How Channel Conflict is Changing and Publishers Are Missing the Boat

This post is a deeper rant written in tandem with our presentation this week at the Digiday Exchange conference about how the world of direct sales and technology are finally taking the next big step forward. 

Publishers can be their own biggest problem. But we love them so deeply we’re willing to call them out on it. This is directed at the industry as a whole, not any particular group or isocket customers.

You often hear publishers justifiably complain about the “imbalance of power” in ad tech, where buyers (advertisers) are favored and sellers (publishers) are screwed. Publishers can fix this – if they get out of their own way.

The thing that makes us face-palm so much more than any other reason is publishers being outdated at best and ignorant at worst when it comes to channel conflict. Channel conflict is a real thing and publishers should be concerned about it – but publishers have really been getting it wrong lately by focusing too much on the wrong concerns while letting the important things slip by.

It’s important to define channel conflict.

Did you know that the textbook definition is actually the opposite of how people use the term in advertising? Traditional channel conflict was when an inventory source would disintermediate their channel partners and distributors by going directly to clients. So it’s flip flop from how our industry thinks of it, where an inventory source wants to go directly to clients but the channel partners and distributors undercut you.

You hear the words “channel conflict” a lot in online advertising. Everyone kind of knows what it means but if you try and nail it down it gets fuzzy. Mostly because the ad tech world isn’t so simple anymore.

Direct used to mean “our sales guy took that person to lunch”, which meant anything that didn’t happen over cocktails or email somehow wasn’t direct. That definition has to change. Direct should mean direct. It means a buyer and a seller wanting to do business specifically with each other. Everything else is a detail, including the fax machine, API, or anything in between used to facilitate the deal.

In practice, most people use the term channel conflict as a way to say “anything that makes me less money than I think I could make.” Or in simpler terms “if it takes away from my premium direct sales, it’s bad.” That’s pretty weak and vague, so let’s try to define channel conflict.

But let’s make a simple definition for advertising channel conflict:

Channel conflict is when an advertiser can get what they want without going through the channel the publisher wants them to.

Let’s take it a step further, since all the smoke and mirrors in online advertising can make buyers confused, where they think they can get what they want when it’s actually apples and oranges:

Channel conflict is when an advertiser thinks they can get what they want through a cheaper channel than the publisher wants them to.

Advertisers perception is often more important than reality.

Especially in our self-service business, something we hear a lot from less savvy advertisers is “why would I pay $5 for a site I can target through AdSense for $1?” There are two problems here: the first is that in some cases, they’re right – they can get the “same thing” elsewhere, which is a major problem for the publisher. But most of the time it’s not the same. The inventory is apples and oranges. The remnant tools give the perception of premium. They give you the perception of picking your properties, having control, etc.

But the perception is there. And that can be just as damaging. Are you sure this isn’t happening to you?

Channel conflict should also include channel friction.

There’s a whole other side of channel conflict besides the “is my stuff being cherry picked for cheaper than I want?” angle. Channel conflict can also mean that a customer (your advertisers) can’t access a channel they want to, or it’s too difficult to access it, and they regress into using another less preferred channel.

In other words, they can’t do business with you the way they want to or buy what they want, and have to turn elsewhere. A classic example: a publisher ad sales person is unresponsive to a direct request, so the budget goes elsewhere, or through an indirect channel like site targeting in the spot market.

This is hugely important, because most publishers are so worried about the first half of the definition they are making the second half worse. Most people don’t even realize they are doing it.

Some calibrating examples:

• Being able to specifically buy a Yahoo homepage impression for 50 cents on the spot market is channel conflict. Especially if it was due to the painful process of going through manual channels.
• Being able to send a guaranteed order directly to Yahoo through an API at $10 CPM a few days before Christmas, while your Yahoo sales rep is on vacation in the Arctic, is NOT channel conflict.
• If someone can specifically pick your site in a remnant market, that might be channel conflict.
• If they happen to run on your site amongst hundreds of others while targeting cookie segments, that’s not conflict.

When healthy fear grows into an unhealthy wall.

So many publishers are getting this wrong. By worrying too much about channel conflict in the wrong way, they’re compounding the problem. It’s amazing – when any technology more advanced than a fax machine shows up, some publishers turn Amish and run for the hills. It’s easy to understand why things developed this way. “Traditional” manual direct sales has existed forever. Then internet advertising starts blowing up and all kinds of new, over-hyped, hard to understand technology shows up. People get scared. It snowballs.

This irrational fear has to stop, and should be replaced with an understanding of how different technology works and how it should all fit together so everyone is treated fairly.

Our industry has to tear down this wall of fear that’s been erected between Class 1 direct ad sales and technology.

Make it easier for people to do business with you, and more people will.

Picture a big mansion. It has 2 or 3 visible front doors, and lots of doors into the basement around back. Most publishers are sitting in a chair watching the front doors with a shotgun. Someone comes directly up to the front of the house, but if they use the “wrong” front door the publisher yells at them. Meanwhile, streams of people are just walking in through the back basement doors and taking their stuff. So a) they are letting too much out the back door and b) being silly about micromanaging which front door people use, causing them pain.

You can extend the analogy further – for example, many advertisers incorrectly think they are buying “premium” inventory through RTB, when at best it’s the stuff on the highest shelf in the basement.

Publishers are acting like the music industry in the 1990’s-2000’s.

Almost every single industry that has been transformed by the web and technology has shown that not only is it inevitable for software to reduce the frictions that exist in a business, it will actually benefit everyone involved and the fear was way overblown. But like most change it can be scary to the incumbents, so they resist it and do silly things.

The music and movie industries are a perfect example. I bet you’ll agree that the way they handled the digital revolution was pretty backwards. Suing tens of thousands of customers clearly didn’t work. It was a stodgy old industry set in their ways afraid of change and what it would mean. Their sin was thinking their business value was having physical stores that people walk into, when their business was actually delivering media entertainment.

But it was futile to fight the digital change, especially because there was real value in the progress. When’s the last time you drove to a Tower Records store and bought a CD? Or gone to Blockbuster?

Apple showed that people DO want to pay for music, if you make it easy for them to buy the way they want. You want a specific song, you search, click, buy. One of the largest reasons people were pirating music was because it was easier than actually trying to pay money for it.

To this day, I still pirate movies because I can’t give them money the way I want to (pick any movie and have it stream instantly). I would prefer to pay for it, but sometimes they make it so hard for me to give them my money!

Advertisers WANT to work directly with publishers. But publishers are forcing them to get in their car and drive to the store and buy a CD – all because of fear, tradition, and sales people who are afraid of losing their job (hint: they won’t). So a lot advertisers just don’t bother, or they find the path of least resistance by going to a savvier publisher or through the Class 2 channels.

Silly internal sales policies are antiquated and harmful.

We had a situation where a department within a massive advertiser placed a large guaranteed order, at rate card, directly on a specific publisher they wanted. They wanted to place the order digitally for speed and ease. Awesome, we thought. But the publisher turned it down, saying “well one of our sales guys on the East coast manages the account for their parent company, and we don’t want him to get mad.”

This was $100,000, at rate card, guaranteed, sent directly to the pub from an advertiser. It would’ve taken less than 10 minutes total, from origination to trafficking, to make $100,000 in revenue. Unless that publisher completely sold out their Class 1 that month, that means they sent those impressions to the spot market for 90% LESS money.

This antiquated bullshit helped no one – the advertiser went elsewhere, and the publisher didn’t make the money. All because the advertiser used the “wrong” front door.

Someone call Arnold – Skynet is coming!

One of our very successful niche publishers, who has a few sales people, received a digital order from a new advertiser through isocket. The pub’s CEO emailed me saying their sales person had been building a relationship with that buyer for months, sending them collateral, buying them drinks, mowing their lawn, etc. And now that they got an order through isocket, they weren’t sure how to feel about that and wanted my opinion. It was a new experience and felt weird to them, so they wanted my opinion.

My answer? “That’s AWESOME! Good job for doing the selling and being savvy enough to have a tool in place that made it easy for them to do business with you. Give the sales guy the commission!”

Happy ending! The publisher was excited to accept the order, the advertiser was happy they could run their orders easily, the sales guy got the credit, and everyone won.

I love this example because it encompasses so much. First and foremost – technology does not mean the robots are coming to automate everything and put humans out of work. The buyer would not have done business with the pub without the sales effort. Using something more advanced than a fax machine to conduct the order in no way emasculates the effort or value of the human.

Secondly, it shows the natural and understandable fear that even rational people feel when something new happens. Their email was an honest “we’re not sure how to feel about this?” question. But when they sat down and looked at the facts it became clear – it was a direct order, with someone they had a relationship with, at very high CPMs, for a guaranteed campaign, that only took a few minutes of time for each side to execute (compared to all the manual effort it could’ve taken).

The Yelp + OpenTable argument.

Some publishers think that by making themselves easy to do business with, it cheapens their brand image or cannibalizes their sales. If done poorly this can be true, but it’s not nearly the universal truth some make it out to be.

If you owned a restaurant, would you want to be listed in Yelp, or not? The answer is an easy yes. Is it theoretically possible that someone who was looking for your restaurant could go somewhere else they found in the search results? Yes. But they’d likely come to your place at some point in the future. And the net effect of being findable is clearly a positive one.

The “brand image” argument is just asinine. If the primary value of your business is forcing customers into doing business with you in only one painful way because you think the pain makes it special, then you’ve got a much more significant problem – one you will lose no matter how tightly you try to hold on.

One major publisher once said, verbatim, “we don’t want to make this process easier, because it makes us seem more service oriented and white glove.” You can understand why they think that sounded great in their head, but it’s been warped to the point of being silly.

To be clear: humans are awesome and cannot be replicated or automated by technology when it comes to direct sales. People and relationships matter. But publishers need to understand the balance between people value and the inverse returns of hurting your customers.

There’s hope!

The good news is the world is balancing out for publishers, with new tools (cough) for direct sales and a continually progressing sense of how all the pieces should fit together. We’re also encouraged that the majority of large publishers understand these principles more and more. It feels like a year or two from now much of this will be taken as common knowledge. More on that in a coming blog post.

Tagged as: channel conflict, preaching, publishers, soapbox