchange to bring about an increase in digital advertising's portion of the overall advertising market from 15% to 25% by 2013. The moment that advertisers understand the high added value in using Ad Exchange, they will feel comfortable enough to advertise their brands using it, and budgets will start to be switched from television and radio."
Published by Globes [online], Israel business news - www.globes-online.com - on July 7, 2011
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