Don't call it a commodity

Corn is a commodity. Sugar is a commodity. Your tech stack is not.

Podcast: The one and only Brian O’Kelley

State of the Sandbox

During the antitrust trial down in Virginia I heard a witness refer to publisher ad serving as a “commodity.” Last time I checked, a commodity wasn’t something that is vital to your business, very difficult to switch off of, and almost impossible to build from scratch.

The shorthand of using “commodity” incorrectly is not just semantically bothersome but a source of poor strategic vision and tactical approach. I want to review the nature of competition at different stages of innovation, and some examples of how to compete with companies so well ingrained we think of them as utilities.

From innovation to utility

One of the things that makes the advertising industry so fascinating is the near constant innovation. Five years ago, very few of us knew what a “clean room” was and certainly not what a “TEE” was. The phrase “curation” went from obscurity to mainstream just this year.

Let’s consider the work of the innovator. The new ideas are rough, and may not be perfectly suited to all customers or markets. Customers may still be figuring out the priority for adoption, and pricing models and levels may still be in flux. The innovator is both actively developing their solution, and using those developments as the frontier on which they compete with rivals.

If you are doing marketing or sales within an innovation sector, you may have these characteristics:

• Evangelizing

• Focus on new product features

• Substantive differences vs the competition

• Listening to customers as much as selling to them

• Flexible pricing (“how would you like to pay?”)

Once innovations become mainstream, the competitive set and dynamics become better understood. You are now fighting for deals and share against a known set of competitors. There’s still a lot of room for innovation, but mostly add-ons to the existing feature set. I would argue that a lot of CTV technology is in this phase.

Some of the characteristics of the mainstream market:

• Sales focused on competitive advantages

• New features are add-ons to differentiate

• Customers are well educated on the sector

• Pricing is well understood by customers, compete on levels and discounts

Which brings us to the mature category. If we need to call these companies something, how about “utilities”. Ad serving is certainly in this category, as is ad verification, and ad exchanges. It’s not impossible to innovate in these categories or to compete as a new entrant, but it is hard, and may often involve changing the category definition or bundling. For example, while the leaders in the ad exchange market are very similar on their core services, the innovation frontier has moved to curation, allowing for share gains without disrupting existing seller relationships.

Can utilities be disrupted?

Having spent the last two weeks at the Google antitrust trial I’m tempted to throw in the towel and say it is impossible. Let’s set aside the specifics of competing with Google and broaden our aperture and look for other examples.

One common approach to competing with utilities is to grow in adjacent markets then expand backwards into the primary market. When I first cut my teeth in the ad tech business I ran DoubleClick’s rich media business, competing with EyeBlaster, Pointoll, and a dozen other tiny, innovative companies. The reason we were investing in competing with these companies was the somewhat obvious strategy they were following to start with the most valuable inventory (sponsored, high CPM rich media), and then over time expand into broad ad serving. The only competitor who successfully made this move was EyeBlaster (Sizmek), but if we hadn’t competed aggressively at the time it would have opened the door to far more.

Another approach is economic cross subsidization. This happens all the time in advertising when one vendor follows a software model and a competitor comes in with a media-subsidized model. Oh, that software you’ve been paying for, we’ll make that free. The curation guys are currently doing this to the DMPs — giving away data management tools in exchange for data sales.

One rule of thumb in analyzing the general technology business is that whomever is promoting open source is probably on the wrong side of competition with closed source. In advertising there have been many instances of companies using open source to gain share or attack strong incumbents. MoPub was the first mobile exchange with an open source SDK. Prebid.js was a key development in allowing exchanges to compete with Google. And many other tech standards or open source efforts like VAST, and oRTB have helped level the playing field.

Can I still call it a commodity?

No! Call it Legacy.

Reading list

• Google ads launches “confidential matching” aka clean room tech (link)

• Viant AI (link)

• TTD is building a TV OS, actually, and teaming up with Sonos as its first partner (link)

• Kubient CEO charged and pleads guilty to accounting fraud (link)

• Roku rolls out ads manager w/ Shopify integration (link)

• YouTube confirms pause ads (link)

• Publicis acquires Mars United Commerce (link)

• OpenWeb has two CEOs who are fighting (link)