nToggle: A Hot Product but No Customer

Yesterday’s acquisition of nToggle by Rubicon was a big surprise.

nToggle offers technology in big need right now. All programmatic platforms saw massive spike in impression volume, resulting from the combined effect of Header Bidding and Reselling.

In order to protect their infrastructure, DSPs and SSPs need to eliminate bid requests that have a low probability of converting, including duplicated impressions. This filtering mechanism is often referred to as “intelligent throttling” or “supply path optimization” (SPO).

A few startups lined up to solve this industry-wide problem. nToggle became the best known of them.

You would think nToggle had customers lining up to license their technology. So why selling?

SPO is too important to outsource

From what I heard, most platforms are developing SPO in-house. SPO is mission critical for platforms, who must offer scale without spending a fortune on hardware.

There is also strategic value in SPO.

Most SSPs want to do reselling. Reselling AdX inventory, for example, means double bid requests even for the largest platforms. Fill rate on resold inventory is tiny, so SPO is a must.

For DSP, the strategic impetus is more about scale for highly targeted campaigns, and in effective campaign optimization.

SPO must identify and eliminate intermediaries who take the higher margins. In particular, DSPs will start integrating directly to the header bidder or ad servers of the largest publishers, and they will need to de-dupe impressions they can buy directly.

Rubicon Was Getting Desperate

Officially, Rubicon is buying nToggle to offer clean, de-duped inventory to their DSP clients as a differentiation move. I don’t buy that one minute.

Rubicon was simply slow at developing SPO in-house, reminiscent of how they missed the boat on header bidding in 2015.

As Rubicon realized their competitors were filling up their pockets with reselling impressions, they needed a jump start on SPO. Buying nToggle gave them the technology and manpower to catch up with the widespread practice.

A $38MM mistake.

AppNexus/Index Partnership: What’s in it for Index?

AppNexus and Index announced a broad partnership on server-side header bidding at the IAB leadership meeting last week. On stage, Brian O’Kelley also mentioned full interoperability between Index, AppNexus and PubMatic header bidding wrappers.

Such a partnership, if executed, would ultimately doom Index.

Google and Facebook in Focus

AppNexus seems to be the main benefactor here, particularly AOS, the company’s Ad Server.

Google benefited greatly from its ad server monopoly. DFP has first look on the world’s best ad placements, and Google successfully sneaked in an “AdX tax” within DFP dynamic optimization, an early attempt at allowing programmatic demand to compete with direct demand.

But in 2017, AppNexus has a unique opportunity to strike. Premium publishers are switching to a programmatic-first model, and must rethink their monetization stack. At the same time, Google seems confused over its programmatic strategy, or fails to grasp the importance of DFP for its ad business.

The server-side header bidding deal with Index will enable AppNexus to cross-sell its publisher suite, including AOS for managing direct campaigns. One SaaS platform to fully unify direct and indirect demand.

Brillant move by AppNexus.

End-to-End Monetization Stack

AppNexus also gets access to Index’ valuable supply.

Somehow, Index’ black-box Header Bidder solution proved more popular with Comscore 100 pubs than AppNexus’ own open source offering, PreBid. Publishers were not ready to embrace the self-service open source solution, and instead favored Index’ out-of-the-box and well supported header bidding offering.

AppNexus must secure direct access to the best ad inventory as it builds an end-to-end monetization stack with the scale and feature set to compete with Google and Facebook

Pure-Play SSPs in a Weak Spot

You would think Index came to the negotiation table with in strong position. They surfed the wave of header bidding beautifully and wholeheartedly, and scooped up many top publishers as they switched to header bidding. Quite impressive for a network that used to specialize in annoying pop-unders back in the days.

Yet, with this partnership, these same publishers will be stirred toward AppNexus if they want to move their monetization capabilities back to the server. And most publishers will do just that.

Puzzling move by Index.

Index must believe its options are limited. With header bidding moving back server-side, the deck is being reshuffled once more, and this time the giants of AdTech will not be caught napping.

Publishers are hiring programmatic expertise as fast as they can, and are ready to bring their monetization stack fully in-house at last.

Index Will Have Regrets

No doubt Index was lured by AppNexus’ extensive unique demand.

But owning the demand means AppNexus will ultimately call the shots.

With header bidding, DSPs see the same impressions from multiple SSPs simultaneously, making it easy to prioritize one source over another. This practice, known as Supply Path Optimization, will gain traction in 2017.

AppNexus will find it easy to “punish” or favor some SSPs without hurting its own business, giving it great bargaining power, and ultimately control over Index’ supply.

And if AppNexus must torpedo this partnership to catch up with Google, so be it.