By Mike Shehan, CEO and founder, SpotXchange

Mike Shehan is the CEO and Founder of SpotXchange and Chairman of Booyah, a digital agency. Previously, Mike was the CEO of Ereo,  an image search technology company and also founded LOGEX International, an e-commerce solutions provider for the retail and catalog industries. 

It has been well documented that real-time bidding (RTB) across the entire online advertising ecosystem is growing rapidly, especially in the video sector. According to a recent Forrester Consulting report, “Online Video RTB Primed For Dramatic Growth,” RTB video spend will increase to $667 million by 2013. Even more impressive is that a quarter (25.4%) of all online video impressions in 2013 will be transacted by programmatic buying and selling of online video.

While critics often complain that RTB represents an inventory price ‘race to the bottom,’ one of the most important statistics mentioned in the report is how RTB impacts cost per impression (CPMs). The Forrester report outlines how the average CPMs sold in an RTB environment will climb nearly 30% from $7 in 2011 to over $9 by the end of 2012. Premium publishers can expect even higher CPMs, but how is that possible? Part of the answer is the private exchange.

A private exchange or marketplace gives premium publishers the ability to maintain full control over the buying and selling process, giving them the opportunity to compete for a sizable and fast-growing portion of brand dollars moving to demand side platforms (DSPs) and agency trading desks (ATDs). Publishers grant select advertisers, ATDs or DSPs access to their inventory and set minimum prices and volume for that inventory. By approving select bidders to participate in a real-time, transparent and brand safe marketplace for their inventory, publishers maximize CPMs.

However, this isn’t the only reason CPMs are on the rise. By providing buyers with impression-by-impression control, they are able to cherry pick the impressions worth the most for their advertisers and pay accordingly. Bid criteria might include strong historical performance, global frequency across the RTB exchange stack, and first or third party data.

As TV dollars continue to shift to online, there is not enough premium supply in the marketplace to scale brand campaigns beyond initial tests. Demand from brands looking to buy inventory in an RTB environment is very high. Premium publishers are well positioned to monetize this demand, pending of course the control required to protect their existing monetization efforts. If a publisher is willing to provide inventory through a private exchange and to tap into the benefits of RTB, there is a very good chance that the publisher can find an advertiser who is willing to buy it programmatically.

So how does this play out in reality? For premium publishers, selling inventory via RTB in a private exchange should just be viewed as another sales channel, not as sales channel conflict. Private exchanges allow publishers to sell unsold inventory at or above the value of their existing direct sold campaigns to brand advertisers demanding the efficiencies of the RTB channel. For example, if a premium publisher is running campaigns at $15 CPM, they can first try to auction the inventory off in the private exchange at a $20 CPM ask price. If the advertisers don’t bid on the inventory it can still be used for direct sold campaigns. Furthermore, if advertisers begin to buy inventory at a $20 CPM, it provides publishers with the data they need to potentially increase their rate card, helping their direct sales team in the long run.

Not all direct sales teams are fond of private exchanges, fearing that exchanges cut into their revenue. Sales people should be relieved to hear that despite the programmatic nature of RTB, it still takes people, relationships and salesmanship to maximize the value of a publisher’s inventory. The workflow enhancements provided from the programmatic channel free up time for top-tier sales talent to create high-value, strategic plans. By empowering direct sales representatives to sell to DSPs and ATDs directly, publisher reps drive the relationships with brands and are fairly compensated for transactions that take place in the exchange.

RTB in online video advertising will remain one of the fastest growing sectors in the market over the coming years. However, in a recent webinar with Forrester, analyst Michael Greene commented that publishers should view RTB as complimentary, not competitive to direct sales efforts. A publisher’s own real-time impression market drives up CPMs and transparency helps enable price discrimination where video inventory is scarce and the environment is in demand.