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Episode 118: Anthony Katsur on Navigating the Future of Ad Tech with Trusted Server
00:54:08
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- [00:00]
Ari Paparo
This podcast is brought to you by Innovid. Folks, we have our answer. There's been a lot of speculation about what the combination of Flash talking and Innovid would be called. Flashovid Innoflash. We've got our answer at Architecture Live and it's Innovid. But not just any Innovid. It's a new Innovid innovation. Intelligence independence. The eyes have it. Check out new.innovid.com to learn more about how they're merging their ad tech stacks and shaking up the industry. That's new.innovid.com and as ever, this ad could have been an email.
- [00:35]
Eric Franchi
This episode is brought to you by Zeta Global. Do you know what it takes to transform marketing into a data driven profit center? Are you able to align the C suite around your AI vision and strategy? Zeta Global has the Playbook to help you get started. Download Driving growth in the AI era today at zetacmo.AI book. Again, that's Z E T A C M O AI Book.
- [01:17]
Ari Paparo
Welcome to the Market podcast. I'm Ari Paparo. I'm joined today by Eric Franchi and our special guest Tony Katzer, who is the head of the IAB Tech Lab. Tony's been on on the show before. Probably most people know who Tony is. We want to talk to him about the latest release called Trusted Server from the iab. It's very early stage, a sort of a beta about letting publishers take things server side. And I think what was really interesting was the way it was positioned, which was sort of as a defense against chrome, Safari, the W3C and the whole group of folks who are taking control over publisher data and monetization from a position of strength without necessarily sort of caring about the advertising ecosystem. Eric, what do you think about this whole thing?
- [02:04]
Tony Katzer
Yeah, when the announcement came out, we covered it. I think it was just a couple of weeks ago on the pod and we had more questions than answers about this. And then to the extent that there was discussed some on the panel with Michael Sullivan at Architecture Live, people are reading it and commenting on it and making some assumptions. So I can't wait to have Tony on just to really dive into it and help us understand what are the drivers around. And it's pretty technical. So getting his perspective because he's a very technical guy would be, I think, super helpful.
- [02:34]
Ari Paparo
Yeah, this is going to be a pretty technical episode. Maybe listen to it on one speed instead of one and a half so you can get all the details. We're also going to talk tariffs. Unfortunately we'll talk Infosum, Spotify Latest announcements which I covered in my newsletter this week and I just want to highlight AdTech Explained, which is part of the market. Texture Family is a really high quality content newsletter. It typically goes out once a month and the in depth analyses take a while to put together. We're doing some guest posts so it's coming out weekly. Nowadays this isn't ad supported. It's, you know, it's just really good content. And this week we had a UI walkthrough of the Amazon DSP put together by Vlad from Programmatic 101. So you should really subscribe. If you don't adtechexplain.com, free newsletter. Very high signal to noise ratio. Okay with that, let us dive right in with Tony Katzer. All right, Tony Katzer, thank you for being here.
- [03:31]
Mike O'Sullivan
My pleasure.
- [03:31]
Ari Paparo
You joined the repeat guest club. It's starting to add up. The number of people who've been on more than once.
- [03:37]
Mike O'Sullivan
Is this like the SNL thing? Get like the jacket and the number of years. Okay, great.
- [03:42]
Ari Paparo
Yeah, yeah. I think if you count the prerecorded set from Architecture Live, Mike O'Sullivan's in the lead. He's at three, I think, or maybe even four because he's been on a couple times he's been on and then he was on a prerecorded or Chris Kane from Jounce maybe three times.
- [03:58]
Tony Katzer
So they're probably tied.
- [03:59]
Mike O'Sullivan
Yeah, they're like the Tom Hanks of architecture.
- [04:03]
Ari Paparo
Yeah, Steve Martin, I was thinking. But yeah, I get your point. Okay, so wtf like Trusted Server really hurt my brain a little bit. And the IAB tech lab released it as like you're taking on the browsers. Freedom for publishers. But what is it like? What is this thing?
- [04:22]
Mike O'Sullivan
I mean it's more than just taking on the browsers. I mean that was the impetus for it. Just as more there is greater signal loss in the browsers and it's not just signal loss in the browsers. If you look at the current proposals, whether it's privacy sandbox or what's getting proposed in the W3C, there's proposals where the browsers in the name of privacy will effectively take over attribution for the open web. And I just think that's really a bridge too far. I think attribution is a decision. How campaigns are attributed is a decision may be between publishers and media buyers, whether that's the agency or the brand. You know, attribution is a very complex topic and it is a cornerstone for all advertising Right. But not just digital. Right. It's a cornerstone for traditional print out of home linear television. And you know, in our opinion we think the browsers are overstepping their remit at this point where they're now getting into the attribution game. At least it's been proposed. So Trusted Server is basically us creating a fallback position. It's not a mandate to move everything server side. But how do we create some fallback position where publishers can still generate signal which that signal thus powers other things like identity attribution modeling, proper packaging of ad inventory to then pass out to the programmatic ecosystem or serve directly without any sort of browser involvement or infringement. But then when we as we started to go down this conceptually and build it out, we started to find there were a lot of other benefits, much less tags on the page. So effectively working off of a single call on the page itself and then pushing a lot of what happens on page today into a server side model. Think of it as acting as like a packaging layer, this middle layer that then hands off to prevent server to handle programmatic. But it can also work with your direct soldier guaranteed buys. And what we found because of that, it also created a lot of performance improvements in terms of just how quickly the page renders. There's knock on benefits to that as well. When you're getting, you're removing network calls off the page, you're removing more JS and just code from the page, the faster a page can render that improves viewability scores, that'll knock up session times a bit. So we started to see all these other ancillary meaningful benefits for publishers. And third and last but not least, we also the way Trusted Server is implemented, it's done in the first party domain of the publisher. And we were like wait a minute, there's an ad blocking play here where depending on where you get your ad blocking stats from, it's anywhere between 20 to 40% again depending on who your source of information is. And we're like, well if we're basically delivering the ad packaged up within the DOM itself, it becomes very difficult to ad block. And you know, you and I chatted offline that you know, there's always going to be a nuclear arms race there of, you know, if we find ways to mitigate ad blocking, the ad blockers will try and find ways around that. But it does kind of create the first stage and the ability for publishers to reclaim some of that ad blocked revenue because everything's being delivered under the first party domain of the publisher. So we saw other, all these other ancillary benefits as we kind of tested out this prototype and got water through the pipes. And we're like, this is just making more sense as we go through it. Beyond just the initial impetus of, you know, concerns about where the browser ecosystem is going, not just today, but you know, if you look at, you know, the WebKit roadmap and what their plans are to do things like encrypt DNS and be judged during execution or potentially for third party network calls like, yeah.
- [07:51]
Ari Paparo
Okay, so let's just go with the dumbed down version of it first. I don't think we could go to grandma level. Not to insult grandmas, but this is too complicated for grandma. Let's just go with the basic level. Like if I didn't know on how ad tech worked, we're talking about just switching JavaScript calls from the client to the server for the most part. It's like you go, instead of returning an HTML page that has a lot of JavaScript calls to all different companies, we're making a single call to our server and making all those calls server to server and then responding with a more rendered web page as fewer calls.
- [08:25]
Mike O'Sullivan
Yeah, that's correct. And again, it's not a mandate to move everything server side, but as the industry, as I keep calling, needs to fall back to the server, this enables the ability to move more to server side.
- [08:35]
Ari Paparo
Now it's not all because if you return, let's say you go server side and you request an ad from some third party and it has, let's say a double verified tag in it, when you return that double verified tag to the page to the web browser, it's going to make a client request to double verify. So you were not by any means moving everything to the server.
- [08:53]
Mike O'Sullivan
As long as DoubleVerify or any other measurement company can continue to operate freely within the browser.
- [08:59]
Ari Paparo
Yes, right, right. So you're hinting at the fact that you think like the browser operators don't see that as a long term opportunity, they're going to crack down on this.
- [09:09]
Mike O'Sullivan
I have concerns. I hope for the best, but prepare for the worst.
- [09:14]
Ari Paparo
So what is the current state of things? So we've got the sandbox proposals which are not fully available where the browser in the Chrome sandbox would be doing some attribution. Apple has some sort of limited app to web and web to apply attribution. Do you think that that's important part of the roadmaps of these browser companies to do like some sort of pet technology for attribution Absolutely.
- [09:42]
Mike O'Sullivan
I think it's core to the, to some of the browsers thinking around privacy. And it's not just those browsers. There's also conversations in the W3C. There's the, there's the current PPA proposal within the W3C that all the browsers are discussing. So again, I, I think solving for attribution because attribution does require, requires data, typically requires some form of token or some form of identifier. And I think that is the vector that the browsers are focusing on in terms of their concerns around where there could be privacy violations or.
- [10:16]
Ari Paparo
So how does Trusted Server help attribution specifically? Can you give us an example of where the data from the publisher gets maintained?
- [10:23]
Mike O'Sullivan
Sure. So right now when the browser hits the edge and you know, Trusted Server can be deployed in your CDN edge, your cloud, you know, owned and operated iron if you're still. For those that are still doing that, what it's doing, it's taking the signal from the browser and what's packaging that up either into a first party server side cookie ID or some other synthetic identifier to basically tokenize that device and effectively what it then does is passes that off. Seems like almost like a packaging layer for prebid Server for Programmatic. Because I think one of the things that's been asked of me by you and others is isn't this just prebid server and it's not actually it's this middle layer that basically acts as this packaging layer to hand off to prevent server for Programmatic but it will also work with your direct sold. How it addresses attribution is by now having a persistent identifier on the publisher server side when we actually render the impression or make the call for the actual ad impression on the server side. And we're not stitching it into the Dom yet. What we're doing is the URLs being rewritten under first party and then the page still goes to the consumer but then the ad call is a first party out call to the edge. Where we see there, we see that there's still, there can be still enough telemetry either on the client side. Again, you can still there's nothing preventing you running from client side scripts as long as the browser is still supporting those. But if not, you could also then actually have calls running from the server side where once the impression is actually called for in the server side and eventually if we start looking at a stitching mechanism, that's where we can say okay, the impression itself ran there Is I think some assumption that the user has seen it and then you are on the path to solving for attribution from a server side perspective. Still fleshing out some of the details there. It is a prototype, but that's the theory.
- [12:18]
Ari Paparo
Yeah. It seems to me like IP addresses is a big part of this because the proposals to obfuscate IP addresses almost always have this problem, which is that they want to eliminate IP addresses for advertising and tracking, but they, if they do that, they'll screw up anti fraud and a bunch of other stuff that relies on it. So by going server side, you're taking that tool out of the hands of the browsers. They can't differentiate who gets the IP and who doesn't. They have to more broadly pass the ip. Is that sort of the jiu jitsu here?
- [12:50]
Mike O'Sullivan
That is part of the jiu jitsu here, yes. Correct.
- [12:53]
Ari Paparo
Also, you know, this week, I know it's not on our agenda, but maybe you heard about it. Apple Safari actually adopted a more permissive third party cookie policy.
- [13:02]
Mike O'Sullivan
Yeah, their chips update chips.
- [13:04]
Ari Paparo
So is there any connection here between this and chips?
- [13:08]
Mike O'Sullivan
No, we didn't foresee them announcing support for chips, which I think is a step in the right direction. Look, I mean we're definitely supportive of them releasing chips. Look, the best thing that could happen is that the browser ecosystem frankly comes to their senses and allows publishers to have the appropriate amount of signal in order to maintain an addressable open web. And no one needs a trusted server. That would be a great outcome. That would be a fantastic outcome.
- [13:36]
Ari Paparo
So if Chrome is spun out, is the IB going to make a bid for it?
- [13:39]
Mike O'Sullivan
Oh, I have no idea.
- [13:43]
Ari Paparo
Mr. Katzer, the CEO of the New Chrome.
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Mike O'Sullivan
I don't know if, I don't know if, I don't know if Tech Lab has the pockets to make the bid for it. That would be one hell of a. One hell of an auction.
- [13:52]
Ari Paparo
I mean if I could bid on TikTok, why can't you?
- [13:56]
Tony Katzer
You just, you just need a Vegas hotel owner.
- [13:59]
Mike O'Sullivan
We could have had across the industry and said is the industry want to own the largest consumer browser.
- [14:06]
Ari Paparo
Okay, so let's talk a little bit about some criticisms of this initiative. So the first one you already talked about is like it seems very duplicative of the pre bid because many publishers already do pre bid on the server side. So. I know what you just said. Well, it's a layer ahead of pre bid, but isn't it to some extent heading in the same direction?
- [14:27]
Mike O'Sullivan
No. Well, look, prebid Server is much more Mature than any. I mean, again, we're a prototype phase. The Trusted Server doesn't handle any of the, doesn't manage any of the programmatic interactions. Right. So it doesn't manage any of the bid request response flow. And my understanding also is I'm not aware of Prebit Server. This is a naive question. I also don't know if it works for Direct Sold guaranteed, where Trusted Server interacts with your ad server. So works with Equative. Today we did a lot of our testing with the folks at Equative. Thank you, Equative. And we're talking to the folks at GAM to seek support for server side ad calls for the web. So I don't believe Freebit Server does any of that.
- [15:06]
Ari Paparo
No, it doesn't.
- [15:07]
Mike O'Sullivan
So in that sense it's not Prebit Server. And Prebit Server already has an established footprint, whether it's Golang or the more mature Java version. It's just easier for us just to sit in front of Prebit and hand off to something that's much more robust, well developed, has been, you know, already has deployments across the ecosystem.
- [15:26]
Ari Paparo
Can GAM do server side like without. It can.
- [15:29]
Mike O'Sullivan
So it's not a technical issue.
- [15:31]
Ari Paparo
Got it.
- [15:31]
Mike O'Sullivan
I mean GAM does server side now for CTV.
- [15:33]
Ari Paparo
Back when you and I worked at DoubleClick, whenever a client asked us to do server side, we like, we would just want to vomit because the old double click was so dependent on cookies that like doing server side just, we knew we would break something we weren't even sure what.
- [15:47]
Mike O'Sullivan
Yeah. Yeah. Well, again, but that's the whole, you know, you mentioned cookies like that's the whole point. Like going from a third party cookie to either first party server side cookie or this synthetic id, which the publisher wants again to write that first party server side cookie or create some other synthetic ID to federate with other partners. It's at the publisher discretion to do so. Right.
- [16:06]
Ari Paparo
So you brought up synthetic id. So one of the criticismswe'll talk about Micah Sullivan, one of the things he pointed out was that in your initial documentation you have this function called Create synthetic id. And he waved the flag saying, this is just fingerprinting. Boo. Bad we shouldn't do this. More or less. What's your thinking on that?
- [16:28]
Mike O'Sullivan
I'd love someone to define fingerprinting. What, what's, what's a fingerprint? Like, that's the debate, you know, and there's been calls for us to define fingerprinting. It's not something we're going to do. We've Been asked by several companies to define it. We have no interest in defining it. And nor is there any law anywhere across the globe that basically regulates fingerprinting or says fingerprinting is illegal. Are we taking signal and binding that to some identifier? Again, whether it's a first party service cookie or some proprietary synthetic idea that the publisher themselves wants to mint? Yes, absolutely. Are we doing it within the confines of local privacy law? 100%.
- [17:05]
Ari Paparo
I mean I think the current state of fingerprinting is that you're right, it's not illegal, but it would in under say gdpr, it would require the same level of consent as a cookie.
- [17:14]
Mike O'Sullivan
100%. We actually, if you go check out the GitHub repository late last week we, we checked in both server side TCF and server side Global Privacy Protocol which has gpc, the global privacy control built into the global Privacy protocol. So we have built the consent frameworks into trusted server. I think we checked that code in last Thursday.
- [17:36]
Ari Paparo
Cool. The other thing that O'Sullivan was complaining about or criticizing let's say, was transparency. And I think his point was, especially because he's coming from the perspective of Sincera, which made its business on understanding what was going on at the publisher level, that when you put things server side they become opaque and the buyers just are getting bid requests with maybe IDs. They don't know where the IDs came from. There's no way to check. They're just IDs. They might be the synthetic IDs. So by having a client side you get the transparency and you lose it when it goes server side. What's your thought on that criticism?
- [18:14]
Mike O'Sullivan
You know, one thing we have to, one thing we are working on is, and we're surveying the industry and we're actually looking for contributions on this is how do we ensure integrity of what's happening server side? Because yeah, server side can be a black box. So that is something that we need to address to ensure that the buy side is comfortable with. You know, you could, you could easily ID spoof on the server side. You can easily impression on the server side. Right. For sure. That is a valid concern that we've had is like how do we ensure integrity of certain modules. We've got some suggestions. We don't have any resolution to that yet, but that is definitely something we need to work on before I think we can expect widespread adoption. But let's also kind of speak truth to power. It's not like being on the client side has created this great transparency ecosystem. I mean we can probably go through myriad scandals with in our ecosystem from a supply chain perspective. So it's not like client side is perfect. So I don't want to overstate, you know that oh, moving the server side is all black box. You know, we've had plenty of issues with everything being client side since the ecosystem.
- [19:19]
Ari Paparo
So kind of my last to close this out. Like who's this for? Are these. Is this for the massive publishers with big engineering teams or can you know, anyone who is currently participating in the AD ecosystem benefit from trusted server?
- [19:33]
Mike O'Sullivan
That's a great question. We've asked ourselves that same question multiple times. I think for initial launch. I mean look, we've had over 60 publishers globally reach out after the announcement and they range from, you know, massive comScore top 25 media companies to mid to long tail sites. You know, I think at inception, at launch it's going to be for the media companies that have technical, operations and engineering teams at launch. Moving forward. Our vision for this was, you know, if you are smaller to mid size publisher either you can partner with your SSP on this and they can manage it for you. So it would still be hosted on perhaps your edge or your cloud deployment, but your SSP partner can effectively act as a general contractor to manage that. Or you know, the other interesting thing is, you know, if you think of the Raptives, the freestars, the media vines of the world where they've got, you know, an extensive mid and long tail publisher base, the ability for them to operate this on behalf of their publishers could really be a compelling kind of value they could bring to those pubs. And the ability then also the beauty of, of the trusted server we've thought about is like putting identity at the server side. The publisher has total control of how they want to federate that right. So there's also, you know, it mitigates some data leakage issues. Whereas if you're working again if you are a raptive, freestar, mediavine, one of those, if you want to create this kind of run of raptive or this run of freestar, this run of mediavine and have a persistent identifier across all of those sites again with your clients, your clients AKA your publisher's permission, I think that could be really powerful for that mid and long tail where again they don't have the resources to run something like this. But a wrap does sure.
- [21:19]
Ari Paparo
So well this all gets solved if Jeff Bezos buys Chrome or anyone with a commercial mind buys Chrome. Just don't let Chrome fall into the hands of the privacy fanatics. It's like my rallying call, we got to liberate Chrome.
- [21:33]
Mike O'Sullivan
We have to find a realistic balance between consumer privacy and ad utility. And I think we have skewed heavily towards consumer privacy and that I don't think that's necessarily a bad thing. I think the regulations that we're dealing with were wake up calls to the ecosystem, which is a good thing. I think we have over indexed resulting in sacrificing advertising utility. And look, the open web is not in a great state right now. They're dealing with a lot of issues, whether it's the rise of LLMs and traffic declines or you know, these privacy solutions that are degrading signal to the web and buyers pull dollars when they can't get good signal. This is a mechanism to create that fallback solution for media companies.
- [22:18]
Ari Paparo
Sounds great. All right, so how do people get involved? Just download Trusted Server and start fooling around with it.
- [22:23]
Mike O'Sullivan
You can go to the IB Tech Lab and just go to the trusted server. It's right on the homepage, the Trusted server link. You can't miss it. It's a big graphic on the homepage and you can either it'll take you to overview the trusted Server. You can read the GitHub and you can also drop us an email. Any publishers that are interested, reach out to me, reach out to the tech lab and we'll get you on. We'll get you on the task force.
- [22:42]
Ari Paparo
Awesome. Okay, we'll be back in a moment with the refresh. News of the Week. This podcast is brought to you by audiohook, the leading independent audio dsp. Audio Hook has direct publisher integrations into all major podcast and streaming radio platforms, providing 40% more inventory than what could be accessed in omnichannel DSPs. What's more, audiobook has full transcripts on more than 90% of all podcast inventory, enabling advanced contextual targeting and brand suitability. Audio Hook is so confident that in addition to CPM buys, they offer the industry's only pay for performance option where brands can scale audio and podcasting with peace of mind knowing they are only paying for outcomes. Visit audiohook.com to learn more. That's audiohook.com.
- [23:30]
Tony Katzer
All right, everybody. And we're back. Welcome to the refresh. So got a couple of cool things to talk about this week. So we'll touch on the WPP acquisition of Infosum, which was last week but we missed it with our recording. And then we've got a couple of big ad tech product announcements and a Couple of big retail media announcements. But before we get into it, do we have to talk about tariffs?
- [23:52]
Ari Paparo
I think we do. I mean it's, it's more important than everything else we're talking about.
- [23:57]
Tony Katzer
I guess so. But it's just been such a whipsaw, right? Like, I mean, just as an example. So it's the beginning of a new quarter. So I do like this, you know, quarterly Update for apariums, LPs and I, and I write, you know, this, this letter on the, on the, on the quarter that was, and I had to like rewrite the tariff section three different times. And then as of yesterday I'm like, I should take this thing out. It's the 90 day reprieve. I don't know what to do.
- [24:20]
Ari Paparo
I don't know what's going on.
- [24:21]
Tony Katzer
Ari.
- [24:22]
Ari Paparo
I was going to try to buy a sewing machine so I could start like making my own socks, but the sewing mach machines are too expensive because they come from China. And so I'll just be unemployed.
- [24:31]
Tony Katzer
So the. Go ahead.
- [24:33]
Ari Paparo
I, I don't know. I, I just know that, you know, if the economy goes down, advertising goes down, advertising goes down, they're not going to advertise on the market podcast and I'm just, of course, you know, it's going to be bad for everybody.
- [24:46]
Tony Katzer
It's going to be bad for everybody. As of yesterday, so recording this on Thursday, April 10th, as of yesterday, the summary is, you know, there's a 90 day pause on all tariffs with the exception of China, who has a 125% tariff rate.
- [25:03]
Ari Paparo
That seems bad.
- [25:04]
Tony Katzer
Yeah. What does that mean? What is, what is the implications for China having this massive tariff? And let's assume the other stuff gets worked out with negotiations and there's somewhat of a trade war between the US and China. What implications does this have on advertising?
- [25:21]
Ari Paparo
It means that prices of goods are going to go up quite a bit, especially certain categories like apparel and lower end electronics and appliances. And as a result, when prices go up, demand will go down. So you will have reductions in revenue from many, many companies different by sector, and that will mean less advertising and likely a recession because when demand goes down, the economy goes into recession. The belief of the administration that this will cause a giant manufact boom, even if you believe that to be true, would take years. And it's unclear where we get the steel to build these factories since they're from China. So there's no way to sugarcoat that this is a good idea or a good plan. Or maybe it's A good idea with a bad plan, but it's certainly in the short term going to cause a lot of economic pain.
- [26:10]
Mike O'Sullivan
Yeah, supply chains take decades to move, so it's not like we're going to move manufacturing back to the US anytime soon. I think beyond just the Chinese trade war, I think just the seat, the whip song of the markets and the unpredictability that is Trump, I think, is going to force us to a recession anyway. Markets like predictability. And this is without a doubt the most unpredictable administration the United States has seen in over 100 years, if not longer. So no one knows what he's going to do next. So who knows what tariff bomb he drops next week. We don't know. And I think while there was some recovery in the markets, I'm with Ari. I think even if, even if the trade wars are put to rest in relatively short order, this is an unpredictable administration. Markets don't like that, consumers don't like that. So I think no matter what, you're going to see a consumer pullback in terms of discretionary spending.
- [26:58]
Ari Paparo
Yeah. I mean, I think it's also interesting you can do a little bit of an analysis on the big tech giants and who it hurts the most. Apple, clearly most of the manufacturing in China. That's a real problem for Apple. Amazon, so much of its goods are made in China. Maybe that shifts a bit because a lot of it are knockoff goods and things like that. So maybe it shifts, but. But it's really bad. I think the one winner from this week is automotive because they were really going to get devastated by Canada and Mexico tariffs. And relieving the pressure on that probably helps them quite a bit versus the outlook from earlier this week.
- [27:36]
Tony Katzer
Yeah, they were the first stocks to just absolutely RIP once the announcement came out in the afternoon.
- [27:42]
Ari Paparo
I think the other thing to note is this is not a perception issue. So people are trying to spin it as Wall Street's panicking or the news media is doing this. And this is a reality issue where real businesses are changing their real plans not on perception, but on numbers and facts. And it's very hard to hide from that.
- [28:00]
Tony Katzer
We've covered the de minimis tariff exception previously, so looks like that one is real and it's going away and it's going to be squarely affecting Temu and Sheen. Yeah, yeah.
- [28:12]
Ari Paparo
Which then has a follow on effect of nuking Meta. So does it. Meta gets literally billions of dollars in advertising dollars from those companies. Our friend Eric Soofer did an interesting analysis which showed the. Well, he called it the trade deficit, which is how much more money does Meta make from APAC advertisers versus having time spent from APAC consumers. And he came up with a number. $12.2 billion a year in revenue. Is there APAC trade deficit for Meta? Not clear how much that is. China, but a lot.
- [28:45]
Tony Katzer
The other side of this, and we've talked about this before when we discussed de minimis, is if that goes away with Meta specifically having like millions of advertisers at this point, is there just demand that makes it up?
- [28:57]
Ari Paparo
Right. And also those companies in particular are moving warehouses to the US so they can ship these, you know, like a normal importer and pay tariffs on on bulk goods and then, and then distribute the small dollar items to consumers. But of course the price will go up.
- [29:13]
Tony Katzer
All right, let's move on. Hopefully we don't talk about tariffs every single week from here. M and A News WPP acquires infosum Quick question to you guys before we get into the details. Were you surprised or not surprised?
- [29:27]
Mike O'Sullivan
I would say I wasn't surprised. I mean, I think there is, you know, with Brian leaving, I mean, there was always a clear affection for the company and their capabilities. Also a company he's deeply familiar with. So who better to diligence it, right? You know, he knows the inner workings of the company better than anyone. And I think this speaks to me the need for holding companies to have greater control of data assets on behalf of their clients. Right. As we move to a more privacy centric world, you know, first party data is the new oil and that's not just on the sell side, that's also on the buy side. So I think the ability to manage that and sync that in a privacy first fashion with media partners, I think it's a powerful capability for holdcos to own.
- [30:12]
Tony Katzer
Makes sense. All right, what was your take? Were you surprised about this?
- [30:15]
Ari Paparo
Well, I'd kind of separated into two parts. You know, first is whether the Holdco should have been the buyer. And second was whether the clean room exits were where we thought they would be. And so holdco is the buyer. I think that speaks to the commodification of the technology. They're not buying this so that they can become a leader in clean rooms. Right. They're basically get the talent and some tech and make it available to their customers. So that lends itself to the second question, which is like what is the situation with clean rooms as a category? We're about a year out of Habu getting acquired by Liveramp, which was probably the High point for the category. I think that it's pretty clear that the juice wasn't worth the squeeze here. That adopting this new platform and putting either your media or your analysis or your partners through it was a big lift for a dubious benefit. And so I think that we can be very positive on pets and think there's a really important part of our conversation in advertising without thinking that a standalone clean room makes a ton of sense.
- [31:28]
Tony Katzer
Moving on. 2ad tech product announcements to note this week. So first is covered last week. Ari, again, epic write up. Worth us talking about this stuff the following week, which is the launch of Spotify's new ad exchange. So two things they're doing. So A enabling programmatic buying of audio video display via TTD DV360 and then b their ads manager will have gen AI tools to build creative and particularly around audio. I think this is super cool and it's a no brainer. So you've got a large platform with first party login data, you've got a variety of ad formats. So probably a lot to like here. And I thought it was interesting that. So, you know, Jeff Green rarely, you know, posts about something he promoted this. Michael Barrett never posts about anything he posted on this. So I thought that was, that was interesting. And then also this whole idea of audio, right, like does it feel a bit forced to you in, you know, trying to make digital audio a thing? And despite the fact that we're on a podcast and you know, this is a successful podcast business, you know, it's like, it seems like a market that is, you know, still kind of chugging along and waiting to be disrupted or transformed by digital.
- [32:46]
Ari Paparo
Well, there's a huge difference between time spent and ad spent. That's the first signal that audio is underutilized. With that said, Spotify has the challenge, which is that all the good customers pay for ad free. So their business model lends itself against having a big ad business. With that said, a lot of people do listen to it for free. So then you have the second problem which is that the advertisers generally don't have creative for audio and that's where they introduce the AI stuff. So it's an interesting market. I think also it's not develop the way people had hoped. People had kind of hoped it would develop like CTV or web with a lot of players and networks and stuff like that. But the reality is, especially for podcasts, there's really only three games in town. YouTube, Apple and Spotify. People like Iheart have a play, but they're pretty small compared to other media. So I think my analysis of this is Spotify's kind of taken the complex strategy and put it on the shelf and they're going with the much simpler strategy which is let's make money, let's just ramp up monetization on our owned and operated people. Listen to it, let's get the best ads through the best channels possible and see what we could do.
- [34:03]
Mike O'Sullivan
It's a first launch. I also think what's interesting about the AI, the AI generated audio Creative. There could be an SMB play here, right? Because a lot of SMBs don't necessarily have the audio creative. So great. We can create the actual audio ad for you. And if you look at radio, the precursor to digital audio, like the bulk of that advertising is local advertising. And let's not, let's not underestimate the billions of dollars that are spent by small business owners in the US every year on radio spots. So that's something that they could certainly chip away at. I think that's why the audio AI capability is there.
- [34:41]
Ari Paparo
For those who do not know, like terrestrial radio stations had production teams. So the way the local advertisers get on local radio is they produce the ads for you. You with all the foley noises and the, and the corny jokes and stuff like that.
- [34:56]
Tony Katzer
I pulled some stats just to illustrate how this is still such a traditional market. So the audio ad market in the US or globally, I'm sorry, is going to be a $40 billion market this year. Traditional is 28.5 billion of that. This might be the only channel that's still got that, you know, kind of discrepancy between, between traditional and Digital and in US is a big part of that. US is 20 billion of the 40 billion. And maybe some of this just kind of like thinking out loud with you guys is there's just so many cars on the road that you know, are models that don't have the upgraded CarPlay. And you know, Google's equivalent, let alone like Bluetooth. Bluetooth really was really only enabled in the kind of mid 2010s. So that might be a factor here and that there's just like a lot of cars on the road and that's where a lot of people listen to their audio. And it just might be like a chug along type of upgrade cycle and not too much that Spotify and partners can do to really pull it forward into the future. I don't know.
- [35:58]
Ari Paparo
We have a brief window between when people listen to digital radio in their car and when the car goes self driving so they could watch digital video. So the audio people need to pop into that two or three year window and make as much money as possible.
- [36:11]
Tony Katzer
I think Tony's point is right on though. You know, this could be the way that the SMBs end up, you know, kind of grabbing onto, onto digital. Cool stuff. Let's talk about ttd. So TTD had a big announcement. They are now. Are they paying for the distribution of the TVOs Ventura or are they giving it away and running it at break even? How did you interpret this one, Ari?
- [36:38]
Ari Paparo
Well, it wasn't an announcement, it was a scoop by Adweek. Adweek basically said that the OEMs are going to keep the bulk of the ad revenue from their devices. So you use the Trade Desk's Ventura operating system and you're going to get a whole bunch of ad revenue that you don't get currently because it enforces UID 2 on all the apps. It's unclear exactly how this would work. Would Trade Desk then pay them back for all of the spend they make or something. But effectively it's putting a finger on the scale and putting most of the revenue towards the OEMs. When this first came out, when Ventura first came out, I wrote an article kind of estimating how much money was available to the OEMs from each install. I had thought that Tradesk would probably do upfront payments or some kind. So I'm not really surprised by this news. We still don't have any news of any OEMs who are moving forward with it though.
- [37:35]
Mike O'Sullivan
It read to me that they were going to share the lion's share of the revenue made from any OEM partnership. You know, there was nothing, there was nothing that I read there that indicated any sort of upfront or guaranteed revenue. Look, I think game on. Let's see if an OEM bites. I mean, it's not traditionally how the OS vendors get on a set, right? I mean there's. They usually pay to play like this. They, you know, either to get on the set and they even pay even more to get on your remote. So it's a non traditional approach. We'll see if an OEM bites.
- [38:09]
Ari Paparo
There's actually a more interesting story about Ventura that has not been reported, which is that the Ventura contract with app creators requires them to use UID2. So if they're not budging on that, if that really is a requirement to be on this operating system, then they're selling an operating system without YouTube and Netflix, which is a Little bit difficult. I'm not really clear what OEMs are going to adopt an operating system that is incompatible with Netflix and YouTube.
- [38:41]
Tony Katzer
Oh, that's like a. That's DOA basically.
- [38:45]
Ari Paparo
You said it, not me.
- [38:46]
Mike O'Sullivan
Wow, that's a tough road to haul.
- [38:50]
Ari Paparo
I've heard this. It's one of those things where I've heard it from a reliable source, but I haven't been able to kind of double check and turn it into news I can stand behind. But it's an interesting way to think about this problem.
- [39:01]
Tony Katzer
Okay, let's look at it from another perspective. Let's say this is successful and they get wide adoption by the operating systems because they can just build a great ad business where there was none from the lss. What do you think TTD does over time? Do they just keep this and this becomes the way that UID gets distributed and they have a locked in inventory footprint? Or do you think at some point they start to change the economic model because they're there and they now have some entrenched technology? What do you think the long term play is here?
- [39:34]
Ari Paparo
Well, long term you would expect them to get more negotiating power against the TV OEMs because the OEMs are sort of interchangeable in a very competitive market. So if it got to the point where this was a proven business model, that installing Ventura gave you more revenue and they're paying, the balance of power would shift to trade desk over time and they'd be able to reduce those payments. They obviously have to pay more because they're trying to disrupt the industry.
- [40:02]
Tony Katzer
Makes sense. Okay, we'll keep an eye on it. One more product thing I thought was interesting we should touch on before we talk about some of the things happening in retail media. So if you guys saw this announcement from Disney a couple days ago that they are, they're making live sports and entertainment biddable and then they're also enabling dynamic insertion for ads and live events on Disney. I think this is great. You know, like everybody talks about the best of TV being live sports, live entertainment, you know, that's not available programmatically at scale. I think this is super cool. Did you check this one out?
- [40:36]
Ari Paparo
I did not. I know the. I'm interested in Tony's point of view because the tech lab has been doing work on how to make live events biddable because it's kind of a pretty complicated problem, right?
- [40:47]
Mike O'Sullivan
No, I think it's exciting what Disney's doing. And look, this is where it's all headed, right? Live events, primarily sports is going to go to the streamers over the next 10 years. And I think Disney making kind of a bold push in. This is exciting. The challenge you run into is scaling live events, right? So the RTV protocol, think of it as it's this meta protocol that basically sits on top of HTTP, generates a lot of, you know, basically these big WAN calls you do run into scaling challenges with just the spiky nature of live events. So we are working on updates to the protocol and also some signaling around audience sizes that sits outside of our tv. But you know, supply can signal to demand like this is my audience, this is my audience profile and how it's spiking. So potentially the demand side can scale with those spikes. So I think that's going to be the biggest challenge is how do you scale the spiky nature of just live event traffic? Whether there's a touchdown or a home run or someone wins the tennis match and you have this massive surge of audience. That's the challenge inherently built into these big WAN calls. Now we are something we haven't shared wide, which I guess would be an architecture exclusive. Hey, now we're looking at some rearchitecture of how we approach RTB and moving perhaps to some containerized approach. And it's not just about moving sell side and demand side RTB players into container models, but if you can get those to operate within the same data center cloud edge infrastructure, now you're able to make RTB calls effectively over the data center or cloud local backplane. And now you don't have to make RTB calls over HTTP, which again socket connections have to remain open. File descriptors are locked up as you're waiting for these 400 millisecond kind of request response timelines, which sounds quick, but not when you've got massively scaled live events. You can move that to something like GRPC, which now you're looking at 10 to 20 millisecond request response times over that local backplane. So we're looking at something more deeper. So we are working on things at the RTB protocol level and some audience signaling levels. So demand side can anticipate scaling up and scaling down when there's a surge in audience. But we're also looking at just fundamentally the architecture of how RTB is deployed and therefore the communication protocols it can leverage that would be more efficient than today. So we haven't announced this really wide and large to the market. So Ari, Eric, this is a market exclusive. We call it containerized rtb and that's something that we, we just put together the task force on that. You're going to hear a lot more about this, I think over the next probably three months.
- [43:29]
Ari Paparo
Eric, I'm really interested in hearing your point of view on grpc.
- [43:33]
Tony Katzer
I have no comment on grpc.
- [43:36]
Ari Paparo
I do want to make one sort of strategic question about live events, which is the business model that developed RTB was largely around this assumption of sort of infinite supply and users moving around many websites and their identity being a key thing. And it feels like RTV is sort of inappropriate for watching a two hour sporting event where every single request is the exact same user and the exact same cookie. If you look at how those events are monetized on linear, there's a very limited number of advertisers. Like you see state farm ads 10 times during the same football game. It's not meant for spot buying. So I kind of wonder if like we're trying to put a round peg in a square hole here.
- [44:20]
Mike O'Sullivan
I do question the business of RTB in live events. Right. Historically these have been sold on big sponsorship deals. Like you're going to sponsor the super bowl, you're going to sponsor the World Cup. Right. I just wonder how much inventory or I think to your point, like how much inventory would really be available for a spot buy.
- [44:37]
Ari Paparo
Yeah. And how repetitive it would be.
- [44:39]
Tony Katzer
Yeah, yeah, no, I, I actually have, have a, an answer for this one. And coincidentally it involves the World Cup. So yesterday one of our portfolio companies at Imperium Transmit, who does like some pretty amazing stuff, they announced that FIFA was using their tech for, I think it's the Club World cup in 25 and the World cup in 26 for their, their fast channel. So apparently FIFA has a, has a fast channel and the audiences are enormous for this stuff obviously. So what Transmit enables and what I think FIFA is going to be doing is they will surely, you know, kind of be pre selling all of the traditional ads in the usual way. But you know, they look for moments where they can have like you know, a pre loaded ad based on all of the possible scenarios that can go on with a game. And when there's an interesting moment with like high engagement, high attention, they insert a new type of ad format. So there's a number of different ways you can do this part. The canonical one is like picture in picture where you know, you shrink down the content. You have you know, some sort of pre templated ad that happens. But FIFA's go along this, which I think is super interesting and again I think that's the answer to how you make this stuff work in a digital world. There's, you know, a bunch of data that gets used to scenario plan. What if Messi scores a goal? What if someone else scores a goal and had that ready to fire like trigger based targeting, which frankly we've been doing forever.
- [46:04]
Mike O'Sullivan
So. So the brand itself doesn't necessarily change, but it sounds like what you're talking about would be creative optimization in the moment powered by rtb because that's where you need the real time call like and you need some signal that there was just a goal scored and that's, that's where you could leverage. I, I guess you leverage RTB for that.
- [46:21]
Tony Katzer
Yeah, that's exactly how they're doing it. Go ahead, Corey.
- [46:24]
Ari Paparo
Yeah, it's interesting. And it also could help replace like the local cable insertion that currently takes place on a certain brakes. You can have something similar where those are spot bought because it's different pools of demand.
- [46:38]
Mike O'Sullivan
Well, that's also an interesting point you bring up, Ari, that I just thought of as you said that I think the disruption of a lot of the legacy television infrastructure as more things go to streaming. Right. And you can do things real time and you can do things at the edge. Like it's going to be interesting to see what happens to those software and hardware vendors as more things move to streaming.
- [46:58]
Ari Paparo
Yes, there's like a whole lumascape of companies you've never heard of that are involved in linear.
- [47:03]
Mike O'Sullivan
I mean just, I mean the nab was this week in, in Vegas and you go walk that comp. You know that that warehouse is filled with vendors that support all this stuff. And I see a future where not all those vendors will be needed.
- [47:16]
Tony Katzer
All right, let's move on. Let's talk about retail media a little bit before we, we call it a day. So another ad week scoop they're doing. They're doing well this week. Walmart is asking for 25 to 50% increases in retail media spend from their suppliers, allegedly, according to Adweek. So according to the article, the apparent ask is 20% these days in terms of like year over year spend increase, which makes sense based on the growth rate of retail media. But some of the brands that Adweek spoke to, they're balking at this because they're not seeing the performance from Walmart that, you know, justifies 25 to 50%. But given Walmart and the massive behemoth that they are in physical retail media, I think they've got like pretty good leverage to say the least. What do you guys say?
- [48:05]
Ari Paparo
How can you say no? I mean, you know, it's a tax. And, and brands have been saying this for a while, that the negotiations with Walmart and Amazon are just, you know, you have this amount of goods for this price. Oh, and by the way, you're also paying this 100% margin advertising tax and performance is discussed, but not a requirement for spending that amount of money.
- [48:26]
Mike O'Sullivan
I mean, I guess we could say brands are somewhat beholden to. But to demand just some arbitrary increase without, you know, the same performance on the other end, that's a pretty bold request.
- [48:37]
Ari Paparo
Let's tie this to tariffs for one second. There was a different story. There was a story this week that Albertsons had told all of its suppliers that it would not accept any price increases due to tariffs, which is interesting because then that. Talk about a rock and a hard place. If you're importing the goods and you're paying the tariffs, what does Albertsons expect? Exactly. So that's a pretty interesting economic situation.
- [49:06]
Tony Katzer
That's a challenge. Yeah, I'd love to hear Walmart's take on this because I would imagine that they're doing. Their retail media business is relatively nascent from a digital perspective. Like, you know, I also think they have an opportunity to, you know, do something or more or a lot to drive performance increases. So we don't, we don't know exactly what they're doing.
- [49:28]
Ari Paparo
Yeah, I think that they would like the ads to be performant. I don't think there's any doubt about that. Like, everyone wants the retail media ads to be performant. I think the issue is that the spend amount can be negotiated separately from the performance amount because of the disparity in power between the, the two parties.
- [49:46]
Tony Katzer
All right, one more on the retail media front. This one's a little bit of a head scratcher. So Uber Eats, who has, you know, a great advertising business as part of the overall Uber ads business, is partnering with Instacart, who is the main competitor to Uber Eats, to sell ads on the platform. So Instacart has this carrot ads platform that they use to, you know, sell to all of their advertisers. Apparently the tech is really good. Apparently they bring a bunch of CPG demand and they're going to be working with UberEats to monetize UberEats and give, give an audience and reach extension to their advertisers. So the interesting dynamic here, if we go below the surface, is that Instacart is replacing Critio for advertising on UberEats and it was very Intentional that on the press release they noted that Critio will keep the non US business. It's just the US is moving to Instacart. So there is a lot there, right?
- [50:44]
Ari Paparo
Yeah, that's a lot. So is Uber ads not doing grocery type ads anymore? They're only doing the sort of restaurant delivery type ads.
- [50:55]
Tony Katzer
What I read did not state whether or not they were handing over the keys to Instacart, but it kind of read that way. I'm sure somebody would reach out if there's a clarification needed.
- [51:05]
Ari Paparo
Doing individual SKUs is a really different business from doing, say, restaurant ordering and competing with doordash. So it's not surprising that those things can be decoupled and that maybe Uber Eats or Uber in general had never built their own SKU based system. It's news to me that Criteo had that business and it seems like a very interesting deal to shift that business that way.
- [51:28]
Mike O'Sullivan
Yeah.
- [51:28]
Tony Katzer
To your main competitor.
- [51:29]
Mike O'Sullivan
This may be an issue of just kind of analyzing your vertical gaps. Right. To Ari's point. Like I don't know if Uber Eats had a big grocery, you know, SKU level business where Instacart does. So this may be, you know, marriage of convenience. Let's cover off each other's kind of vertical gaps.
- [51:47]
Ari Paparo
Also in Uber news, it's also outside of our ad world. You know, Uber's got a pretty big partnership with Waymo at this point. Where recently Waymo launched in Austin, Texas. I think it's our third market. And there was a report that the adoption was much, much faster than it had been in the Bay Area or I guess Arizona. And part of that is attributed to the fact that it is exclusively repped by Uber. You don't need to download the Waymo app. So Uber is effectively hot swapping human drivers for robots without the capital investment. Fascinating company and fascinating partnership there.
- [52:25]
Tony Katzer
That makes a ton of sense.
- [52:26]
Mike O'Sullivan
Interesting.
- [52:27]
Tony Katzer
Yeah.
- [52:27]
Mike O'Sullivan
It's also the power of distribution. Right. Like you already have the Uber app, so Waymo just integrates into and be like, we can get you a self driver.
- [52:34]
Ari Paparo
Exactly. And we'll never get Waymo here in the Northeast because they can't handle snow. That's the, that's the real problem is.
- [52:41]
Tony Katzer
That, is that right?
- [52:43]
Ari Paparo
One of the big problems is that snow really confuses all the light everything. The lidar and the cameras can't deal with snow.
- [52:49]
Tony Katzer
Oh, that's fascinating. Maybe they roll them out for half the year and they ship them elsewhere for half the year just because there's so much density up here.
- [52:58]
Ari Paparo
We'll see. We'll see how the cranky New Yorkers feel about the self driving cars. It might be a little bit too much vandalism.
- [53:04]
Mike O'Sullivan
Do you have to pay congestion pricing if it's a self driving car?
- [53:07]
Ari Paparo
That's a good question.
- [53:10]
Tony Katzer
All right, so three cranky New Yorkers here giving their perspectives. I think that's a great time to call it a day. What do you think guys?
- [53:17]
Ari Paparo
Yeah, let's call it. This is a great conversation. Tony. Thanks for being here.
- [53:21]
Mike O'Sullivan
Always. Thank you for the invite. Ari, Eric, it's always a pleasure to be on here and chat with you guys.
- [53:25]
Tony Katzer
Thanks everybody. Thank you for subscribing to Market.
- [53:29]
Ari Paparo
New interviews are added every week at.
- [53:31]
Tony Katzer
Marketecture TV and your favorite podcasting app.
- [53:42]
Ari Paparo
Thank you for listening to the marketecture podcast. New episodes come out every Friday and an insightful vendor interview is published each Monday. You can subscribe to our live library of hundreds of executive interviews at marketecture tv. You can also sign up for free for our weekly newsletter with my original strategic insights on the week's news at News Market tv. And if you're feeling social, we operate a vibrant Slack community that you can apply to join@adtechgod.com.