The German programmatic market tipped for a period of sharp growth in 2014, as publishers there gradually open up to alternative models of monetising their digital inventory.

With German publishers notoriously slow to embrace automated trading, Sebastian Romanus, managing director of Munich-based Adscale, discusses the merits and drawbacks of public and private ad exchanges, ahead of next month’s Ad Trader Conference hosted in Berlin.

Two opposing models are currently competing for the favour of German publishers, both seem strong, so let’s compare the two.

The first competitor is team ‘public exchange’. Due to technical integration, online marketplaces have open interfaces and are therefore freely accessible to all market participants. The top players in Germany include adscale, Google Ad Exchange, Rubicon, AppNexus and Right Media.

On the other side we have the team ‘private exchange’. They are closed systems where usually the operator – i.e. the publisher – will decide who can make purchases via this platform and on what terms. The most striking ones in Germany’s ‘team private’ are a range of different SSPs and various major media houses such as Interactive Media (via AppNexus), Amazon and Axel Springer Media Impact.

These two powerful opponents are facing each other within the German online market and we ask ourselves: ‘Which of them is in the lead?’

To successfully address the relevant target groups, advertisers – especially major brands – need a wide coverage for their campaigns. This is where public exchanges have a cutting edge. Their inventory across media houses is so big that the majority of German internet users can be addressed centrally.

The possibility of using certain control mechanisms such as targeting and re-targeting makes such a wide reach even more attractive for advertisers. With these, they can address even highly specific target groups via a public marketplace. Publishers, on the other hand, will benefit from the wide range of advertising budgets covered by public exchanges that are not accessible for them in a closed private exchange.

This is particularly true for small and medium-sized publishers. Another advantage is the maximum level of competition: A large number of advertisers are up to buy advertising space and with the auction system of real-time bidding, the highest bid for an ad impression wins. The wide reach therefore puts ‘team public’ in the lead by one point.

We can record the following score at this stage: Public 1 - 0 Private

Anyone offering their inventory through a public exchange is of course tied to the underlying system. Building one’s own platform means publishers can set up their own rules. They have a great deal of creative leeway in the technical design of their own exchange, as they can specify which inventory category should be offered at what price and, above all, whom they grant access to their private exchange.

Compared with a public exchange, a publisher has far more control over the brands and products promoted on the websites. This is also true for public exchanges (e.g. blacklisting of undesirable advertisers and industries), but the level of control in a private exchange is unmatched.

Moreover, a private exchange allows publishers to exercise more specific control on the price policy and on their terms and conditions – for as long as the market allows it. So when it comes to control and possession, our current score is: Public 1 - 1 Private

Be it an airline’s Senator Lounge or a website’s premium account, people love exclusiveness – and are prepared to pay for it. This is a phenomenon which greatly benefits private exchanges. Publishers will offer their premium inventory to a restricted group of advertisers.

Particularly welcome are renowned media agency networks such as GroupM, Omnicom, Vivaki, Pilot, MGMP, AEGIS, Havas, Interpublic and crossmedia as well as major direct buyers. The offer at private exchanges therefore mostly comprises large-scale formats, homepage inventory and other prominent integrations that excite advertisers.

Obviously, such gems are not exactly on the cheap side. But this strategy does not always provide the publisher with higher CPMs. In most cases, both sides agree on a discount for the purchase of high-volume ad impressions. And profits are of course reduced by the required investment in the technical platform.

This investment is a weak point of private exchanges: it is usually only big media houses that have the financial capacity to set up an independent platform, be it on their own or in collaboration with a service provider. Yet despite these limitations, private exchanges score by providing exclusivity. The score now is: Public 1 - 2 Private

As the term ‘private’ exchange suggests, it excludes many customer groups, so that an attractive segment is lost to publishers: small advertisers. Although, taken by themselves, each of them only books a small volume, their total adds up to a substantial amount of sold inventory, especially in the B and C segments. Public exchanges accumulate such demand, letting publishers monetise this mid- and long tail of demand on their websites as well. The spaces offered via a private exchange tend to exclude these, reducing both capacity utilisation and thus advertising revenues. Team Public levels and at this stage, we have a draw: Public 2 - 2 Private.

When it comes to transparency, both models score well. Advertisers buying space via private exchanges can see very clearly what kind of inventory is offered to them, and publishers know exactly who they sell advertising space to. But public exchanges are also offering an increasing amount of transparent inventory. Again, therefore, we have a tied game between both players.

After four rounds, ‘team public’ and ‘team private’ have held up well and are on a par. Both models have their strengths and are relevant to the German market.

This leaves publishers to decide on which model to choose, the publisher will decide depending on the quality of their inventory, their absolute reach, the share of ads sold through automated platforms, as well as their financial power and revenue goals.

In order to address a broad range of advertisers and to optimise one’s own capacity utilisation, public exchanges are indispensable. However, private exchanges also make sense, as they offer the exclusiveness, which is particularly beneficial in the up-market segment. In terms of practical media policies, big players in particular use both marketplace models in parallel. In fact, it is only through the combination of both that they can gain maximum access to the market and, ultimately, achieve optimum revenues in all inventory categories.

Both public and private exchanges are currently benefiting from strong online market growth in Germany and are continuing to gain importance. Both models have clearly emerged as winners and can easily exist side by side. As is so often the case in daily life, it is not a matter of either/or, but of both/and.
So our final score is 3 - 3 and thus a draw between ‘team public’ and ‘team private’.