Hmmm, I can’t seem to find my “behavioral data sales exchanges are doomed” blog post, but I discussed it with hundreds of people and I referred to it in this post, where I tried to make people feel better after a particularly harsh anti-behavior diatribe.
Anyway, here was my theory:
Data is only useful if you see tons and tons of impressions to drive targeting off of. Monetizing a person requires a data point the advertiser values and an impression where the advertiser sees the value and the value of the data is limited to the difference between what you could have charged for that inventory and what the data makes it worth. Anything other than conquesting automotive behaviors rarely bridges that gap enough to justify the expense.
The problem with a data exchange is that you gather tons and tons of data, dropping pixels everywhere, with little hope of seeing that person again and not a lot of hope of an advertiser buying that behavior.
Ad networks were able to be successful because, at the very least, they could take every impression they bought and show some crazy CPA ad. In the data exchange business, you drop tons of pixels and never do anything with it again.
So here is my business model:
- Ad network was going to sell 1,000 impressions for $1.00.
- Data exchange provides behavioral data that allows the impressions to be sold for $2.00.
- To generate the 1,000 behavioral data points, they drop 3,000 pixels on the 1,000 users (3x frequency – for fun – let’s assume that makes it a good behavior as opposed to a random behavior).
- To get 1,000 users, they pixel 10,000 users – not every person pixeled gets seen for the campaign served, so you have to get a lot of “qualified users”.
- So they dropped 30,000 pixels at a cost of $0.01 CPM – so $0.30.
- The ad network wants to keep some of the upside (otherwise why sell the behavior), so they keep half the upside and give half to the behavioral data exchange.
- So the behavioral data exchange just made $0.50 and it cost them $0.30 – BUT, they have to pay the behavior provider, and he wants 50%.
- So every transaction costs the data exchange $0.05.
Now, if they lifted the value of the inventory more, they might make a little money. But, if they have to drop more pixels because network reach is poor, then it costs more.
AND HERE IS THE KILLER: If they drop a bunch of pixels and no one buys that behavior, they just lost all that money.
So data exchanges drop tons of pixels and roam around trying to convince someone to buy that behavior. Every second that passes, behaviors are losing value and more cookies must be dropped to replace people falling out of populations. Can you really dig your way out of that?
So Lookery just went belly-up. And Scott and Todd are smart. (Although I think I told Todd all this stuff some time ago.)
Were they too early? Maybe. The creation of real real-time-bidding interfaces will allow people to cherry pick bigger networks, maybe creating a better opportunity for data sales. Good enough to build a viable business? Not sure.
Hmmm, I suppose Exelate is next?