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Pubmatic And The Rise Of The Second Channel Of Advertising

PubMatic is on a roll. The Silicon Valley based company helps online publishers interface with multiple ad networks, selecting in real-time the most lucrative ads available -- and that can boost revenues by as much as 300 per cent on the same ad inventory.

Publishers need all the help they can get in wringing revenues from online ads so PubMatic is well positioned in helping the troubled media sector.

But it is not quite as simple as that. What Pubmatic does is increase ad revenues for the publishers' second channel. This is the ad inventory that is not sold through the first channel -- the premium channel, which is represented by the publisher's direct sales force.

The second channel is what's left over, and traditionally this has been sold to the advertsing networks at a very large discount to the first channel. PubMatic allows publishers to settle for a lower discount.

The good news for PubMatic is that the second channel is growing at 22% a year. The bad news for publishers is that the first channel is barely growing and is actually shrinking for many online publishers. This is partly due to the bargains available on the second channel.

Even though PubMatic can double or triple the money publishers get for the second channel -- it doesn't make up for the losses in the first channel. Still, every bit helps, and the company has some big customers such as The Huffington Post.

I recently met with the youthful and energetic CEO and co-founder Rajeev Goel. Here are some notes from our conversation:

- Advertisers, generally are moving to buying access to an audience that isn't just associated with a specific web site but that can be found wherever they are.

- There are more than 400 ad networks. We help publishers manage their relationships with the ad networks and choose the best deals.

- We have invested more than 100 man years in developing our technology, the predictive ad server. We have 40 engineers (mostly in Pune, India.)

- We make money by charging the publishers 15% of the ad revenue that we bring in.

- We also charge advertising networks to gain access to the publishers.

I pointed out that there seems to be a possible conflict of interest here. Why charge the ad networks? Surely PubMatic is actively seeking out the best deals for its clients? Isn't it in PubMatic's interest to actively seek the best deals?

Mr Goel says that it costs PubMatic time and labor to evaluate the advertising networks. And that its publishers are quite happy not to pay for that extra service.

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More information:

PubMatic Data Reveals Premium Publisher Ad Pricing Increased 32% Since Last Year

From PubMatic's recent conference Ad Revenue 2009. Here are videos of some of the more interesting panel discussions:

The New Economics and Revenue Opportunities of Data « PubMatic