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InContext / An inside look at the business of digital content

How to increase revenue by cutting ties to indirect demand sources

May 25, 2022 | By Ron Silva, Director of Publisher Account Management – Nativo @nativo

I promise this isn’t another article about the end of cookies. Instead, I want to discuss how publishers can maximize the opportunity to increase revenue as this industry shifts in the wake of their eventual demise. 

To do this, publishers must align demand strategy with their strategic and revenue objectives.

More than 60% of publishers expect digital revenue to grow in a post-third party cookie era. Few have articulated exactly what this will look like, what strategies will be put in place, and how publisher operations can and will play a role in establishing a stronger foothold in the industry. The path to success ultimately involves optimizing demand leveraging new perspectives and data such as focus on revenue compared to fill rate, and quality ad executions with higher margins compared to adding placements to a site.

Uncertainty in how to capitalize

There is still some uncertainty around how organizations can capture new revenue as the industry evolves. In a recent study by DoubleVerify, 45% of publishers stated they are turning to private marketplaces, 40% believe first-party data will be the best solution, and 34% are leaning on contextual. The study shows an even distribution between the options. Really, each could play an important role in the new age of advertising.

Balance data and demand strategy

Given that many publishers are building out robust first-party data ecosystems and taking a renewed refreshed emphasis on private marketplaces, it appears that they are transitioning away from indirect revenue sources to more premium and direct relationships with advertisers. Research finds that 60% of publishers forecast growth in preferred deals and private marketplaces, and 88% of publishers believe selling direct will become more important. 

While direct demand is only a small percentage of demand, it is starting to account for a large portion of revenue. On average, direct-sold inventory accounts for 39% of publisher revenue, with (digital) programmatic accounting for 28% of overall publisher revenue. Advertisers are expressing interest in more direct relationships with publishers. This means more ad dollars spent on advertising with publishers versus on “tech fees.” (Remember that each time an ad call passes through a new system in the tech stack, the budget is siphoned away from publishers to pay for various fees.)

Developing a direct or premium-first demand strategy will require differentiation. Each publisher can rely on their first-party audiences. However, they can strengthen their stance by partnering with their publisher operations and content teams to deliver unique value in content production and optimization. 

These teams have the expertise and insights to support data-driven optimization. That said, it will be essential to go beyond dynamic creative optimization and incorporate format and page placement. Look at the data and create tailored packages combining placement and formats to meet campaign KPI objectives. This unique combination of data, placement, content, context and site value will drive differentiation between publishers. 

Three strategies operations can support

Beyond supporting the development of these packages, operations can support these initiatives in three categories: Demand optimization, ad quality analysis, repurposing and backfilling unsold demand with alternative revenue strategies.

Beyond fill rate

Operations teams need to have the ability and autonomy to control demand to optimize not only performance but revenue and margins. Publisher platforms should provide transparency into demand revenue by source and the power to waterfall demand sources to support revenue and corporate objectives. A direct and premium-first approach to demand will generate higher CPMs and more favorable margins, offsetting the loss by removing or deprioritizing indirect demand. 

By coupling this with a premium-first site experience, meaning highly integrated ad executions, publishers can start to improve the site experience while improving revenue.

Ad quality analysis

With high-impact ad executions and content-led advertising, direct demand could drive more premium revenue, meaning publishers can remove ad placements that rely heavily on indirect sources or 3rd party targeting. The shift to prioritizing quality placements over quantity gives publisher operations the ability to focus on page placement and its impact on meeting client campaign goals. 

Drive alternative revenue

As publishers continue to build out their first-party data programs, including free and paid newsletters, they have an opportunity to use the valuable real estate reserved for advertising. They can also repurpose the removed ad placements to drive engagement and program adoption. Developing and running “house ads” enables site owners to use their ad placements to strategically support these initiatives and improve the site experience for viewers. The pennies lost in low-quality ad placements and indirect demand are an opportunity to support other corporate objectives.

The takeaway

Ultimately, open marketplaces should be a last resort in the waterfall. Direct demand, private marketplaces, premium demand, and house advertising should be prioritized over these open exchanges. This strategy gives publishers the direct relationship advertisers seek while equipping publishers with the best opportunity to grow revenue and still provide options to scale and backfill inventory easily. 

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