A few weeks ago ExchangeWire argued the case for the creation of a Pan-European Publisher Exchange (or PEPE). Here Ari Paparo, SVP Product, AppNexus gives his perspective on the idea of a European publisher exchange and whether, in the face of a fast-evolving marketplace, a short-term move to a PEPE-like offering would benefit Europe's premium publisher.

Recently, I exchanged points of view on ExchangeWire’s article advocating the creation of a Pan-European Publisher Exchange. While I can't quibble with the jaunty acronym "PEPE," I do wish to have a fuller discussion of the implications and potential of such an entity.

As the original article discussed, there are certainly some hurdles that would need to be overcome to create the PEPE, among them cooperation, languages etc. But really that's putting the cart before the horse. First, we should examine the tangible benefits of such an arrangement in contrast to the current open model (editor’s note: whenever someone uses the word "open" beware their rhetorical intentions).

Interoperability

Presumably the existence of PEPE would make things easier for buyers and sellers as all the inventory would be in one "place." While theoretically true, in practice all the sources of demand (DSPs, trading desks, etc.) are integrated into all the major sources of supply already. If each of the top four publishers in a market such as Germany chose a different SSP or exchange to make its inventory available, this wouldn't make the market any less liquid in practice. So as far as interoperability, PEPE is a solution to a problem that doesn't really exist.

Standards

As an American, I can only marvel at how excited Europeans get about creating standards. Standards are great, especially where there's a lot of difficulty operationally or with interoperability. However, they can also stifle some innovation by forcing new business models into old assumptions. When it comes to RTB and exchange buying I would be very concerned about setting standards at the business level before the market has matured to a stable state. For example, one could argue that a PEPE-like body could establish standard rules for the ways publisher floor prices are set, or the way second-bid auction prices are reduced. Indeed, having this unified in a market would make things easier to understand. But there could easily be unforeseen consequences. Imagine if the PEPE group decided that floor prices had to be uniform across buyers? This would kill the burgeoning world of private exchanges immediately. In short, the RTB and exchange world is evolving so rapidly that establishing market uniformity would be likely to cause unanticipated reductions in efficiency and creativity.

Control

In the measurement business country-specific joint industry committees ("JIC"s) are common, and they are able to extract value from the vendors in terms of customisation and price. This could be a real benefit to the PEPE. But, once again, I wonder if it's too soon to extract this benefit. There are two big drawbacks to the JIC system: first, if you're not happy with the vendor choice you really have no option until the next RFP renewal, which could be two to three years out. Second, the cost of switching vendors is quite painful on the whole market due to the discontinuity of data and methods. Both of these drawbacks would exist for a PEPE choosing a single vendor, but would be amplified by the immaturity of the RTB space. To pick a cheeky example, imagine if the PEPE was formed six months ago and chose...wait for it...AdMeld! Well, all that work to be independent wouldn't have been well spent!

More seriously, there are lots of differences between the technology vendors in the space, and those differences have different values to different publishers. Imagine if there were four major publishers forming the PEPE in a single market and one valued ad server integration the highest, one valued auction controls the highest, one wanted video and mobile support, and the last one just cared about price? How would they agree on a single vendor or technology?

Price

Which brings up the last and most important point: price. It's likely that a PEPE would be able to negotiate a lower price from a vendor than each publisher could on their own. However, for publishers who prefer to have a combined exchange/ad server offering this might not be the case. And, more importantly, the price vendors are choosing is fairly small compared to the yield being delivered - the difference of five to ten per cent of better yield on top line would easily pay for one to two per cent of charges on the bottom line.

In sum, while the European market, or individual countries, may eventually move to a unified exchange offering, rushing to do so within a fast-evolving market will have drawbacks far exceeding the limited benefits.