OpenX shows publishers the money with a new SSP blending network and RTB demand

By Michael Carney , written on June 9, 2014

From The News Desk

OpenX knows a thing or two about innovating at the bleeding edge of the digital advertising. The six-year-old Pasadena company pioneered the concept of the ad exchange – which brokers ads between multiple ad networks – and later real-time bidding (RTB) – in which digital ad impressions are auctioned programmatically. More recently, it launched the world’s first native mobile exchange. Today, OpenX is back in its familiar envelope pushing role with the launch of a reimagined supply side platform (SSP).

The new OpenX SSP is the first of its kind to blend RTB demand and ad network demand into a single auction. By merging these two traditionally independent demand sources, in what OpenX calls Demand Fusion, the company aims to help publishers increase competition and maximize price yield.

Previously, publishers had to choose whether to present each individual ad impression to its network of RTB buyers or network buyers, but never both within a single auction. Ad networks typically submit higher bids, making them the intuitive first choice, but the issue has been that not all network buyers are reliable. Publishers routinely find themselves selling an impression to an advertiser that either defaults or serves an ad of subpar quality. With ad impression shelf-lives measured in milliseconds, as time passes and impressions are resold, their value declines.

By blending Ad Network and RTB demand sources into a single platform, OpenX has shown a 20 to 40 percent revenue lift in early testing, according to Chief Revenue Officer Jason Fairchild.

“When publishers see it they kind of get it instantly,” he says. “They’ve lived the daisy chain nightmare where inventory is sold and resold until an impression that should have been worth $1 ultimately ends up at a ‘mop network’ that pays $0.10. Often the publisher gave up a guaranteed RTB bid for a potentially higher network bid, that ended up being worth much less. Fifty to sixty percent of impressions get absorbed by networks today.”

OpenX, on the other hand, auctions inventory to both RTB and network demand simultaneously. Rather than rejecting an RTB bid in the event that a network buyer offers a higher price, it holds that RTB bid open until the network buyer fulfills the order at the stated price. This way it can maximize the publisher yield. All this happens in a few milliseconds.

It seems intuitive, but technological hurdles – mostly those resulting from legacy SSPs having bolted on RTB technology after the fact – have prevented this type of blended auction previously. The OpenX SSP also offers ad quality controls and a reporting and insights engine to protect publishers and monitor performance trends.

OpenX deployed its new, patent pending Demand Fusiong SSP with a handfull of beta customers in recent months, including, YP, and the New York Observer. Elsewhere in its business, the company works with 60 of the ComScore 100 publishers on monetization.

“There’s been a lot more investment across the industry on the buy side than the sell side,” Fairchild says. “We think we’re unique – with, maybe, Google – in that we’re focused on the publishers first. We’re trying to deliver a solution to address the fragmented display ad market. There are still more sellers than buyers, more ad units than there have ever been, and more friction than there needs to be.”

NY Observer President Mike Albanese echoes this sentiment, saying, “I think the larger trend toward automation, and thus less management, has to continue. Having different exchanges and RTBs that don’t jive with one another require more management. We’ve been looking for ways to consolidate our efforts so that we can have our people focusing on larger, more strategic, less commoditized sales. It’s all about streamlining ad-ops.”

Open started off in its earliest days by offering ad server infrastructure, then built one of the first exchanges (predating even Google), and followed that with RTB alongside MySpace. Almost two years ago, the company purchased the LiftDNA ad network. The time since has consisted of OpenX layering these various technologies together into a holistic ad revenue management platform.

“We think of it like the last mile where we can fuse network demand and RTB demand together,” Fairchild says. “It will help publishers make more money and we think it future-proofs our business.”

It’s a telling comment for the executive of this now six-year-old company for which many industry observers have predicted a near-term IPO. Fairchild declined to state explicitly that an IPO is in the offing, but did say, suggestively, that the company is doing all the things you’d expect a company at its stage to prepare for such a liquidity event, including hiring a new CFO with public markets experience.

“All the core financial metrics are strong – growth, expansion, product innovation,” he says. “All the pieces are lining up should we eventually choose to explore a public offering.”

OpenX has raised $75.5 million through its Series E round of funding from a who’s who of venture and strategic investors*.

The number of eyeballs and the amount of advertising dollars respectively pointed at digital ads, be they online or native mobile, are increasing exponentially. With this trend comes a need to be more efficient than ever in the way ad impressions are sold. OpenX has proven itself to be a pioneer in this regard.

If the initial reaction to the company’s new Demand Fusion SSP is any indication, it shouldn’t be long now before we see OpenX ringing the opening bell on Wall Street.

[*Disclosure: OpenX investors Accel Partners and First Round Capital are investors in Pando.]