The Xandr Invest Happy Sandwich

The Xandr Invest Happy Sandwich

New people managers are often taught the “happy sandwich” technique for giving employees critical feedback. If you’re not familiar, that’s where you take the “meat,” of the behavior you’re actually trying to improve, and place it in between two pieces of more positive “bread” to soften the impact. Suppose you had an employee with really bad body odor (this is a real scenario a friend went through). This is clearly a sensitive subject, so you might say something like:

It appears Microsoft PR is a fan of the happy sandwich, as they provided us with a 785 word blog post about AI, titled “Empowering businesses for a future that is conversational, personal, and agentic,” which sounds pretty exciting! They also had this guy’s photo in the post, and he seems pretty excited! Just wait until he logs in to check his line items...

The blog post starts off strong, with some bold statements about the AI-driven future of advertising for the first layer of bread:

Translation: AI is really important, it’s affecting everything in advertising, and we can’t really predict the future so we’re throwing a lot of shit against the wall.

This is not a criticism of Microsoft by any means. Indeed, the impact of AI on advertising is very complex. They get extra gravitas for throwing the word “agentic” in there, apropos of very little.

Let’s get to the meat!

Translation: There are three ways to buy ads from Microsoft. The DSP they operate (Invest), third-party DSPs, and their proprietary ad manager. They are shutting down the one of these that has the lowest margin and is the most hassle.

People often get confused about demand vs supply platforms at big companies. This might be easier to understand if you compare to Google’s stack, which many are more familiar with:

• Microsoft Ad Platform = Google Ads (proprietary demand)

• Invest = DV360 (DSP)

• Monetize = AdX (external demand conduit)

Here’s where they stir things up a bit:

Translation: We are blaming the shutdown of Invest on AI and privacy, but also will continue supporting other DSPs, over which we necessarily have less control, because of AI and privacy.

Is it true that the future of “a more agentic and conversational world” is not achievable in DSPs? As any good editor might say, “you buried the lede!” Worse than that, the blog post is liberally crossing lines between a “more private and personalized” experience and the agentic stuff. Those are different things!

What’s really going on here?

What are Microsoft’s real business drivers in advertising?

A couple of weeks ago it was reported that Microsoft’s ad group crossed $20 billion in revenue, which places it in the big leagues for digital sellers. While Bing remains a distant second place contender in search, the growth likely came mostly from LinkedIn, which basically has a right to print money on the back of its B2B graph.

The thing about monetizing an asset like LinkedIn is that all the good stuff that makes it appealing to advertisers is the same stuff that you absolutely don’t want to share or leak to anyone outside of your walled garden. And since nearly everyone visiting LinkedIn is logged in, you also have a treasure trove of identity you don’t want to give up.

Which is a long way of saying that the concerns over “privacy” in this case are coming from a company monetizing a treasure trove of personal data. So with a little generous edit, I agree with Microsoft that:

Maybe Warner Bros Discovery can loan them the name MAX?

The trend among the big tech and advertising giants is towards all-in-one AI driven solutions for advertisers. That’s not new news. Microsoft is headed that way, they basically said so. That’s the real message of the Invest shutdown; the AI and the agentic solutions are going to be front-and-center for advertisers, and its a whole lot easier to personalize, use data, and use AI if you don’t need to be transparent and worry about data leakage.

Another important point, though, is about margins. Being on both sides of the transaction allows you to extract much higher margins than operating arms-length in the typical DSP-SSP relationship. We know from the antitrust trial that Google not only was able to maintain its high margins on both Ads and AdX, but also by manipulating the clearing prices was able to increase its market share. Good trick if you can pull it off.

Does this mean something about the “open web”?

Translation: We want to keep our hand in the pie for web supply so that we can reach audiences outside of our O&O and extract high margins when we find the right inventory or audience.

I wrote this in a tweet this week (my tweets are essentially first drafts for this newsletter), but basically they are following the Amazon “TAM” strategy. Amazon introduced its wrapper solution, Transparent Ad Management, in the midst of the header bidding wars, not so much as a profit center, but more as a way to collect data and skip supply for its other advertising businesses. Microsoft Monetize (and Curate) are basically now serfs serving on Microsoft’s fiefdom.

Does this mean something about the future of DSPs?

I’ll divide my answer into short-term and long-term.

In the short-term, Invest’s exit is more of a sign of a big company operating a laggard player choosing to give up rather than spending the big dollars to…erm…invest. Even with investment, it seems doubtful that Invest was going to be able to catch Trade Desk, Amazon and the other leaders to become a meaningful and profitable player among DSPs. And if you think you’re going to get better results and more margin by owning that demand directly, why continue operating a DSP?

In the longer-term, the operators of DSPs need to look themselves in the mirror and ask some hard questions:

• Can AI be as effective in RTB as it is in closed systems?

• If all the best data is within O&O platforms and privacy hinders sharing, how will you ultimately compete?

• Will “open web” content appear more and more within closed systems (think YouTube) and thus be off limits?

Anyway, good luck to any of the Invest peeps who are now looking for work, and happy hunting to Yahoo, TTD, and others looking to pick up accounts.

Reading list

• Perion acquires Greenbids (link)

• TTD rolling out ‘OpenSincera’ (link)

• Nice post from ATG on this (link)

• MNTN seeking $1.24b IPO valuation (link)

• Uber Ads at $1.5b run rate (link)

• Amazon rolling out contextual AI CTV pause ads (link)

• GroupM US Staff Told Up to 45% Will Be Impacted by Restructure (link)

• Netflix ads up to 94 million subscribers globally, which they claim = 170MM people (link)