Opinion

Our Kodak moment

Peter OstickIn this guest post Peter Ostick recalls how he turned around an ad tech business that he thought would fail within 12 months by refocussing on the way the market was heading… towards programmatic trading.

In December 2011, TVN were awarded Digital Services Company of the year by a trade magazine. It had been a pretty rapid rise. 18 months earlier, Josh Ismin and myself, having left our cushy jobs at Microsoft, were sitting in my basement in Tamarama, pitching US ad tech companies about the opportunities for online video in Australia, and how we were the right guys to launch their business.

Fast forward 18 months and we had closed a round of investment funding, revenue was growing at 300 per cent, and we were soon to be 30 people strong with offices in Sydney, Melbourne and launching in Singapore that month to cover the Southeast Asia markets. Things were moving quickly.

Over the next week, as we looked at the pictures of us on stage clutching the award, a horrible sense of irony was kicking in. We had a strong belief that the business model we were running would be dead within 12 months.

Our business was built on reselling a video ad-serving technology and providing a monetisation solution for broadcasters and publishers. Using the LiveRail platform, our clients were able to create more ad opportunities within internet delivered video content across multiple devices and platforms. As the inventory grew, sellers wanted to work with TVN on monetisation, which meant building a sales team of internet TV experts. 50 per cent of the TVN team were working on briefs and putting proposals together for agencies, while the other 50 per cent were tech solutions and publisher-focused operations staff. We even had different names for these groups: TVN and TVP, with a five foot physical wall separating the two. At the same time, the LiveRail platform was evolving and the needs of both the buy-side and sell-side were changing rapidly. Transparency and centralised buying were the key phrases ushered in by a slew of new demand-side platform (DSP) companies.

Publishers were being invited to plug inventory into the DSPs. Many sellers held back over fears that the DSPs were incentivised to drive down the price of the inventory; if your business is to create efficiencies for brands, there is no shame in that. Needless to say as the cry for efficiency from media trading groups got louder and the associated budgets up for grabs grew larger, it was only a matter of time before the premium publishers got involved.

This is what we now refer to as our Kodak moment.

Kodak famously invented the digital camera and then tried to shelve it for years over fears that it would cannibalise their existing photo business. It did cannibalise their existing business but the cannibalisation did not happen by them, it was companies like Fuji and Olympus who accelerated the development of digital cameras and ended up driving Kodak to bankruptcy.

We had two choices: continue with the model that we had built. Or embrace the thing that could potentially kill us, programmatic trading.

The early company meetings around setting out our vision for our programmatic future were pretty painful. The team of experts we had built were obvious targets for new entrants into the space looking to hit the ground running. Ambiguity it would appear is not an effective motivator; while the business began to embrace the changing ecosystem it was clear that not everybody would stick around to see the final outcome. Two years later, our team is 40 per cent smaller and our revenue is 50 per cent higher, with our Asian office now accounting for about 30 per cent of revenue. We are now the leading programmatic video platform in the region with a clear focus on helping the sell side of the ecosystem to successfully participate in programmatic trading. We still have a demand team, but rather than creating proposals for campaigns their time is spent educating buyers on optimal bidding strategies and how to better scale their businesses.

A 40 per cent reduction in heads seems like the doomsday story of people being automated by technology, but splashing a bit of efficiency into what is still a relationship-driven industry seems to me to be a necessary correction and a sign of the times. If you apply TVN’s story to a media owner, it is clear that the non-complex spots and dots type of inventory will be aggressively automated over the next few years, and this is a long time coming. The good news is that instead of filling out spreadsheets and pushing paperwork, passionate sales teams can work on more innovative and integrated solutions. We believe the role of senior members of the sales organisation will have even greater responsibility in the upfront presentations and the deals they agree to will be increasingly executed by technology.

We wrote this because one of our clients suggested that our journey is a good allegory for the disruption and transformation of our industry as a whole. There has been a lot of debate recently around how the buy side part of the ecosystem is evolving. The main focus seems to be on the role of the agency trading desk and whether it makes more sense for brands to take automated buying in house. To address this it is important to separate the value of automation and the value of outsourcing a service.

The argument about using technology to automate the buying process focuses on three areas: consolidated buying, the promise of improving targeting, and greater transparency. In the online video space the notion of consolidated buying through technology is appealing for any advertiser who has heavily invested in TV previously. The most obvious benefit is consolidated campaign reach and frequency which form the basis for calculating TARP’s or GRP’s, the bedrock of TV measurement.

This is a no brainer. The next the step is to use data enriched impressions to target more effectively. I have yet to see this in the Asia Pac region executed to its full potential in video, mostly due to two factors: a lack of scalable audience data and a lack of liquidity in quality video inventory.

The focus at the moment is around acquiring the highly sought after inventory supply. The market changes quickly though and data rich entrants such as Facebook (who recently acquired our partner LiveRail) could change the market instantly. Right now the scale of supply isn’t there, but that’s a very short term problem.

Finally we have transparency. It’s ironic to me that arguably the most salient element of programmatic trading is being called out as it’s Achilles heel. The buying platforms available today and the exchanges that list the inventory tell you the sell price and what you are buying down to the domain. From a market trading perspective that surely reduces the amount of differential information, so both sides of the transaction should in theory have access to the same information to make the buy/sell decision. These three elements together form a compelling case and would explain all the forecasts of increased trading using technology.

For me, completely separately, you have the question as to whether brands outsource. The reality is that the trading desks are offering a managed service staffed by highly sought after talent. The trading desks have hired extremely well, mainly from ad tech companies and are well positioned to apply smart people and proprietary algorithms to solve business problems for advertisers in a way which would be very difficult for a brand to fulfil in-house without a significant investment. No doubt some brands have the budgets, resources, and ambitions to do this themselves. My view is that before long the norm for a managed service in the programmatic buying of media will be a transparent percentage management fee which is negotiated based on investment or based on delivering to some sort of efficiency metric.

The reason this is probably not as simple as the age-old outsourcing quandary in that as brands finally figure out how to mine their own data effectively. Then they will be very protective about how it is used and by whom. Combine this with a future that will increasingly rely on speed of information to drive business decisions, it may well be that the insights that are given up through customer interaction with media are too important to be handled by a third party. Why not directly feed these insights into the business in real time?

The space is moving extremely quickly and as publishers and brands try to keep up with the pace of change there will no doubt be some pain along the way. From my perspective change can be scary and uncomfortable, but the Kodak alternative seems a little scarier.

Peter Ostick is the managing director of TVN

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