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The Biggest Disruption in Ad Tech

Written by: Cheryl Morris, VP Marketing

This spring when we announced Nanigans commitment to SaaS, VentureBeat’s John Koetsier reached out inquiring about a comment our co-founder and CEO Ric Calvillo made regarding “the biggest disruption in ad tech.”

Ric recently expanded on his comment in an interview with John, going in-depth to explain Nanigans focus on delivering more value to end advertisers through a SaaS platform enabling publisher-direct media buying – and in doing so, removing the media markup costs of traditional ad tech middlemen.

An excerpt from the interview is below:

VentureBeatLogoNewsThe Next Big Ad-Tech Disruption: Not RTB… And Maybe Not Even Google or Facebook

Nanigans CEO Ric Calvillo talks to a lot of ad-tech analysts. Every time he asks them what the biggest disruption in the advertising technology space is, they say RTB, or real-time bidding.

But that’s actually much smaller than another, much bigger phenomenon, one that potentially threatens the entire ad industry.

“RTB is only $4-5 billion,” says Calvillo, referring to the exchanges that sell millions of ads per minute in hyper-efficient automated bidding mini-wars for real-time ad delivery via the web or mobile apps. “The online global ad market is about $100 billion … and between Google, Doubleclick, YouTube, and Facebook, direct-to-client ad sales via self-serve total about $20 billion. So 20 percent of the market has been sucked out of the ecosystem.”

The ecosystem Calvillo is talking about, of course, is the ad-reselling ecosystem, which is increasingly occupied by a sometimes-bewildering mix of third parties that are middle-men between advertisers and publishers: supply-side networks, demand-side networks, ad resellers, real-time exchanges, and hundreds of specialist companies occupying dozens of niches in the big market of creating demand and selling stuff.

That’s the market that Calvillo wants to disrupt, while also taking on ad giants like Facebook and Google. To say the least, it’s a tall order.

Advertising markup

The current complex ad ecosystem largely lives on the difference between what an ad costs at some publisher, and what you pay them.

“The typical markup on media is 100 percent,” Calvillo told me, though in automated exchanges it is often less. “If they were really selling it for $20B, third parties would have made some of that … there’s at least $10B of extra margin that Google and Facebook has captured.”

This is pretty much the way the advertising ecosystem has always worked, of course. Brands hired agencies to create campaigns, build creative, and buy ad placements in magazines, paper, radio, and TV. Agencies made money on the difference between what they bought ads for, and sold them.

That’s pretty old-school at this point — the internet has made many things more efficient, and ad buying is just one of them.

So why is the ad-tech ecosystem booming, with seemingly dozens of new companies popping up monthly?

Pay more, get more

One reason is that you might actually want to pay double for your ads, if you knew they were four times as effective.

So ad-tech companies are investing millions in big data, trying to build predictive analytics that take what they know about you and your behavior and build algorithms for which ads are most likely to be welcome, topical, and timely. That helps them predict the value of an impression much better than a client who ventures solo onto Google Adwords or Facebook Ad Network, and potentially generates effectiveness that overrides efficiency.

Companies like Nanigans process 250 million ad events daily, Calvillo said, so they have much better capability in judging where an advertisers’ money is best spent. In addition, since brands need to advertise at global scale, sending out millions of customized ads to users in different locales with different languages, customs, preferences, and buying habits, a partner who can manage billions of monthly impressions could be helpful.

Nanigans is doing all those things too.

But the boom in ad-tech companies has created another problem: everyone wants a cut. So an advertiser might find itself placing a bid to buy an ad on a demand-side platform which goes to an ad exchange that matches it up with a supply-side platform with the appropriate inventory which then actually finally places the ad on a publisher’s site. At each stage in the long process, you’re paying some percentage points extra, which over time ads up to a lot of extra cost.

Read the full the interview on VentureBeat.


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