Technology

White Paper

Ad Price Prediction: 2nd Generation

Ad Revenue Optimization for Publishers

Technology Outlined:
Ad Price Prediction

Technology Benefits:
• Improve monetization of every single publisher
ad impression
• Solves ad network defaulting problem for publishers
• Two new technologies improves algorithm accuracy
• Works with ad networks, ad exchanges, and
non-guaranteed insertion orders

Technical Level of White Paper:

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

Table of Contents
Executive Summary.......................................................................................................... 3

The Need for Real-Time AdAd Price

Revenue Prediction: 2nd Generation
Optimization..........................................................
4
Ad Revenue Optimization for Publishers
Three Levels of Ad Optimization....................................................................................... 6

Ad Price Prediction: How It Works..................................................................................... 8

Ad Price Prediction Publisher Case Studies.................................................................... 12

Conclusion....................................................................................................................... 12

Technology Outlined:
Ad Price Prediction

Technology Benefits:
• Improve monetization of every single publisher
ad impression
• Solves ad network defaulting problem for publishers
• Two new technologies improves algorithm accuracy
• Works with ad networks, ad exchanges, and
non-guaranteed insertion orders

Technical Level of White Paper:

Published by PubMatic, 2009 2

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

Executive Summary
The non-guaranteed segment of online advertising is the highest-growth online advertising cat-
egory and will reach $11 billion by 2013, according to a recent in-depth report by ThinkEquity.
Rapid innovation by companies Ad Price
within Prediction:
the ecosystem, 2ndadGeneration
particularly networks and ad exchang-
Ad Revenue Optimization forfrom
es, is enabling publishers to significantly increase the ad revenue made Publishers
their non-guaran-
teed inventory. Nonetheless, challenges exist to maintain sustainable growth.

Along with the growth of non-guaranteed ad inventory, the rise in the number of ad networks
and ad exchanges over the past few years has created a need for them to diversify themselves
by focusing on different audiences and targeting capabilities. For example ad network “X” might
be better suited than ad network “Y” to monetize a specific ad impression while ad network
“Y” might be better able to monetize another impression than ad network “X.” Publishers can
benefit from this diversification, and maximize the value of each ad impression, if they have the
ability to match the optimal ad network or ad exchange to each impression in real-time. Over
the last three years with a team of over 40 engineers and statisticians, PubMatic has developed
optimization technology and invented a whole new category of service provider that enables
publishers to do this.
Technology Outlined:
PubMatic developed the first and only real-time optimization solution in 2006. Since then, Pub-
Ad Price Prediction
Matic has collected hundreds of billions of data points through a machine learning approach
and has introduced two new Technology
technologies in 2009 that have enabled the technology to enter
Benefits:
into a new, more precise phase of real-time optimization:
• Improve monetization of every single Ad Price Prediction.
publisher
ad impression
Ad Price Prediction matches the• Solves ad network
optimal defaulting problem
ad network for publisherswith every ad impression,
or ad exchange
• Two new technologies improves algorithm accuracy
on behalf of the publisher, in •real-time. It enables the publisher to significantly grow their ad
Works with ad networks, ad exchanges, and
revenue as they also manage increasing
non-guaranteedamounts of non-guaranteed inventory.
insertion orders

For large online publishers with millions

Technical Levelofofads
Whiteshown
Paper: per day, this means that millions more
of their advertisements are optimized than otherwise would be if they used a manual ad
operations approach to working with ad networks.

This white paper describes in detail why PubMatic developed the sophisticated algorithms that
power the Ad Price Prediction technology, how it increases publisher ad revenue, and several
publisher case studies.

Published by PubMatic, 2009 3

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

I: The Need for Real-Time Ad Revenue Optimization

Publishers that seek to increase their ad revenue from non-guaranteed inventory face signifi-
cant challenges. While limited ad operations could be performed on a daily or weekly basis to
improve revenue, a real-time,Ad Price based
technology Prediction: 2nd
solution that Generation
not only helps manage ad net-
Ad Revenue Optimization for Publishers
works, but also ensures that the publisher is getting the most revenue possible for every single
impression, is needed.

Five reasons why a real-time solution is needed to ensure publishers get maximum ad revenue

1. Static Ad Network Daisy Chains Are Ineffective:

Ad pricing from ad networks changes constantly throughout the day and with a manual
solution the publisher often doesn’t have the highest paying ad network at the top of their
static daisy chain.

2. More Ad Networks Need to Compete for Every Single Ad Impression:

With a manual solution, managing multiple ad networks is challenging. The result is that
publishers often don’t have enough relationships with ad networks that specialize in
Technology
monetizing different segments of theirOutlined:
audience. Therefore, ads are often delivered from ad
Ad Price Prediction
networks that value the ad impression less than a different ad network would that is trying
to reach that specific audience.
Technology Benefits:
• Improve monetization of every single publisher
ad impression
3. Ad Networks Default Often, And It’s A Big Problem:
• Solves ad network defaulting problem for publishers
PubMatic has found that ad• Two
networks defaultimproves
new technologies 56% ofalgorithm
the time on average and as much as
accuracy
87% of the time according to a study
• Works with adconducted in April of
networks, ad exchanges, and2008. As ad targeting becomes
non-guaranteed insertion orders
increasingly dependent on both the user and the ad context, defaulting will only increase.
Technical Level of White Paper:

4. Low Quality Ads Have Low Click-Through Rates:

Managing multiple ad networks with a completely manual solution is challenging. Fewer
ad networks mean the options for ads that can be served are limited, and that can result in
served ads that are unattractive to the user which negatively impacts the click through rate.

5. One Solution Is Needed for Non-Guaranteed I.O.s, Ad Networks, and Exchanges:

Publishers increasingly need to manage all of their non-guaranteed demand, whether it’s
from ad networks, ad exchanges, or direct advertiser insertion orders, from the same buck-
et of non-guaranteed inventory.

Published by PubMatic, 2009 4

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

PubMatic identified the challenges that publishers face at the onset of building out its ad
revenue optimization technology, and continues to advance it based on the needs of the
publisher and market growth.

Ad Price Prediction: 2nd Generation

PubMatic’s Ad Revenue Optimization Advances With the Growth of the Market
Ad Revenue Optimization for Publishers
Real-Time Technology Provides a Long-Term Monetization Strategy for Non-Guaranteed Inventory

Non-Guaranteed Segment Growth PubMatic Real-Time

In Online Advertising Technology Releases
$11 B in publisher ad revenue, 34% of
total publisher display ad revenue by 2013**
2013

Ad Price Prediction
30% non-guaranteed 2nd Generation Ad Optimization
ad revenue growth for 2011** for Publishers
15% non-guaranteed Bidding API for ad networks - 2009
ad revenue growth - 2009**
Technology Outlined:
$4.1 B in non-guaranteed publisher Frequency optimization - 2008
Ad Price Prediction
ad revenue in 2008**
30% of publisher inventory sold Benefits:
Technology Default optimization - 2007
2007* monetization of every single publisher
through ad networks• -Improve
ad impression PubMatic pioneers ad optimization
• Solves ad 2006
network defaulting problem for publisherslaunches real-time
category,
• Two new technologies improves algorithm accuracy
solution for publishers - 2006
• Works with ad networks, ad exchanges, and
non-guaranteed insertion orders
*Bain/IAB Digital Pricing Researcg, August 2008
**ThinkEquity - The Opportunity in Non-Premium Display Advertising, May 2009
Technical Level of White Paper:

PubMatic’s Machine Learning Approach

Machine Learning is based on algorithms that improve automatically
through experience. It includes data-mining that processes more
than 100,000 data transactions per second.
• PubMatic has over 6,000 publishers using the optimization platform, which continually
provide rich data that contributes to the machine learning.
• The longer machine learning is working, the more precise and accurate it becomes.
• The data collected through machine learning is used for predictive modeling and is
the basis of PubMatic’s Ad Price Prediction technology

Published by PubMatic, 2009 5

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

II: Three Levels of Optimization

No other company offers optimization in real-time

Ad Price Prediction: 2nd Generation

$$$ Ad Revenue Optimization for Publishers
Publisher Revenue

Real Time
$$
Daily or Weekly
Weekly or Monthly

Technology Outlined:
Ad Price Prediction

Technology Benefits:
• Improve monetization of every single publisher
ad impression
• Solves ad network defaulting problem for publishers
$
• Two new technologies improves algorithm accuracy
• Works with ad networks, ad exchanges, and
non-guaranteed insertion orders
Manual In-House Manual Outsourced Automated Algorithms
Ad Operations Ad Operations
Technical Level of White Paper: +
Operations Support
(Real-Time Optimization)

Published by PubMatic, 2009 6

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

In order for large publishers to truly maximize their ad revenue made from ad networks and ex-
changes, optimization is needed. Publishers can optimize in three principal ways with varying
degrees of success:
Ad Price
1. Manual In-House Ad Operations Prediction:
(Weekly 2nd Generation
or Monthly Optimization):
Ad
Most large publishers have an Revenue
ad operationsOptimization for Publishers
team that works directly with ad networks to
manually optimize them. They do this by logging into the ad networks and finding historical
pricing and then setting up their “daisy chains” accordingly. The frequency of the optimization
usually ranges from weekly to monthly, depending on human resources. This type of optimiza-
tion does provide revenue lift in the vast majority of cases, but the inherent problem is that pub-
lishers are using historical data and are limited to a very small number of data points by which
they can make optimization decisions. As the number of ad network relationships increases,
this approach requires correspondingly more human resources to optimize.

2. Manual Outsourced Ad Operations (Daily or Weekly Optimization):

In an effort to escape the resource trap of manual in-house ad operations, some publish-
ers outsource the management of ad network relationships to third party vendors. There are
often resource and expertise benefits,
Technologyas an outsourced service provider has typically identified
Outlined:
best practices, has ongoing relationships with key ad networks, and can often provide human
Ad Price Prediction
resources at a cheaper cost.
Technology Benefits:
• Improve monetization of every single publisher
ad impression
However, despite the efficiencies gained
• Solves in resource
ad network cost,for
defaulting problem there is typically only marginal im-
publishers
provement in revenue that is generated from theimproves
• Two new technologies use of algorithm
third party vendors. These vendors rely
accuracy
• Works with ad networks, ad exchanges, and
on the same historical data andnon-guaranteed
limited number of data points to make ad serving decisions, and
insertion orders
as a result cannot significantly increase publisher revenue.
Technical Level of White Paper:

3. Automated Algorithms + Operations Support (Real-Time Optimization):

This solution is the only solution that can best monetize every single ad impression. Hav-
ing ad operations support is critical to a publisher in order to simplify ad network management
and ensure that unwanted ads do not appear on their site, but only real-time algorithms can
predict which ad network will pay the most for any given impression, 24 hours a day, 7 days a
week. Real-Time algorithms can use significantly more data points to make ad serving deci-
sion, such as geography, frequency, context, demographic information and more. In addition,
these algorithms can make a unique decision in real-time for each and every ad impression.
More data and real-time decisions yield significantly higher publisher revenue.

Published by PubMatic, 2009 7

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

III: Ad Price Prediction: How It Works

PubMatic’s Ad Price Prediction technology decides, in real-time, which ad network, ad ex-
change, or non-guaranteed insertion order is best able to monetize an ad impression for a
publisher. Ad Price Prediction: 2nd Generation
Page Request and
Ad Revenue Optimization for Publishers
Ad Impression Analyzed
tw ork
Ne
Ad e
Ad Exchang
Ad N
etwor
k
ork
Netw
Ad
Filter Ad
Ad networks and ad
exchanges filtered based Price

on geo, ad size, creative and more Prediction

Technology Outlined:
Inside the
Ad Price Prediction
technology:
2 Determine Pricing
Technology Benefits: Flat CPM campaigns sold through
Algorithms determine• pricing
Improve from a publisher’s
monetization of every single publisher sales force can also
ad impression compete for the ad impression
ad networks and ad exchanges
• Solves ad network defaulting problem for publishers
The algorithms consider frequency
• Two new technologies improves algorithm accuracy
Bidding• API as each time
Works with ad networks, ad exchanges, and
an impression is seen,
the value drops
+non-guaranteed insertion orders

Machine Learning
Technical Level of White Paper:
$$ $

3 Select Should the selected ad

network or ad exchange
Highest paying ad network or default, the steps are
repeated and the next
ad exchange is selected highest paying one is selected

$$$
Ad Network

Ad Delivered from
Highest Paying Ad Network

Published by PubMatic, 2009 8

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

Detailed Flow Description:

The user on a publisher’s website makes a page request.

The impression is then analyzed for dozens of different data points including context, frequen-
Ad Price Prediction: 2nd Generation
cy, geography, day part, browser, user demographics, and more.
Ad Revenue Optimization for Publishers
Ad serving entities, including ad networks, ad exchanges, and non-guaranteed
insertion orders are then filtered.
The filtering process takes into consideration the analyzed impression and user data as well as
the creative policy of the publisher. For example, ad networks that serve suggestive or alcohol
ads will not make it through the filter if the publisher’s business rules require that suggestive or
alcohol ads not be shown on their website.

Algorithms determine pricing from Ad Networks, Ad Exchanges,

and Non-Guaranteed Entities.
 rom the eligible ad serving entities that passed through the first filter, PubMatic’s algorithms
F
process over 100,000 of data Technology
points perOutlined:
second to decide which ad serving option is best able
to monetize the impression. Data is collected
Ad Price Prediction from PubMatic’s machine learning algorithms and
decisions are made in real-time based on learned pricing behaviors and dynamic pricing data
delivered from ad networks viaTechnology
the real Benefits:
time bidding API (application programming interface).
• Improve monetization of every single publisher
ad impression
A key advantage for publishers• Solves ad network
in this defaulting
process problem for publishers
is PubMatic’s ability to determine ad pricing
• Two new technologies improves algorithm accuracy
based on how many times the• Works
user with
hasadseen a particular ad. Ad networks generally value the
networks, ad exchanges, and
first impression a user sees more than theinsertion
non-guaranteed second impression, and so forth. Ad networks then
orders
allocate the highest paying campaigns to the first user impression, followed by the next highest
Technical Level of White Paper:
paying ad campaign and so on. The algorithms take this frequency pricing into consideration
and will choose not to show an ad if the user has seen it enough times that the value is too low.
Because frequency capping is a part of most campaigns today, this technology is incredibly
valuable and provides significant and long-term revenue lift.

Published by PubMatic, 2009 9

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

Frequency eCPM Curve

$3.60
Ad Price Prediction: 2nd Generation
$3.00
Ad Revenue Optimization for Publishers
Area reflects publisher revenue lift
due to optimal decision-making

$2.40
Predicted eCPM

$1.80 Ad Network 1
Ad Network 2

$1.20 Ad Network 3
Ad Network 4

$0.60 Optimal Ad Network Allocation

(based on frequency eCPM curves)

Technology Outlined:
$0.00
Ad Price Prediction
1
2
3
4
5
6
7
8
9
10

>25
11-15
16-20
21-25

Technology Benefits:
• Improve monetization of every single publisher
ad impression
• Solves ad network defaulting problem for publishers
• Two new technologies improves algorithm accuracy
The Highest Paying Ad Serving Entity
• Works with is Selected
ad networks, ad exchanges,and
and Then Delivers
the Ad to the User. non-guaranteed insertion orders

Once PubMatic selects the entity that Level

Technical is best able Paper:
of White to monetize the ad impression, an ad request
is sent to that entity. The ad is then served directly from that entity, whether it is from an ad
network, ad exchange, or from an insertion order.

*If the selected ad entity were to default, the previous steps would be repeat and
the next highest paying ad serving entity is selected.

Published by PubMatic, 2009 10

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

Dynamic Default Optimization

Impression 1 Ad PriceImpression
Prediction:
2 2nd Generation
Impression 3
Ad Revenue Optimization for Publishers
eCPM

Technology Outlined:
Ad Price Prediction
A B C D E D C A B E C B E D A
Technology Benefits:
• Improve monetization of every single publisher
Ad Networks ad impression Ad Networks Ad Networks
• Solves ad network defaulting problem for publishers
• Two new technologies improves algorithm accuracy
• Works with ad networks, ad exchanges, and
Ad network pricingnon-guaranteed
changes constantly,
insertion orders therefore adjusting static

daisy chains weekly, or even daily, isn’t enough to maximize yield.

Technical Level of White Paper:
Dynamic Default Optimization updates the daisy chain in real time,
for every impression, which ensures that the impression goes to the
highest paying ad network.

Published by PubMatic, 2009 11

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

IV: Ad Price Prediction Publisher Case Studies

Publishers using Real Time Optimization consistently see higher ad pricing as compared
to manual ad operations solutions, whether in-house or outsourced. The following case
Ad Price
studies based on three large publishers Prediction:
highlight 2nd
the increased Generation
pricing (eCPM) generated from
PubMatic’s Real Time Optimization solution using automated algorithms..
Ad Revenue Optimization for Publishers

Publisher Case Study 1: 88% Lift $1.09

88% Ad Revenue Lift eCPMs
Real-Time Optimization vs.
Manual Outsourced Ad Operations $0.58

Site Type: News

Site Reach: 10MM+ Global Users
Other Yield Optimizer PubMatic

Technology Outlined:
81% Lift $1.21
Publisher Case StudyAd2:Price Prediction
81% Ad Revenue Lift
eCPMs

Real-Time Optimization vs.

Technology Benefits: $0.67
• Improve monetization of every single publisher
Manual Outsourced Ad Operations
ad impression
• Solves ad network defaulting problem for publishers
Site Type: Women’s Interest• Two new technologies improves algorithm accuracy
Site Reach: 30MM+ Global •Users
Works with ad networks, ad exchanges, and
non-guaranteed insertion orders
Other Yield Optimizer PubMatic
Technical Level of White Paper:

Publisher Case Study 3:

92% Ad Revenue Lift
eCPMs

Real-Time Optimization vs. 92% Lift

Manual Outsourced Ad Operations $0.50

Site Type: Social Network $0.26

Site Reach: 15MM+ Global Users
Other Yield Optimizer PubMatic

Published by PubMatic, 2009 12

Ad Price Prediction: 2nd Generation Technology
Ad Revenue Optimization for Publishers White Paper

V: Conclusion
As ad inventory continues to grow, new methods of ad revenue optimization must be adopted
by large publishers if they are to protect and improve the value of their advertising space.
Ad Price
Manual ad operations, either in-house Prediction:
or with outsourced help,2nd
doesGeneration
improve revenue ad reve-
Ad Revenue Optimization revenue
nue lift in most cases, but those options are not feasible for long-term for Publishers
growth. Because
the non-guaranteed segment of online advertising is expected to grow to $11 billion by 2013,
publishers must adopt a specific strategy for this segment of inventory.
Due to the volatility of online ad pricing, and because no single ad network can guarantee the
highest price for a publisher’s ad space all of the time, only a real-time optimization solution can
ensure that every impression is monetized by the highest paying source.
PubMatic offers publishers the most advanced method of ad revenue optimization available:
Ad Price Prediction technology (automated algoritms) in addition to full service team support
for the publisher’s ad operations team. Publishers that have been using PubMatic’s solution
regularly see ad revenue lift ranging from 30-300%.

Technology Outlined:
About PubMatic Ad Price Prediction

PubMatic is a global Ad Revenue Optimization

Technology Benefits: company that provides online publishers with
a full service solution to manage andmonetization
• Improve monetizeofnon-guaranteed
every single publisherad inventory. PubMatic’s real-
ad impression
time ad price prediction technology ensures that online publishers get the most money from
• Solves ad network defaulting problem for publishers
their advertising space by deciding
• Two newintechnologies
real-time improves
which ad network
algorithm or exchange can best mon-
accuracy
etize each impression. • Works with ad networks, ad exchanges, and
non-guaranteed insertion orders
There are currently over 6,000 large and medium publishers working with PubMatic. PubMatic
Technical Level of White Paper:
is venture backed by Draper Fisher Jurvetson, Nexus India Capital, and Helion Ventures.

Contact PubMatic
If you are a large online publisher interested in learning more, please contact Josh Wetzel, VP
Publisher Solutions. Josh.Wetzel@PubMatic.com

If you are an ad network interested in learning more, please contact Jeanne Houweling, VP
Business Development and Advertising Sales. Jeanne.Houweling@PubMatic.com

Published by PubMatic, 2009 13