In 2013, we’ll be watching a dramatic shift in the digital advertising technology landscape which may become known as The Great Ad Tech Sutton Pivot of 2013.
In his excellent new book for entrepreneurs, Lean Startups, Eric Ries defines a pivot as “structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.” In the book, Mr. Ries catalogs ten types of pivots including Zoom-in Pivot, Zoom-out Pivot, Customer Segment Pivot, Customer Need Pivot, Platform Pivot, Business Architecture Pivot, Value Capture Pivot, Engine of Growth Pivot, Channel Pivot, and Technology Pivot.
Missing from the list is an eleventh type of pivot I’ve observed that I’m calling the “Sutton Pivot.”
According to urban legend, when asked why he robbed banks Willie Sutton famously quipped “because that’s where the money is.” A “Sutton Pivot” is shifting the focus of your product or service from a small market opportunity to a bigger market opportunity.
I’ve recently been observing the Sutton Pivot being executed by the players in the digital advertising technology ecosystem. The trade press is filled with stories lately about “programmatic guaranteed” (or “programmatic premium” or “programmatic reserved” if you prefer).
Why all the recent buzz about “programmatic guaranteed?” The Display LUMAScape players have recently and collectively come to the realization that there isn’t much money in selling remnant inventory on the spot market. Only about 20% of advertising dollars are spent this way despite huge advances in technology and availability. They’ve also realized this market is crowded and over-invested. And their business owners, oftentimes venture capitalists, are pressuring the CEO and business leaders to “show me the money.”
Meanwhile, the other 80% of advertising dollars are still being spent the “old fashioned way” through guaranteed insertion orders. Instead of buying a single impression immediately at $0.75 CPM, this market is about buying ten million impressions in the future at $7.50 CPM. The inventory is transparent, considered “premium” and you are guaranteed to get what you pay for.
The dominant incumbent technology provider in guaranteed buying, practically a monopoly with more than 80% market share, may surprise you: it’s Microsoft. Of course I’m referring to Microsoft’s Excel spreadsheet product. Excel is still the most popular tool among media planners because they’ve not yet discovered a viable alternative. Guaranteed buying is still a manual 42-step process that typically costs buyers more than $40,000 in labor per campaign to execute.
Yes, there’s a huge opportunity for advertising technology in guaranteed buying because that’s where the money is and there are big problems to be solved.
Unfortunately, this Sutton Pivot is not going to be an easy one for most of the ad tech companies. Their RTB-based products will not make the transition because guaranteed buying is not “real time” and doesn’t involve “bidding.” The solution is not a pricing algorithm that is tuned to make decisions in less than 30 milliseconds. The problem is streamlining workflow for humans – site discovery, RFPs, document management, negotiations, plans, presentations, approvals, implementation, optimization, reporting, billing, collections, and all that messy stuff that happens in the back room. Solving this problem requires much more than setting up a “private exchange” (although that might be part of the solution). It requires an entirely different technology and information stack that has to be built from the ground up to support guaranteed buying. It takes years to build this kind of product.
The good news is nobody has yet effectively solved this problem and the market is still wide open.
Besides pivots, another key aspect of the Lean Startups methodology is “validated learning.” How will you know you’ve successfully executed the Sutton Pivot? You’ll know you’ve succeeded when media planners are using your system instead of Excel as their workflow tool.
