Like much of the ad industry, comScore cofounder and CEO Dr. Magid Abraham has been talking a lot about online ad viewability of late. Now he’s put that talk into text with the newly published whitepaper, “The Economics of Online Advertising.” He talked to Adweek about that work as well as the company’s recent patent war.
Adweek: One of the big focuses of your report is digital scarcity, or the lack therof. It seems the biggest challenge with reducing the number of ads online is getting publisher to overcome any fears over revenue impact. How do you see that playing out?
Abraham: I think that the first hopeful sign is that there is a consensus among key industry players that this ought to be a priority. There isn't really anybody that you talk to that doesn’t understand and accept that it doesn’t really make sense to measure advertising that’s not viewable. Conceptually everybody buys into it. When it comes to implementation, it’s going to be a process rather than a single step. The first part of the process is agreeing on the standards and documenting that there are technologies that meet the standards. That has been happening the past few months. [The Making Measurement Make Sense initiative] has a standard, and the [Media Ratings Council] is looking at different technologies for accreditation. We have gotten our solution through the accreditation process. I think that those steps are an important prerequisite because people are ultimately going to say, 'if I am going to be judged on the basis of a viewed impression, I want to make sure that I am being judged on something fair and objective.' There is an arbitrage game that’s being played where there is more demand that is created for the high viewability placement, less demand that is created for the low visibility placement, and ultimately, given enough time that will start effecting prices.
How fast is this going to happen?
Publishers have a vested interest in making sure that the yield that their inventory has in terms of viewable and valuable impressions is maximized. We see a lot of publishers now start to experiment with understanding what their inventory looks like. I think this evolutionary process will probably take another 6-12 months, but I think that there is little doubt in my mind that viewability creates an arbitrage opportunity where in today’s system you are buying two different impressions that potentially have two different viewability percentages. If you have access to information that will tell you what the differential is, that creates an arbitrage opportunity where you can buy the high viewability [inventory] more often than the low viewability, which means that you’re going to discount the low viewability inventory and eventually the price will be raised on the high viewability inventory.
So, is it not necessarily requisite that publishers will have to take an initial revenue hit?
I’m not sure that they have to. A lot of publishers are selling a significant portion of their inventory as remnant inventory, and that remnant inventory is really not generating a lot of revenue for them. If it turns out that they have to sell less remnant inventory and a higher portion of their inventory as a premium because now they’ve improved or guaranteed their viewability, it’s not clear to me that the revenue that you lose on inventory that you’re getting pennies for is going to outweigh the benefit of smartly packaging higher quality inventory and being able to sell that more directly to the advertisers.
The existing methods available to publishers to track impression viewability range from after-the-fact reporting to technology that prevents non-viewable impressions from being served. Adweek has reported that comScore is working on a tool that does the latter. What’s your take on the best approach?
First of all, I think that the reporting after the fact is actually not correct in the sense that the information is available in real time or near real time and the information can be easily shared with the advertisers and incorporated as part of the billing system. It’s not like you’re running a campaign and waiting three months to find out what your viewability is. As far as serving an impression just as the space is becoming viewable, I think there is a question of user experience. If you are scrolling down a page and there is a hole in the page, then all of a sudden the request is being made to fill that, which slows down or hangs the page. That’s not necessarily a user experience that a publisher or content provider wants to have. While technically it’s possible to do it, the real question is 'can it be done in a way that doesn’t interfere with the user experience?' And 'what is the advantage of doing that rather than serving the placements where they are and only counting the ones viewed?'
Is that first question something that comScore is actively working on?
We have the capability of offering it if the industry moves that way. What is really important is to get a really representative picture of the impact on the user experience. People have gotten used to delays when a page first loads, though I don’t think they’re necessarily very happy with it, but if you affect their experience while scrolling the page, that’s a user experience issue.
There’s a link between viewability and the future of online economics, as your report discusses. How impactful is viewability’s role?
The very interesting thing about the online ad market is that it’s the only market where the accounting mechanism that you use will radically change the economic structure of the market. By that I mean, you have one accounting method that makes the market have infinite supply, which is basically the served impression method. If there is more demand for advertising, people can put more ads on a page very easily with very low incremental costs. Those kinds of markets are very unattractive because they become very commoditized, and the prices drop down to the marginal cost of an additional ad unit. On the other hand, if you look at a viewable impression metric, then that turns the market into a fixed supply market or a nearly fixed supply market. People are not spending unlimited time surfing the web. They spend on average one hour and 10 minutes a day, and in that time there is only so much real space they can cover. Therefore there is only so much advertising that will come into view, and we get essentially a limited supply market versus an infinite supply market. The equilibrium position for a limited supply market is radically different. In an infinite supply market, prices fall to the lowest marginal cost of producing something. In a limited supply market, pricing is highly sensitive to demand, and every increase in the value of an advertising unit will immediately translate into the price.
Given viewability’s importance, it’s obviously a hot market and presents new revenue opportunities for companies. AdExchanger recently reported that comScore filed lawsuits against three ad tech companies for infringing on patents that related to viewability. Some looked at those suits—in light of the fact that they came less than a year after comScore acquired those patents from Nielsen—as comScore attempting to monopolize the market and even essentially impose a tax on viewability. Would you like to address that?
I think that viewability is something that we have looked at as something that’s very important for the industry. We spent $19 million to buy these patents because they allowed us to roll out a solution that does not infringe on anybody’s intellectual property and solves the problem. As we have invested a lot of money in the technology itself, which can be easily copied because it’s in the clear, and we have invested in acquiring the patents, and we have done due diligence to make sure these are obviously not frivolous patents, it only makes sense for us to protect the value of those patents. At the same time the Internet industry is nothing but very innovative and very fast-moving, and I’m sure there will be a lot of clever ways to solve the problem. We’re all about innovation, and I think innovation is the blood of new startups and the blood of innovative companies. And I think we should look for startups to deliver that innovation. The issue that we have is that we want to make sure that something that we have innovated on, and paid a lot of money to be able to do it, is not taken advantage of and commoditized.