Trimming the walled gardens

The logged-In internet is where the action is

I have a lot of conversations with investors, hedge funds, and the like where they are looking at some company in the advertising sector and take a moment to zoom out from the minutiae of the particular target to look at the overall space.

“Isn’t this business ultimately dependent on the open web?” they ask.

I’ll share my general answer, then go into some specifics about how the logged-in internet is replacing the open web.

I’ve written about this before, and even published a diagram. But since it keeps coming up, let me explain.

The popular phrase “open web” evokes a particular type of website and user experience that was quite in fashion circa 2005 or so:

• Login optional

• Content mostly text and images

• Journalism-adjacent

• Banner ads, sold through direct and programmatic channels

We don’t need to bemoan the decline of this particular model, and the associated trouble its caused to journalism, democracy, and the world. But that’s not the whole story, or even the interesting part of the story, from the advertising perspective.

I made the argument in the links above that what we care about is not just whether the content is free to consumers (arguably we might not care about that at all as an advertiser), but rather how open the advertising environment is to my tools and control. And the answer on this point is that we’re seeing more and more valuable content experiences become open to advertising. We’re seeing the walled gardens get trimmed, and the logged-in internet become more important than the open web for advertisers.

We all know what a “walled garden” is. For a while during the hyper growth phase of social media apps it appeared that we were headed as an advertising industry into a world where there would be tens of these gardens, with the inherent complexities of duplication and overhead burdening each advertisers.

It turns out that running a walled garden while also maximizing revenue is difficult!

Inherently, if you are limiting advertiser’s options then it shouldn’t be surprising that you don’t get all of their dollars. A decade later, arguably there are only two totally impenetrable gardens left, Meta and TikTok*. Every other major media surface lets some degree of bidding and data into their apps.

Editor’s note: The * above is a catch-all for reader comments since I’m sure there are actual gardens left. With Xandr Invest shutting down, LinkedIn might qualify. I think Snap also qualifies.

Trimmed gardens

Spotify is the poster child for the trimmed garden approach. It maintains its own advertising stack, but also makes inventory available on major DSPs. Going one step further, it also integrates identity graphs from LiveRamp and UID2, giving advertisers robust options for accessing consumers.

I did a quick comparison of some of the leading sites and apps that get described as “walled gardens” to see how exactly these hedges are being trimmed. About half of the major gardens now allow demand from third party sources, and the trend seems to be heading in that direction. I also included brand safety, which is a component of “openness” even if the way it is implemented is limited on these platforms. As you can see, all the major players accept both IAS and DV for brand safety at this point:

A better outlook for marketers?

The conventional wisdom over the past decade has been that media fragmentation is bad for marketers because it forces budgets and outcomes into silos. If the silos become more open, does this reverse the trend?

Probably not. Meta remains the largest budget item for many marketers, and from its position of power is unlikely to change course. The new conventional wisdom is to focus on outcome measurement outside of old-fashioned deterministic attribution, and nothing is going to change that. However, with more surface points for first party data and programmatic buying, there is an opportunity to push better results across new media channels — just don’t call it the “open web”.

Reading list

• Meta wants to go all-in on AI generated ads, according to the WSJ (link)

• NYT and Amazon sign an AI licensing agreement (link)

• WPP Open Intelligence (link)

• MiQ launches AI Sigma (link)

• Gigi, the AI media manager for Amazon media (link)

• Digiday breaks down the current Amazon DSP deck (link)

• Roblox lets you buy physical items in games (link)

• Judge orders Google to turn over feasibility analyses of AdX and GAM spin-outs (link)

• Dems ask all states to use “Targetsmart” DSP (link)

• Newsweek buys a health DSP (link)

• Mark Mannino joins the Board of Kevel (link)