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[upbeat music] Welcome to the Rebooting show.

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I'm Brian Morrissey. This week's episode is what I call a spotlight episode, where I have a discussion of media ecosystem issues with one of the Rebooting's sponsoring partners.

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This features Joe Root of Permutive, who is the underwriting sponsor of this mini season of podcasts that featured revenue leaders discussing their challenges.

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Joe and I last talked in twenty twenty-two, which in some ways was a different time. Zero interest rate era hadn't fully closed yet, and the market has since felt the brunt of that.

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We talk about the digital advertising space at an inflection point with the third party cookie eventually going away.

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And Permutive's data shows that seventy percent of users aren't able to be identified through open marketplaces, and that leaves publishers reliant on this channel to make money in a bind.

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I think in prevailing winds, and the prevailing winds these days in digital advertising are in favor of direct sold whenever possible and towards privacy, and away from the kind of one-to-one targeting that has been an obsession for the past decade.

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I hope you enjoy this conversation, and thanks to Joe and Permutive for their support of the Rebooting. [upbeat music] Joe Root, thank you so much for coming back and doing the podcast. Thank you for having me.

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It's nice to be back. So last time we talked was twenty twenty-two. A bit of a different era, really, because first of all, we were coming out of the pandemic, and twenty twenty-one was kinda nuts, you know?

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I mean, I saw it very much on my end. I was like, "Wow, this is like..." I run a lot, and I, I always think about it like when I'm running and the wind is at my back, I'm like, "I'm incredibly strong." Yeah. Very strong.

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And then when I turn to come back home and the wind is in my face, I'm like, "This is so unfair. How am I supposed to run in this?"

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And I kinda feel like the industry overall took a turn, like, probably right after really we talked, and I'm hopeful it's coming out a little bit.

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But I wanna, like, set the stage, 'cause you just came back from DMEXCO, and I've never been to DMEXCO, which I don't know, maybe I'll continue. I'm up for any sort of German ad tech conference with giant booths. Wow.

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But first of all, give me the vibe of DMEXCO, 'cause I always like these kind of events to understand the shifts that are going on in the industry, and you can kinda tell with how people are talking about themselves.

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Yeah. Yeah, it's a great question. So my last DMEXCO was back in twenty nineteen.

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Walking down the halls, every message was exactly the same, so like once one personalization was every single kind of booth, every single stand.

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This time round, once one personalization is gone, turns out privacy cookies are a new theme, and pretty much every stand was privacy safe advertising and no need for cookies.

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Also very interesting though was booths which used to be absolutely enormous were now much smaller in size, much more reasonable.

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It was a more responsible looking ad tech ecosystem than perhaps- See, you could be a reporter, Joe. I mean, that's a perfect lead for... I don't know if you wanna pivot to this, I actually wouldn't recommend it.

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But, like, it's a perfect lead for, like, a story, like a scene-setting story about DMEXCO. Like, you know, the booths are smaller, the messaging is- Yeah.

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So it's definitely a very different vibe, I think perhaps an ad tech industry which has realized that we all need to be a bit more responsible in this new world, but also kind of a massive shift in where people are focused in terms of positioning.

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Yeah, so let's just get into the cookie stuff, right?

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Because I, you know, there's a lot of, like, there's, like, apocryphal quotes, and I feel like if they're British, they're as- assigned to Winston Churchill, and if they're American, they're assigned to Mark Twain.

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So, like, there's one that's like, you know, "Reports of my death were greatly exaggerated," and I almost feel like that applies to the cookie.

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Like, I've been like, I hoarded up a piece of art like three years ago that Lara O'Reilly, Lara, if you're listening, still remember.

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She told me it was too offensive to use because I had the cookie, a cookie being crucified. I don't know if it was. I'm like, "Who's getting offended? Cookies or, like, Christians?" Obviously. I won't comment. Okay.

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But anyway, that was like three years ago, and this thing's still with us. Yeah. What's the deal? It's interesting.

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I think to your point, kind of greatly over-exaggerated, in some ways under-exaggerated at the same time.

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So I think kind of what we have seen is that today across kind of inventory for our publishers, about a hundred and fifty publishers, today across their inventory, seventy percent of ad impressions don't have a cookie, thirty percent of ad impressions do have a cookie.

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In some ways, that's surprising. I think most people look at cookies as everyone in Chrome has a cookie, and that's not true.

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At the same time, cookies haven't disappeared entirely, so kind of fifty percent or so of consumers are in Chrome today. Of those consumers, forty percent of them have manually in some way deactivated the cookie.

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That could be incognito mode. That could be that they've manually disabled them themselves. That could be that they've installed some sort of anti-tracking technology.

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But that means kind of only sixty percent of Chrome users today actually have a cookie, which leaves us with that kind of thirty percent of consumers today having one.

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And then kind of I think everyone is now kind of of the opinion that Google will kill the cookie when it chooses to kill the cookie in its entirety. Whether that is twenty twenty-four or not, I don't know.

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But certainly DMEXCO, they had a slide up which was saying it will be gone in, in, in a... It seems like we will reach the end soon, and we can- So wait, the second half of twenty twenty-four, RIP third-party cookie.

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That's what their slide said. So I wanna get, jump off that, two points. One is just the scene setter, like explain for those...

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So I, I mean, most people know, I think, who listen to this show, but maybe there's some that don't. Just the accidentally pivotal role this fairly benign, banal...

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piece of technology ended up playing in a massive digital economy. Yeah. I would love to know the developer who decided to put the third party cookie in whatever the first browser support it was.

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They've certainly kind of underpinned trillions in spend. Yeah, maybe I could have him on the show when Google finally kills it. Like, we could do like a little, like, funeral and whatnot.

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[laughs] I mean, I won't tell him about the, I won't tell him about the crucifixion arc. [laughs] A funeral is much, much more appropriate.

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So effectively what the third party cookie has enabled is ad tech companies, third party companies to know who you are no matter where you are on the internet.

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So it means that everyone can talk about a single user with a single ID, and effectively kind of information can be very freely harvested.

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That ends up being very useful for programmatic advertising, it turns out, because you can make a decision on an individual user based on everything they've done on the internet.

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Now, that has allowed enormous centralization with the industry, so we've seen kind of a handful of ad tech companies build enormous businesses around this centralization.

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But in many ways, that centralization has come at the expense of publishers within this ecosystem, because all of a sudden they're deeply commoditized.

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Everyone can get access to, um, their impressions and can make their own decisions. Yeah. And like every market, I feel like there's always this pendulum between cen- and decentralization.

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And look, there are advocates or... And then there are advocates on both sides, and the reality is there's trade-offs to each. And what I find interesting about the cookie is that it was never meant to play this role.

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Mm. I don't know the gentleman who, or, or the woman who came up with the cookie, but it was not, I know that it was not intended to become the linchpin of a massive programmatic advertising ecosystem. Yeah, not at all.

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It's a, it's a browser feature to maintain state. Yeah. Because early internet, the early commercial internet, you know, it was a mess. Like, I mean, I...

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A lot of times, you know, we point to a lot of the problems and stuff, and I'm like, "Well, let's go back in time." I mean, this thing was a mess. We couldn't...

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There was like something like 380 different, like, ad standard sizes and stuff like this before the IAB, like- Yeah... standardized everything and stuff.

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And trying to run ad campaigns was almost impossible because the best part of the internet is that it is an open system. Mm. You can publish on it.

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And so all the problems that people are complaining about and stuff with the internet, I'm like, "Well, hold on a second. Like, this allowed most of you to just exist. You couldn't in a pre-internet world."

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So leave that aside. There i, there are a lot of, like, benefits and drawbacks to, to every, um, system.

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But I think what it seems to me what the industry is now undergoing is, and I think it's a pivotal moment, is this was never meant to play the role it's playing. It has a lot of downsides, some upsides, some downsides.

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And what places it, how does it make it better if we're defining better, not like more revenue and margin for Google necessarily, but a more sustainable, equitable, and resilient media ecosystem?

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'Cause that's what I think it comes down to. So h- is there a hopeful case that what comes next will lead to that, Joe? Please tell me yes. I am enormously hopeful for what comes next.

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So I think kind of the story of the last few years, and perhaps this is a slightly biased European perspective, is that this is less about cookies and more about consumer choice.

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So one dimension along which I can express my choice as a consumer over whether someone can collect my data, whether they can track me across the internet is, do I or don't I have cookies enabled?

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Have I bought an Apple device or have I not bought an Apple device? There is another dimension which is equally as powerful though, which is regulation.

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And regulation is saying, "Hey, you can also have a choice over whether companies can process your data at all, and what purposes they can process your data for."

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And it turns out that regulation is massively fragmented and split across hundreds of different geographies and locations.

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And actually what you end up downstream of that is a world in which consumers have a lot of choice over their privacy preferences and settings, and you end up with a very fragmented world of different privacy configurations on almost a consumer by consumer basis.

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So I think when you look at it from the consumer perspective, actually it's a very equitable world. It's a world in which I now start to have control over where my data can go, who can use it, everything else.

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So I think kind of on that point, is it responsible? Is it a good direction? Yes, I think that certainly is from a consumer perspective. If you look at it from a publisher perspective, it requires change.

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All of a sudden, what was working no longer works. So as a publisher, I was getting ad tech companies to monetize for me.

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Now they can only monetize users who have cookies, and that's 30% of my consumers, so all of a sudden my revenue is in free fall from open marketplace programmatic.

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At the same time, it's allowing publishers to actually take control of their revenue and build a solution for the 70%, which isn't them giving it away, it's them going out and saying, "Hey, actually advertisers, this is a problem for you too.

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If you wanna solve it, you need to come and work with me directly." And I think for publishers, it's giving them control again where they didn't have control previously. So it has the potential- Okay. So that more...

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Yeah, it has the potential, that's a key word, and I'm still gonna stay in optimism mode. But let me just go back fo- 'cause foundational, uh, with that is that 70% figure.

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'Cause you guys are partners of mine, and this is a great sign that, you know, the ads are working, 'cause I got someone who sent me back a message saying, "I need a citation on that 70% figure."

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[laughs] I was likeOh, [chuckles] I, like, went back to Robert and stuff. But, like, and tell me first of all, the, the basis of, of that.

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I know this is your, your customers, and I think, you know, you know, the Rebooting show is global, but, like, there's a lot of, like, Americans also who listen to this. Is this like...

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What's the sample, and is this a very European, what's European versus US? Not that the US is, like, the whole world- Yeah... but you know how Americans are. I do know how Americans are.

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So the sample's about kind of 150 or so participants, publishers. Our focus is really the top 500 publishers in the world, um, so about kind of 30% of, of the top 500.

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Anyone from like a News Corp or a Washington Post through to a Hearst or a Conde Nast. Yeah. Um, within that split, about 60% of our traffic is US traffic and US publishers, so it's more biased towards the US.

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It's not entirely the US, but it's more biased towards the US. Yeah. And actually we see almost identical numbers for addressability in the US as we do in Europe today. Okay, so it is not a Euro thing? No. No.

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So as- To put it very bluntly. Europe has another layer of challenge which the US is yet to face, which is turns out users can just say, "Hey, I don't want my data to be processed at all."

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Because ad tech is basically loaded, US companies are throwing their hands up in the air and saying, "Well, if we can't process your data, you're not worth any kind of ad dollar to us."

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So actually in Europe you have kind of 50% consu- up to 50% of consumers who just aren't even getting served an ad today because they don't want their data processed by ad tech companies. Yeah.

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Yeah, so, like, on that, 'cause I do think it's funny 'cause when GDPR came into effect I, I was really happy 'cause we were different at, when I was at Digiday, like, we had, like, a team that was in, in London, and they were like, "This is a big deal" and stuff like this.

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I'm like, "Yeah, another regulation. Okay, whatever."

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And, like, I think a lot of American companies honestly f- you know, didn't understand that, that this was going to set the pace for, you know, they're used to regulations, like, around, you know, automobiles and stuff like this- Mm...

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happening in California and being de facto standards across, you know, the entire country.

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I think just from an American perspective, you know, we don't think about, like, the rest of the world dictating how things happen in America, and it really did. You know?

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And I think we went through this period, I r- I don't know if you remember, like, when, like, Tribune, or maybe it was Trunk then, I have no idea, you know, stopped letting Eur- like, people from, like, Europe, like, access- Yeah...

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like, the Chicago Tribune like they would. But, you know, it, that, that wasn't obviously extensible because you need to act in, we're all in, like, global markets at this point.

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And I think, you know, Europe was way ahead of the United States by taking privacy seriously. I, I do another podcast called People Vs. Algorithms. Troy Young, former Hearst executive, keeps railing against GDPR.

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He goes nonstop. I mean, of all the hobby horses to have- [laughs]... these cookie banners, I, he just can't take them. They're annoying.

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They are annoying, but I think, you know, one of the things, I don't wanna get too down this rabbit hole, but give me the case for this being worth the cost of f- because it's like, it's a UX atrocity.

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I've never seen any data, I don't know if there's data to, to show that people are more informed or less informed- Right... because of this. And because there's a trade-off.

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There's obviously a trade-off with these consent situation and, like, is this, w-what is the consumer benefit here? Yeah. So yeah, there are two things we love to do in Europe.

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We love to strike, and we love to regulate, and- [laughs]... the regulation piece seems to be getting some global traction. We're, well, we're getting both actually. I'm glad to hear it.

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So we're becoming way more European. We're like s- we're getting super regulated, and we've got strikes going on nonstop. We got an auto worker strike that's happening right now. That's very true.

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[gentle music] I had reporters at Business Insider down the street walking picket lines in Zuccotti Park.

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They weren't exactly warming their hands over an open fire, but... Yeah [laughs].

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So when you look at what the regulation sought to do, it was like, hey, you can have pretty granular control over how your data can be used and processed.

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So you can determine what uses your data is actually gonna be applied to.

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That turns out is actually a very complicated and complex thing in digital advertising, and the first kind of version of UX within it was just hugely complicated.

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It was, hey, there are hundreds of vendors, and do you want to be able to use their data? Do you want them to be able to use your data to serve you ads? And in many ways, the UX obscured what was going on with the GDPR.

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So what we saw in kind of this first version was most users would just hit approval because it was such a pain to say, "Hey, I don't want these ad tech companies to use my data for digital advertising."

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In parts of Europe, regulators started to dig into this, and the regulators started to feel, like, to your point, hey, actually consumers aren't making an informed decision here.

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They're kind of being led into a choice by dark UX patterns. So, and the industry has, you know, they ha- the industry has its flaws, but this is an area that they're pretty dialed in on. Yeah.

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So some regulators in Europe started to say, "Hey, users aren't making informed decisions here. You need to give them two options when they arrive on a webpage, either approve all or reject all."

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And that change in UX has a huge impact over how many consumers say yes or no.

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So for most of our publishers, less than 10% of users were going through all the different kind of boxes to say, "Hey, I don't want anyone to process and track my dataGiven a simple binary option, fifty percent of consumers roughly are saying, "Hey, I don't want my data to be used."

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And that's a huge shift. It's also important to note though, that's a shift for publishers, but also Google have put the same thing on the homepage of YouTube.

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So all of a sudden, consumers have this very binary option in front of them, and now given that binary option, consumers are overwhelmingly saying no.

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Do they understand the repercussions on the ad tech ecosystem after that? No. Should they have to? Probably not.

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Should we respond and react to the fact that consumers don't want their data to be processed as an industry? Yeah, yeah, I think we should. So this is mostly, I feel like up until this point, this has been a discussion.

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I just wrote a piece this week about the ecosystem, media ecosystem.

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I think at first I always thought that was like a cheesy, like, term, but then I came around and I'm like, it is an ecosystem, because ecosystems are fragile. You know, they're, uh, the healthiest ones- Mm...

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are diverse, and the healthiest ones are resilient, right? And if you don't tend to ecosystems, they can die.

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And I feel like there are a lot of, you know, worrying signs in the overall ecosystem, and a lot of it comes down to almost like a tragedy of the commons, right?

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And when everyone, look, we're in capitalist systems, and when everyone's looking out for themselves, a lot of times that can lead to, you know, overall harming the ecosystem.

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We see this with rainforests and lots of different ecosystems out there. I worry the same thing's happening to the media ecosystem in some ways because we have actors who are only looking out for their own interests.

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Mm-hmm. And I get that. People have shareholders and people get bonuses tied to different things.

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But at the end of the day, if there's no media ecosystem, there's no industry [laughs] and there's no money to be made, so, and everyone's worse off.

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So I think it's a, a worthwhile, you know, problem, obviously, to address. And I wanna know, until this point, this has been a issue that has mostly been one that's fallen to ad tech and publishers. Mm-hmm.

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But meanwhile, look, we both know, it, it flows from the buy side. The buy side dictates. Like, if it was up to publishers, like they'd be like, "Yeah, buy it all direct. Yeah, okay."

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But like, we're not gonna dictate to our pub- if our publishers wanna buy in a different way, if they wanna buy through an ad exchange, let's say, an open programmatic, well, then, look, they've got the money.

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But I feel like right now this story is shifting where advertisers are waking up to the fact that this is a problem for them too. Love- Am I right on this? Yeah. It's certainly what we've seen.

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So I love that analogy of an ecosystem. I think there's actually a lot you could unpack with that one thing, right? Is, yeah, just so many small changes within it have massive repercussions downstream. Yeah.

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Within the advertiser world, we've started to see really kind of brands start to recognize that this is a problem which impacts them now as well.

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So most brands over the last kind of five, 10 years have massively shifted the way they spend towards programmatic advertising.

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So where programmatic advertising used to be for remnant inventory on a publisher's site, now all of a sudden it's the primary way in which ads are bought across most of the media ecosystem today.

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The problem with programmatic advertising is that today it's only working for thirty percent of consumers.

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And what we're starting to see brands wake up to is these precision marketing strategies I've taken, these programmatic advertising strategies, which I built all of my media buying on top of, are funneling me into a smaller and smaller portion of kind of global consumers.

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Today, about thirty percent. And that when I can only reach thirty percent of consumers in one of my largest marketing channels, that downstream impacts my market share.

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And we're seeing this especially with the larger brands who have the modeling in place to really keep track of this, is they're starting to see that downstream, this impact from precision marketing is a loss in market share, and they need to change the way they operate to solve that.

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Okay. So that would seem to indicate that we will, and look, the pendulum, to me, it's like life's all about pendulum. The pendulum like swings too, and it always swings too far, and then it comes back.

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And I've seen this pendulum swing too far, in my view, to one marketing. Mm. I remember when basically programmatic advertising started getting going.

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I remember talking with Mike Walrath about, right, this company, Right Media, he was starting. I was like, "Wow, this sounds amazing, just like the stock market."

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And, you know, David Verklin was telling me that like dog owners or dog parents, I guess it is, would only see, you know, dog food ads. They wouldn't see any cat food ads and stuff like this. And it went too far. Yeah.

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And context still matters, and different signals still matter.

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I was walking down the street here, uh, in New York City today, and I have a university next to me here, and there was a, one of those flyers on a light pole that said, "I will write your term paper for you."

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And I'm like, they didn't need one-to-one marketing. No. Like, perfect placement. That's what I thought. I wish I'd had that in university.

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[laughs] Like, this is, you don't need to worry about wastage or anything like that.

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But, like, I do think, like, this should theoretically, right, lead to a shift back to more direct sold inventory, and if you talk to most publishers, outside of, you know, some particular cases, they feel like they'll benefit from direct sold.

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But at the same time, I think, you know, it's squaring the circle. Like, you can't put the genie back in the bottle- Mm...

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or even want to, is there still needs to be the precision that, uh, has, maybe not to the degree, the one-to-one precision, but there still needs to be precision. So how do you, like, square those two things? Yeah.

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The shift to direct, but still taking the best of programmatic with like, you know, precision in, in the targeting. It's a great question. So I think there are different ways to unpack that. Uh- Mm...

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the first is, I suppose from a technology perspective, programmatic advertising, as far as we're concerned in terms of kind of one-to-one targeting-An ID available on every single ad impression.

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Programmatic advertising now only exists for thirty percent of the internet.

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So if you're a publisher- But is that just now, or is that just until we get this, like, identifier mass fingerprinting, whatever it's gonna end up becoming? There's, like, so many candidates.

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This is, like, the worst episode of The Bachelor. Great question. Honestly, addressable advertising is only going to decrease in scale over the coming years.

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So there are kind of two candidates for what is a post-cookie ID. It's either an email address or it is a fingerprint ID.

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The fingerprinting ID is just getting attacked from every angle by every web browser and kind of every tech company.

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Google and Apple are just on a mission to destroy fingerprinting, and you're in this cat and mouse game. So really kind of it's already pretty low in scale. It would only kinda continue to disappear.

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I was speaking actually to one publisher who was talking about an ID solution they'd implemented, and it was fingerprinting technology.

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When they looked at kind of where the fingerprint actually worked, it worked on the thirty percent of the users who still had a cookie. For the remaining seventy, it was kinda useless.

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That reminds me from early, early ad tech, I remember when behavioral targeting started coming out, like, that they, that it was basically it was like ad networks were, like, fifty percent accurate on gender.

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It is exactly that all over again. So then the other is the email address. The problem is across the open internet, less than ten percent of consumers signing in to a publisher with their email address.

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And when you look at that as well, it's not a consistent picture. I might be logged in on publisher A, but I won't be logged in on publisher B.

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So really we see addressability moving towards five to ten percent over the next kind of two to three years as Google works through their timeline of whatever is happening.

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So really we're moving to a world where the notion of an ID being available for an ad impression will be very r-rare. It'll be less than ten percent of ad impressions more than likely.

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That calls into question the whole foundation of programmatic advertising. Do you need these expensive, i.e. kind of taking fifty percent of your revenue as a publisher type pipes?

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Do we need pipes which are hugely carbon inefficient? Do we need pipes which effectively are only gonna work ten percent of the time?

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And really kind of when you look at the world through that light, programmatic advertising doesn't make sense in that regard. There are a lot of benefits to it. It's a lot easier to execute on.

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You can make kind of a machine...

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Well, you, you can make automated decisions within that world, but there are ways to do that in a manner which doesn't have to take fifty percent of the supply chain on route, which doesn't have to be so carbon inefficient.

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We can rethink what that world looks like. So if you fast-forward really now, if an ID is not available, you're making decisions on cohorts, on audiences, you're making decisions on the context of the page.

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And actually, there's far fewer permutations of what that can look like. Today, there are probably ten billion cookies in the world or more.

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That's ten billion different ways in which each ad impression can, can be layered. Uh, all of a sudden that's going away.

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Maybe you have a hundred thousand different cohorts, but you're not making a decision on ten billion different IDs. You're making a decision on ten thousand different cohorts.

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And when you do that, you don't need to make a decision on every single ad impression. You can pre-program a lot of this.

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I think the work Brian did with Scope3 on, Hey, is it a more kind of carbon efficient supply path to go direct to publisher in their ad server or via the, the, the ecosystem?

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This company showed that, hey, it's far more efficient to go via publisher's ad server. He's arguably the guy who kind of invented programmatic advertising. Yeah. So I think- I've been wanting, I've been wanting to...

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I, I gotta talk with Brian. We, we traded messages, uh, on LinkedIn about this, best social network out there. But, like, because, like, when he started as... Everyone, Brian O'Kelley was, um, the founder of AdNexus.

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He's one of the... I think him, Dr. Barras, there's a few, like, godfathers of ad tech, the Ad Tech Pantheon, and, and he's in it, I think.

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But when he started Scope3, which is, like, taking a, a carbon approach and saying, "This, this stuff is bad for the planet," I remember when I first heard it, I was like, "Seriously?"

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I'm like, there are so many problems in programmatic, I wouldn't start with the carbon. Like, but maybe that's me as, like, an American.

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But then, like, you know, the more I talk with people, like, first of all, it is a real problem, but secondly, and the best business models, particularly in ad tech, are these, it's a Trojan horse to clean up a lot of the ineff-efficiencies and what I would consider the quote unquote "real problems."

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I think they're all problems, but- Yeah... I think it's an interesting approach. So I think- But can you explain, just explain for people who don't know, like, why carbon is actually a part of this discussion.

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S- we have very complicated supply paths today. So an ad impression, when it's about to get served, can go in one of two directions.

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Either it goes into the publisher ad server and it's one request and a decision being made effectively once, or it enters the programmatic supply path. The programmatic supply path will fragment out with all the SSPs.

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Those will then send out to all the DSPs, and then all those DSPs are making a decision.

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So at each one of those layers, you're increasing by an order of magnitude just the number of requests and the data process being handled.

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So all of a sudden you can get a, um, three X increase in order of magnitude of, of computation going on for a single ad request, and that's a hundred X less carbon efficient effectively.

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Um, if you say, hey, data compute and processing and storage equals kinda carbon spend. So effectively that programmatic ecosystem just increases the amount of processing and computation by an order of magnitude. Okay.

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So real, real issue, and it can be addressed, and I think there's a lot of knock-on effects that can address some of the other issues, right? Yeah.

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So I think, like, when you take a step back and look at programmatic advertising, it's been great for making it simpler to execute media. It's had three major challenges.

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The first one is a privacy one, that it just leaks data at enormous scale, and consumers don't like that anymore.The second to the question you asked earlier is, you have a programmatic supply path taking fifty, sixty percent of revenue before it hits a publisher.

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So now you have an unsustainable media ecosystem and internet.

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And then the third problem is it's just increasing by a couple of orders of magnitude the amount of data processing and data handling, which downstream has an impact on the environment.

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So in all three of those pieces, programmatic doesn't add up or doesn't have the value which I think kind of it's consuming today. Yeah. So a lot of the sort of shifts are gonna be driven by the buy side, right?

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So like if at the end of the day, like I, you know, there's a lot of, you know, publishers want things to operate in a certain way, but at the end of the day, like I said, you know, the people who are paying, you know, the people who have the money call the shots, right?

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So what is your sort of perspective, you know, from the buy side point of view of the changes that they will want driven?

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'Cause I mean, a lot of the things we talk about and I like to take, I take the sort of publisher point of view because I think of when we talk about having a sustainable, equitable and resilient media ecosystem, I think you have to start with the publisher 'cause I think that is where the problems are the most acute.

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I think, you know, on the buy side, like there's, I joke about how there are multiple marketer halls of fame and stuff like this, like it's a different world and stuff.

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But they've gotta like drive the change ultimately, I think, right? Yeah. I completely agree.

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So we see really kind of there are two things which brands are starting to take issue with, and I would describe this as if you just look at kind of a market adoption curve. This is early adopters and innovators.

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This isn't mass market yet, but early adopters and innovators tell you where everything is heading, and there are two things which we see as major challenges.

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The first is the realization that today, because consumers have such fragmented privacy preferences, brands can only reach thirty percent of their consumers using programmatic advertising, and they've realized that if they go directly to publishers, they can reach a hundred percent of their consumer base.

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So that's kind of layer number one, where we're seeing brands start to shift where money goes. And if you look at kind of the numbers behind it, it's, it's, it's pretty interesting.

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It's like we ran a survey with Digiday. In twenty twenty-three, publishers said that, that eighteen percent of, of, of them felt that like the majority of their ad revenue was gonna come from direct sold advertising.

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For twenty twenty-four, fifty-eight percent of publishers believe the bulk of their revenue will come from direct sold advertising.

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Emarketer had a piece where seventy-five percent of total programmatic digital display ad spend will be driven by direct sold deals. So I think we're seeing that happen.

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The second layer within this though is brands are starting to recognize that more and more of their media spend is going on ad tech versus going on media, and they're looking to clean up that supply path, build more direct paths into publishers, and effectively eliminate spend on ad tech so they can spend more on real media downstream.

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[gentle music] I remember when I first started, you know, covering this industry, you know, coming into contact with working media and non-working media.

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I can't even imagine like being in an agency and having [chuckles] your work described as non-working. I'd be like, "Oh my God." Yeah. "Brother, I- it's work." It's work. But anyway, like I understand.

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There, th- I think from the buy side, I think the question always comes down to you, they want, they want efficacy. Yes. Right?

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They, they're addicted to efficiency, and I think programmatic really addicted a lot of, a lot of the buy side to efficiency.

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So I think that is the issue is like how do you square efficacy and efficiency because direct sold is inefficient, right? Yes.

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It's not as efficient as like, you know, see a cookie, hit a cookie as was once- Yeah [laughs]... described. That's how it was boiled down to me one time memorably. Yeah. So I think IOs are an inefficient process, right?

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I'm sending a load of stuff over email. It's a back- Yeah... and forth, it's slow, but it makes sense where you're gonna execute large media spend.

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So there will always be a business for publishers where their endemic brands, where you're gonna have this IO business because it makes sense for both sides.

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If I negotiate directly with the publisher, I get better access to the audience, to placement, to everything else.

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There's then what is a cleaner supply path which eliminates kind of ad tech within there, allows an advertiser to get closer to the publisher, but I can still use programmatic to execute it.

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So I'm not having to go backwards and forwards. I can have some optimization in my spend.

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And I think what we've really seen a massive shift in, especially at an agency level, is this notion of pub- pub- is rather than saying, "Hey, I'm gonna execute programmatic spend in the open marketplace across ten thousand different publishers", instead what we're starting to see is agencies curate twenty, thirty, forty publishers and their audiences into a set of PMPs and deal IDs which they can then go and execute on.

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So it's a more direct path. Mm. It's negotiated, it's more clearly priced, but it still has a lot of the benefits of programmatic of I can make some of these decisions myself without having to send an email every time.

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Yeah. So but is the agency incentivized to do that? Because I mean, look, they, they, they make money off programmatic.

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They, they-- I remember when the, the rise of programmatic, um, no offense to my friends at agencies, they, they, they sprung up these, these trading desks that I'm like, "Wait, you're double-dipping."

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Like how, this is, how can you be taking it twice? Like I don't, this makes no sense like on the face of it.

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And-You know, that didn't last, but like, [laughs] you just saw these like ama- amazing margins and it just, it wasn't gonna last.

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But, you know, look, a lot of the problems to me in the ecosystem come down to misaligned incentives. Mm-hmm.

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And I think a lot of it, honestly, on the publisher side, I think, you know, the UX crisis, I think it's a real crisis. Really comes down to the fact that there's no loyalty. Yeah.

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And you know, when people, when you're gonna see a person or really just a cookie, you know, once, get while the getting is good. I mean, what's the, what's the downside of like, you know, 14 different autoplay videos?

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Like, who cares? They're never gonna come back anyway, and if they do, they won't even re- remember you anyway because there's no loyalty. You gotta fix incentives in order to fix, you know, problems to me.

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I mean, so can agencies make as much or more money off of taking this more [laughs] curated? I mean, it sounds great, but they gotta get their, they gotta get their piece. They do. It's a shift, right?

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And, and, and I wouldn't dare to kind of comment on agency economic model. Of course you would not. I can do that. [laughs] It, it blows my mind just how that whole world works. That's purely me. [laughs] Yeah.

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But I mean, with my very crude understanding of the world, agencies historically have had one of their benefits being the negotiation power of, "Hey, I am-" Yeah...

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going into a publisher and negotiating on behalf of not just one brand, but 100 or 150 or 200 different brands.

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That's actually really true in this world, is I think what we're really going from is long tail to curated premium publishers where there's a depth of engagement, of audience, of context, of all these pieces.

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And in that world, actually the agency has real kind of, has real value in that ecosystem. They can negotiate prices, they can represent brands, and I think there's value in that. There is then also the execution of it.

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I don't think kind of the notion of a trade desk is going away entirely. It's just changing in scope. Yeah.

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Yeah, and I, one of the other things I wanted to get you to talk about, 'cause I mean, we talk about like, you know, a- the buy side wanting their dollars not to get eaten up by intermediaries necessarily, and like listen, the intermediaries, if you enrich data, you're adding value and stuff like this, you should.

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I think it's just a ma- it's not that there's no value there, it's just that what is just like the working versus non-working, what is the appropriate take? At the end of the day, that's what it is.

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A- and it's hard to, to figure out, but I think it's, I think broadly there's an agreement that like not enough is getting to the publisher, you know, as the dollar or, or pound or euro, whatever, works its way through the system.

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Yeah. There used to be this, the thing growing up, this how a bill becomes a law cartoon, and I'll send it to you.

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But there, it showed like a bill going through Capitol Hill, and I always wanted to do like one, a dollar going through the digital media ecosystem, but there would just be like different people coming in and biting it.

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[laughs] Someday I might get, get there. But I think, you know, ultimately the question is, you know, how we clean that up. Mm.

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And one of the, the things that I think that there's been a spotlight on is this idea of MFAs- Mm...

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Made For Advertising sites, which is kind of a funny term because to me, because most publishers are made for advertising, but like, and it's a very squishy term because, uh, you know, because it's like, what are you talking about?

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Like, Condé Nast is, a lot of their publications are made for advertising- Yeah... like at the end of the day.

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First of all, explain MFAs for those who don't know what an MFA is, and why, and first of all, how we can tell if something is an MFA or just like a site that's like really into monetizable moments.

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So it's an interest- Try to make that term go- Yeah... happen, by the way, monetizable moment. [laughs] I like it.

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This whole MFA thing caught me completely by surprise because it was such an obvious issue, yet somehow it's only become an issue now, which is programmatic advertising is exposing you to tens of thousands of different domains, and effectively the quality of those domains varies massively, and you have a whole tranche of publisher to, to your point earlier, were just built to optimize revenue around programmatic advertising, putting as many units on the page as possible at very low quality content, context, all those pieces.

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And I think that's really come to attention over the past few months.

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But ultimately, kind of from the way I look at it, if I'm a brand choosing to invest, I wanna invest in publishers who have a depth of relationship with the audience who I'm going for.

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And I want to make sure that when I'm doing that, I'm doing that in an environment which is high quality. And it should be kind of painfully obvious in many ways.

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But I think programmatic advertising's ability to mark its own homework has led to this very strange ecosystem- Yeah... and incentives. Yeah. Well, it's the incentives, right?

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I mean, if you're marking your own homework, you're gonna, like, there's gonna be a lot of right answers there at the end of the day, I think. At least whenever I marked my own homework, I got really good grades.

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But I think also, I think there's corollaries in other markets, right? Like, so I think a lot about the, it's not perfect, but the music industry, right?

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And what's going on right now with a lot of, I think the difference with the music industry is that there's oligopolies in the form of labels there, and they're able to negotiate i- in a much more coherent way than the very fragmented- Mm...

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publishing industry. That's why I don't know what's gonna happen w- with, with AI and all that stuff, those negotiations, because the fact is they're not negotiating with like four entities.

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There's, you know, thousands and millions. Yeah. And that's a real problem, with good reason, the, in antitrust here in the US and stuff. But I think like with the music industry, you have a similar issue.

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Like with Spotify, like they're negotiating to get the money going to artists, not to these like white noise makers and stuff. Mm. Because the incentives are there.

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Like, why create music and like, and art and try to develop fans and like, and try to build that connection and go on tour and stuff like this when you can just do like an AI generated white noise, the Spotify system, you can, you know, make money off that.

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Like, the incentives have to be fixed. Yeah. To me it's, there, there's some corollary there, I think. I, I, I completely agree.I think ultimately publishers trade on this currency of trust with their consumer. Yeah.

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And in some ways, we kinda lost that, in part because some developer at some point in time decided third-party cookie was a good feature within a web browser. Got to find those person.

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Which then programmatic advertising, and incentives change, and before you know it, we end up in the world we're in today. And actually, publishers haven't been incentivized to build trust.

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They've been incentivized to build traffic. And that is shifting, and I think that's a good thing. Yeah.

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No, I, I think it's gonna be a hard shift for a lot of publishers because a lot of publishers built up, you know, muscles and systems around traffic, not around trust.

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I think that's a great-- I'm gonna steal that from you, Joe, and I will sometimes cite you as the source of it. Sometimes I'll just kinda act like it's mine.

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Give me three things that a publisher can do right now to prepare for this world that we've been talking about the last, uh, forty-four minutes.

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So number one piece in my mind is direct sold is no longer an opportunity for publishers. It's a requirement.

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If you don't have a direct sold motion, seventy percent of your inventory is no longer getting monetized appropriately, and most publishers can't survive that.

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So across kind of our publisher base, back in Q4 last year, open marketplace revenue was down twenty-five percent year on year.

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For our publishers, direct sold, audience-driven direct sold was up thirty-seven percent year on year, and in Q2, it was up sixty-two percent year on year.

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So my number one piece for a publisher in this world is you have to take your revenue into your own control, and that starts with building direct sold motion and team.

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There is a generation of publisher who either lost the art because programmatic came along or actually grew up in a world where they didn't need to go and build a direct sold motion.

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And to me, that is kind of, without a doubt, change number one. Change number two for me is publishers need to invest in their own technology in order to win in this world.

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So as a publisher now, I need to be able to reach every single one of my consumers and really kinda do that on behalf of brands.

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In order to do that, I need to use technology which is built for me, not technology which is built for ad tech companies or technology which is built for marketers or whoever it may be.

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This is a very specific publisher-focused problem. And if I'm a publisher and I'm waking up, I need to think, "Hey, can I address every single one of my consumers based on their privacy preferences?

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If not, I need to invest in fixing that." Piece number three, [chuckles] I don't think I have a third recommendation. I think if I was to do one thing, it would be invest in direct sold.

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If it was to do another thing, it would be make sure that I can address a hundred percent of my audience. Okay. Awesome. Well, thanks so much. I really appreciate you taking the time. This was a awesome conversation.

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Perfect. Thank you, Brian. Really enjoyed it. [upbeat music] Thanks for listening, and thank you to Jay Sparks for producing the Rebooting show.

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If you have a podcast that you're considering making, you should check out Podhelp Us and what Jay can do for you. Go to podhelp.us.

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[upbeat music]