YouTube on phone and computer
By Tom Burg Aug 21 2015

Programmatic Zeitgeist: The Implications of Google Pulling YouTube Inventory Off Its Ad Exchange

Earlier this month, Google made an aggressive move by announcing that it would be pulling YouTube video inventory completely off of the DoubleClick Ad Exchange by January 1, 2016. YouTube will remain available through DoubleClick Bid Manager (DBM), Google AdWords, and Google Preferred, its premium upfront offering. All non-Google buying platforms will be locked out.

Brett Wilson of TubeMogul was one of the first to weigh in: “Google has multiple constituents to serve, including its users, investors, and advertisers, but this move clearly wasn’t intended to benefit the latter.”

None of this should be a surprise. Google telegraphed this in April when it announced support in DBM for buying YouTube inventory using the TrueView pricing model — where advertisers only pay for ads that were not skipped. Given that 85% of all YouTube ad inventory is TrueView, that move was a big deal.

So why did Google make this decision? It certainly wasn’t about yield optimization. I mean, why wouldn’t Google want to optimize the yield of their unsold YouTube inventory by making it available on the open exchanges, and exposing it to maximum demand? The answer is simple: Its analysis probably showed that YouTube’s “small” amount of unsold inventory was more valuable to them as a proverbial carrot, to incentivize marketers to use the Google advertising stack, than as mere media to be sold off to the highest bidder.

In other words, it optimized for the value of their whole ad stack, not just maximizing the value for YouTube.

For marketers, it means they can no longer target YouTube audiences using their own first-party data, unless they use a Google audience tag. It also means more complexity for advertisers who wish to buy YouTube video inventory, but don’t want to abandon their existing ad tech stacks. However, they can remedy this fresh headache by moving exclusively to Google’s suite of advertising products.

During the recent corporate restructuring of Google under the Alphabet conglomerate, it wasn’t a mistake that YouTube, despite being a goliath of a business on its own, wasn’t spun off as its own independent entity. It is a highly strategic component of the Google advertising machine, which receives its power and leverage by controlling media, technology, and advertising demand. Google, therefore, is not a merely a search engine, nor a video community, but an obscenely powerful advertising business.

This closed ecosystem approach is the antithesis to the open programmatic advertising model that has evolved over the last several years. Some pundits say this is another nail in the coffin of the open model. Others agree and call the open model a “cesspool” in terms of quality, and that the industry desperately needs the closed model. Regardless of which model ends up winning — open or closed — we are at a point in history where large closed companies like Google and Facebook can throw around their weight in ways that must make telecom monopolies jealous.

Some say that this announcement about YouTube is not that big of a deal, and that it is far from the only video inventory in town. There is quality inventory from the likes of DailyMotion Exchange, LiveRail, SpotXchange and other video platforms. As we see more video content move online from traditional TV sources, marketers will soon have far more choice when it comes to online video advertising. One could even argue that these are higher quality choices — as opposed to the user-generated content that dominates YouTube (which many marketers avoid for that very reason).

One advantage to marketers, however, in a world of Facebook and Google dominance, is the ability to truly solve the cross-device, cross-channel targeting, measurement, and attribution challenges of digital advertising, given the scale of those ad tech giants and the sheer volume of identity data they own. Marketers could, in theory, enter in-depth relationships with Facebook and Google to get a better, more personalized view of their customers, and better understand the true effectiveness of their ad spends.

On the other hand, this is a clear signal of what we can expect as companies like Google seek to gain dominance, not only in the video sector of online advertising, but in the digital advertising ecosystem as a whole. With options narrowing as large companies consolidate the industry, it’s only a matter of time before advertisers are truly beholden to a few full-stack players.

Will these few ad-tech overlords be benevolent and continue to “do no evil,” or, once they have that complete advantage, will they lean more heavily towards decisions that maximize shareholder value when it suits them? What do you think?