Ad exchange inventor, AppNexus CEO Brian O’Kelley: Low CPMs could be the death of high quality content

Want to know the future of ad exchanges and what they mean to the growth of the digital econony? Why not ask the man who invented them?

Brian O’Kelley is CEO and founder of AppNexus, the digital ad platform that acts as an efficient middle-man for ad networks and DSPs, with the aim of optimising real-time and targeted ad-serving. Microsoft is a key client.

And for publishers, O'Kelley's warning that content as a whole will suffer across the whole internet if low quality advertising continues to prop up high quality publishing, is perhaps not one we should ignore.

I caught up with him for an exclusive interview ahead of his keynote speech at ExchangeWire’s ATS Summit in London on Tuesday. (Here's an explainer on real-time bidding if you're new to the subject).

Of course, his solution is to employ an automated ad solution - preferably one of the networks that AppNexus works with (you can't employ AppNexus directly, confusingly for some, it only works with ad tech companies).

But Kelley is something of a big cheese in digital ad tech and people listen. He was CTO of RightMedia, which is held to be the first successful ad exchange and was sold to Yahoo in 2007 for a pre-recession boom-time price of $850 million.

Part of the ad ecosystem

As sales pitches go, it’s an understated one. O’Kelley wants to add value to the mechanism of buying and selling inventory through exchanges. He’s not specifically pitching to the ad community at large, nor to publishers nor to the agency world. He’s willing to be patient and wait for the ad exchange market to shrink to two or three main players that offer all the main services you’d expect.

But one thing he is sure of: it might be cheap, it might be efficient, but there’s no way automated ad trading will replace direct sales teams and creative ad commissions. At least, not for a few years…

“At the moment there’s no way exchanges can compete with a good, direct sales force in terms of selling and packaging media to agencies and brands,” he says.

Some more from our chat that wasn’t in the clip:

Is there a problem with communicating what it is you do and what ad exchanges / ad networks are?

Brian O’Kelley: I feel like the market is figuring out what is going on here quite quickly. You’ve got so many venture (capital) backed companies doing things in this world

But it’s not becoming crystal clear yet because some companies are offering conflicting stories but I’ll bet that within 12 months or possibly less that it will be pretty clear if you’re a publisher, at least in the display space, that there are one or two obvious go-to companies. Obviously I selfishly hope one will be App Nexus.

What actually is your business model? Do people understand?

Our business is hard to understand because we’re not selling to the publishers and advertisers directly… We haven’t made a lot of effort into making agencies understanding the AppNexus model – it’s confusing if clients say ‘why can’t we work with AppNexus directly?’ You can’t – you can only do it through one of our partners. We’re the centre of the transaction and we make it work.

How big can RTB realistically be?

It’s between a $2 billion and $2.5 billion-a-year industry just for exchanges right now. A much smaller chunk of that is what we call real-time bidding

It’s not so much is it real-time or not, it’s more about whether it’s open or closed. Can anyone come in and bid? Or is it limited to people on a certain platform… I’ve always been an advocate of open. People should be able to use whichever system they feel comfortable with. And these closed systems just aren’t going to work.

Google is of the same mindset, Yahoo’s been a little less quick to adopt partially because they are the market leader and market leaders tend to be a little slow to open up.

The key for growth is: it works. It’s creating one key market globally for advertising. It makes sense.

So how does it work?

With RightMedia any two clients have to trade back and forth, so if you and I were running ad networks, we’d have to pay each other at the end of the month. But if there’s 1,000 ad networks, you’d have to send 1,000 cheques. At AppNexus we said that we’d handle all the transactions centrally – it turns out to be a much more efficient market.

We’ve gone with the philosophy that we’re take one fee from the middle of the transaction, which is cheaper. Of any combination of partners in the market we will be the cheapest to execute of anyone, simply because of the mass efficiencies we have. Every day we’re doing about two billion transactions, and by the end of the year it will be nearer to four billion.

Last week we placed an order for $4.4 million dollars of hardware, for 1.3 petabytes of storage I don’t even know what a petabyte is, but it sounds big.