Josh Mortensen is Founder and Managing Partner at GlibHippo - a sales house based in Germany. Here Mortensen discuses the German sales proposition and how it works with publishers, its critical role in the local online advertising eco-system, and why Germany's 400+ sales houses are critical to the adoption of automated buying and RTB in the German market.

Can you give some overview on your sales house proposition in Germany?

GlibHippo operates on more or less the same model as other sales houses in Germany but we do not sell for German publishers. We work with US based companies who have significant audiences in Germany and Scandinavia.

Like other sales houses operating in Germany, we sell inventory only for specific publishers on a very traditional and transparent commission model. We do all of our own adserving and any optimization.

How do you work with local publishers? Why would they use a sales house to monetize their inventory?

Our publishers use a sales house for 2 reasons:

The first reason, specific to GlibHippo, is - for Americans - Europe is really a challenge. It is too fragmented. Way too many languages. Operating an international sales team is often beyond the resources of medium size web properties. Without a sales house, their only way to monetize inventory is some form of automation, networks, exchanges etc.

The second, more important, reason: Publishers, and I think this is true worldwide, don’t really like automation. They tolerate it - but they know offering inventory to the algorithms is the equivalent of “empty calories”. It is revenue with little long-term nutritional value. The economics just never work in their favor. (They don’t really work in the advertisers favor either. Another advantage for sales houses)

Publishers know when their inventory is in the hands of the robots, they get arbitraged in a way that gives shameless a bad name. Particularly in markets where they do not have local knowledge.

Do small-to-medium sized German sales house have proprietary technology – such as audience targeting capabilities? Or is the relationship with publishers more consultative?

Sales houses in Germany have their own technology to varying degrees. Many have built their own adservers, for example, in order to accommodate the specifics of their inventory. But broadly speaking, it is more consultative. If they do use audience targeting or any sort of more sophisticated tech, it is usually third party. Sales houses are not in the tech development business.

There are currently German 400+ sales houses? Is that number sustainable? Will there be consolidation in the sales house space?

I think when non-Germans look at the country from the outside, the sales house phenomena is confusing. Americans and Brits make the mistake of seeing the German auto industry as symbolic of the whole economy. The stereotype is that Germany is a model of scale, efficiency and mechanization.

For online advertising, the automated ad-platform and algorithm gee-whizzery in the US and UK makes the dominance of sales houses a disconnect. They are just so, so analogue. So improbably quaint.

But the sales house is reflective of Germany’s macro economy. Small and medium sized businesses, creating highly specialized products and services, in German they are called Mittelstand. They are the country’s commercial engine. These businesses are not anti-scale. They just prefer focus and quality.

Sales houses are the Mittelstand of online advertising. Each house is quite adept at representing their specific inventory and delivering the sales.

The 400+ sales houses in Germany may prove to be a surprisingly stable number. Some consolidation is inevitable, for example along certain verticals. But I would not bet on seeing the German market develop on the same model as the UK or US. The emergence of two or three dominant players is unlikely. For both cultural and economic reasons, fragmentation and diversity are tenacious with a capital “T” in Germany.

Do all these sales houses fight to get on agency media plans?

Yes. But sales houses are often organized around verticals as well so they are talking to different planners. Sales houses do face the serious disadvantage of media planners’ schedule. It is a problem of limited time however, not a question of inferior product.

If the market moves towards automation how do small sales houses compete with SSPs and exchanges? Can SSPs and exchanges really aggregate supply without working with German sales houses?

Sales houses will compete by creating their own networks much like Forbes or CBS Interactive have done in the US.

Sales houses will remain the gatekeepers, retaining control of the inventory to keep pricing transparent and, more important, maintain comfort for advertisers.

If SSPs and exchanges hope to aggregate supply, it will be through the sales houses. Neither publishers nor sales houses have any interest in the commoditization automation brings.

Do not underestimate the strength of sales houses’ relationships with their publishers. It is very unlikely an exchange could come with a proposal that would threaten a sales house’s arrangement with a publisher.

It is worth noting that German publishers seem hesitant to monetize their remnant traffic at the risk of compromising their inventory. This does not mean they won’t. You see premier German publishers appear on exchanges but only for seriously remnant inventory, cross border IPs for example.

Also worth noting: even über american media companies like Turner Networks have pulled their inventory from exchanges for reasons very similar to why German publishers never joined in the first place.

How critical are sales houses to the growth of automated buying and the adoption of RTB?

Just like the growth of aggregated supply, Sales house will be the key drivers if RTB is to take-off in Germany.

How do sales houses view the data-driven display space and RTB? Is it a threat to their business model? Will they have to evolve model to stay competitive?

In the case of Germany, the whole data-driven display slash RTB discussion reflects an Anglo-American cognitive bias toward technology, scalability, venture capital and exit strategy.

The "platformification" of online advertising is a silicon valley phenomena finding considerable resistance in Germany. And it is not because Germans are Luddites, they are just not driven by the same imperatives as their anglo-saxon cousins.

These companies are not interested in becoming a Techcrunch Series-A Page Three Girl. Their directors do not spend every waking moment so consumed by creating shareholder value that they dare not ignore even a fraction of a cent from a ringtone peddler. They are not building companies whose real purpose is a sale to Google.

For that reason, sales houses are only tangentially interested in data-driven display. Ad-tech is a tool not an end in itself. Data-driven display and RTB will grow in Germany but it will grow slowly and on German terms.

Data and RTB are no more of a threat to the sales house model than Wal-Mart was a threat to Germany’s retail model.

How do you see the market evolving over the coming 12 months?

For the next 12 months, data-driven display and RTB still face two significant challenges.

Despite the hype, they have not reached the penetration and volume needed outside Germany to make them a must-have in Germany.

They remain very much a tool created by and mostly for the American market. Both the German online space and the data RTB industry will have to evolve together for their to be more uptake.

In 2012, I think we will see more serious dabbling in the data-driven space, with the active word being “dabbling”. There is too much attention on this space right now for it to be ignored. Do not expect to see a tipping point, however. Not this year.

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