Publishers are NOT Economically Irrational

By Amihai Ulman Last week we met with one of the self-proclaimed 'god fathers' of ad-tech to discuss our exchange. Like many of his kin, this technologist repeated an often-used derogatory accusation of publishers - "They're not economically rational."  Throughout the course of many meetings over the last two years I have heard this malarkey repeated behind closed doors with technologists that have been working to create value in ad-tech. I have long scratched my head at these statements, as they did not seem intuitively true. Now that I have taken the time to think these through, I'm ready to disprove this nonsense.

First, let's look at the management teams at these large publishers. Like all major firms, publishers seek smart management well versed in their ability to run businesses. Are there less Ivy league graduates in the management teams of the large publishers? do publishers have fewer MBA's among the ranks of their management teams? Do these management teams not hire the same McKinsey, BCG, Bain, or AT Kearny consultants? The obvious answers to these questions are just the first point in my argument that publishers are no different than other business leaders.

Now, lets look at the impacts of ad-tech sales technology in the last five years. In this conversation, the 'god father' did make a good point about how confusing the ad-tech landscape has been for publishers. On this point he is right, particularly because much of what has come about was sold using jargon that misrepresented reality. For example, contrary to all the 'exchanges' in ad-tech, none are actually exchanges. While all exchanges claim to enable transparency, none actually have real transparency. There are loads of these examples of ad-tech marketing folks making "stuff" up. Publishers have faced armies of sales people tossing about promises of better yield, more revenue,and more efficiency driven by this made up "stuff." Folks on the publisher side quickly adopted that old adage "Fool me once, shame on you. Fool me twice, shame on me."

Oddly, most of the promises made by ad-tech sales platforms  are true... this is where explaining reality gets a bit choppy. The claims made by these firms do generally improve the price of the inventory to which it was applied. The problem is that an explanation with made up "stuff" is much easier to use than the nuanced reality.  The publisher's reality is that the value created usually came at the great expense of other inventory. For example, the rise of the RTB environment increased the price of "remnant" inventory but only because buyers shifted from higher priced guaranteed inventory.  This is a perfect example of the ad-tech service providers being right in increasing the value, while the publisher's overall revenue gets crammed.


If a sales platform does not increase the number of buyers in the overall market, disintermediate another higher cost solution, or unlock value that competitor publishers do not have, a publisher's revenue will always drop. Don't get me wrong, I don't think ad-tech sales platforms are bad (I'm building one). This is how markets work. I am just making a point about the finger-wagging from some holier than thou 'god father.'

After the 'god father' made his statement, I asked "has ad tech been good for major publishers over the last five years?" an awkward silence followed. Then, a poorly constructed argument about how ad-tech benefited long tail publishers was shared. At that point, it became clear to me. Publishers act in a way that is economically rational across their whole portfolio. While some of the actions in isolation seem irrational, in the context of maximizing overall revenue they are rational.

I have come to the conclusion that the people who toss about this false notion that publishers are economically irrational, simply do not understand the nuances of the publishing business. They open their mouth, and in an attempt to prove how smart they are, show the world their foolishness. So, if you work for a publisher, hold your head up high, dust off your lapel, and go on running your business.