Is Pangaea the Face of Advertising Success in the Future?

Jun 08, 2015

Article ImageWhat happens when five powerful publishers band together to form a programmatic ad network, allowing advertisers to buy advertising space on The Economist, CNN International, The Guardian, Reuters, and Financial Times? The short answer is Pangaea. A longer answer, or at least longer-term one, is that no one is quite sure yet.

Pangaea was announced in March with a launch planned for April. Publishers, advertisers, and service providers continue watching Pangaea with interest and more than a little skepticism, at least in some quarters. Two big questions accompany its launch: What is the motivation and reasoning behind Pangaea, and how likely is this ad alliance to succeed?

People familiar with the territory of ad networks and programmatic networks differ on the motivation behind Pangaea.

Gary A. Kibel, of Davis & Gilbert, LLP, sees Pangaea and this move toward programmatic networks as "the industry coming full circle" from the original online advertising model of one-to-one relationships and old-fashioned sales methods, through automation brought about by ad networks and exchanges, to programmatic. Still, Kibel notes that "most people viewed that model as not for the premium media, but more for the remnant media space." Better technology, however, has providers with both premium and remnant media "thinking, ‘If we control the ecosystem, then we can optimize this system and make it work best for us,' because using a programmatic system hopefully allows you to maximize the value of your media."

Not everyone agrees with Kibel about Pangaea's motivation or at least about whether it actually means anything at this point. Mike Hannon, VP of yield and revenue optimization at Purch, thinks Pangaea may be less meaningful than some hope. "From the conversations I've had, metrics to measure success are still very hazy today," he says. One reason metrics are so hazy at this point, Hannon says, is that programmatic buyers are "pulling all the levers" and often don't share metrics with service providers such as Purch.

Despite his concerns about metrics, Hannon predicts that by the fourth quarter of 2015, premium programmatic ad networks will become much more prevalent. "In Q3 and Q4 of 2014, we saw programmatic begin to really take off. By Q4 of 2015," premium programmatic advertising should increase even more, Hannon says.

While Hannon expects to see premium programmatic expand dramatically during the next few months, Kibel notes that it is not the right model for everyone. Programmatic advertising, Kibel says, cuts out some of the people in the middle of the transaction. He explains, "There are so many parties in this ecosystem, and everyone needs to get paid. Sometimes, in between the ultimate advertiser and the ultimate publisher, there may be as few as two or three or as many as three or four parties involved in that transaction in order to deliver that one impression."

However, Kibel says, "I wouldn't want to say that the idea is that, ‘We need to find a way to get rid of the middlemen because they don't add value.' That's not really the case. For most publishers, you need those middlemen because they have the experience, the expertise, the technology, and the systems." Working with these service providers is completely worth the cost, Kibel states, because "doing it yourself would be too cost-prohibitive" for most publishers.

Regarding Pangaea's move toward premium programmatic, Kibel says, "While these publishers coming together to do it themselves is a unique approach, it's not because the model is broken or dead. They expect to get better rates and retain a higher portion of revenue this way, but this is not a model for everyone."

The motivation behind Pangaea can be discussed in terms of marketing spin, an increase in the dominance of premium programmatic, and reducing the number of parties involved in delivering an impression. All of these issues support one overarching motivation-increasing revenue and keeping more of it.

How likely is Pangaea to succeed in that ultimate goal of increasing profit? Kibel says the publishers will need to "educate the market, to explain to advertisers and agencies why this new alliance has value." It's possible, he states, that Pangaea "could result in more transparency to advertisers because of the reduction in middlemen. This could perhaps raise rates, if the idea is that folks would be willing to pay more for the inventory, because this will be really good inventory."

While Hannon sees Pangaea largely as marketing spin, he remarks, "The benefits, such as scale and the ability to limit the amount of sellers that they're working with, are really compelling both operationally and from an ROI perspective. With that in mind, it will be interesting to see how this new alliance actually performs."

If Hannon is correct that premium programmatic will grow exponentially throughout 2015 and perhaps beyond, Pangaea has a good chance of success for three reasons. First, the involvement of five large and popular news publishers in the alliance provides a large quantity of good inventory.

Second, the overall rise of programmatic networks raises the odds of success for all players, and particularly for a network as well-funded and presumably well-organized and well-planned as Pangaea.

Third, if Kibel's hunch about transparency is correct, Pangaea's inventory will be of a much higher quality and much more desirable. Improving the quality of its inventory would allow Pangaea to charge more for its inventory and retain more of the revenue because of the streamlined process.

There are no guarantees in business, particularly in the rapidly changing business of online advertising. Whether Pangaea succeeds will depend on whether its motivations and buyers' expectations and desires line up. Its success also depends on the overall success and expansion of programmatic networks, as well as on the ever-changing atmosphere of online advertising as a whole.