SpotXchange landed at the top of comScore's January, 2014 U.S. rankings with nearly 3.5 billion video ads viewed, up from 2.9 billion in December, 2013. I spoke to SpotXchange's CEO Mike Shehan to learn more about what was behind the rise and get his overall take on the video advertising landscape and programmatic. Mike patiently shared an extremely detailed window into this quite complicated market. An edited transcript follows.

VideoNuze: In a blog post you said that programmatic ad revenue in January was approximately 6x larger than in January, 2013. Explain what drove this.

Mike Shehan: Three things drove this.  First, the number of auctions, which represents the number of ad opportunities supplied by publishers to advertisers, skyrocketed throughout the year. In fact, from December, 2013 to January, 2014, we went from an average of 500M auctions per day to over 1B, even reaching 1.5B on some days.  Supply grew due to widespread adoption of the SpotXchange platform, which allows publishers to create a unified auction with their direct and non-guaranteed video ad campaigns.  

Second, we’ve activated a significant amount of new DSPs, who are experiencing explosive growth in customers and the amount of media dollars they are managing.  We’re really impressed by how well the DSPs are getting brands and agencies to move dollars over to programmatic.  

And third, we are seeing a dramatic increase in buyers doing deals directly with publishers via programmatic means.  These deals are either auction-based in a private exchange or guaranteed, fixed priced deals, which is a great development to see.
 
VideoNuze: How is SpotXchange evolving its model and deepening its relationships with video publishers?
 
MS: As you know, we launched the world’s first video ad exchange in 2007.  Yes, we were early to market, but in doing so, we were able to establish relationships with hundreds of publishers as their platform for monetizing unsold inventory.  In the middle of last year, we rolled out our ad serving platform, which allowed SpotXchange to become more than just a demand source to publishers. With the SpotXchange platform, publishers are empowered to manage all their demand sources in one place.  The impact to our business and our relationships with publishers has been transformational for the company.  
 
VideoNuze: Talk more about "Programmatic Direct" - what does it mean to you and how does this work relative to direct sales?
 
MS: There are a lot of definitions of Programmatic Direct out there, but it’s simply where buyers and sellers work directly together, rather than transact through an open marketplaces, using a programmatic infrastructure to execute the deal.  Programmatic direct inventory can be auctioned off and unreserved (e.g. - provide a first look opportunity to an agency trading desk), or provide a guaranteed amount of impressions at a fixed price.  

Interestingly enough, programmatic direct deals are being initiated by the advertisers, who want more control over their campaigns such as managing global frequency caps, using their own 1st and 3rd party data, and empowering them to optimize towards placements that generate a greater return on their investment.  However, this presents serious challenges and risks for publishers that utilize traditional ad servers that are not enabled with programmatic technologies.  

VideoNuze: Explain more.

MS: Traditional ad servers must daisy chain ad calls and 3rd party tags, which then creates latency, data leakage, transparency, and yield optimization issues.  Advertisers that are seeking to execute programmatic direct campaigns are now suggesting to publishers that they utilize a platform like SpotXchange.  And in doing so, publishers can transact programmatically, and eliminate issues associated with daisy chaining 3rd party tags that opt out.  Conversely, it allows advertisers to get what they want, while allowing publishers to protect their interests and maximize their yield.
 
VideoNuze: What's your overall take on programmatic - what are the key opportunities and challenges?
 
MS: Programmatic’s promise is to create efficiencies and accountability for both buyers and sellers. However, in the effort to deliver on this, we’ve introduced a lot of different players into the ecosystem - DMPs, DSPs, SSPs, audience verification, etc.  So it’s confusing and more onerous than proponents of programmatic envisioned. That’s changing as more DSPs and SSPs work together to standardize the buying and selling of media.  Buying in an open marketplace is extremely efficient.  At some point, transactions directly between buyers and sellers will be just as efficient, and one day, programmatic direct will be as commonplace as the IO is today.
 
VideoNuze: There are lots of companies pursuing programmatic - how is SpotXchange differentiating itself?
 
MS: Of course it’s not any one thing.  It’s a combination of great people who are passionate about providing the best possible value to our customers, great technology, shifts in market behavior, and execution.  

That said, we are convinced that both buyers and sellers want transparency and absolute control to protect their interests and maximize their opportunities.  This is especially important for publishers who have direct sales teams. SpotXchange is different in that we provide transparency at an unprecedented level, allowing publishers to monitor buying behavior and action against this information. 

For example, our platform provides publishers with detailed information about buyer errors and behaviors that cause lost revenue and poor user experiences when video ads aren’t served.  SpotXchange helps publishers identify VPAID and VAST opt-outs and other technical errors that not only cause latency for viewers, but also push down conversion rates and result in failed monetization opportunities.  No one else is doing that, and we believe that armed with these insights, publishers can renegotiate deals with their demand partners and fix issues that are keeping them from fully optimizing their yield.  We’re finding publishers are gravitating heavily towards this overarching transparency philosophy, and we’ll continue to lead the effort to build capabilities that help publishers maximize their revenue every day.

VideoNuze: Thanks Mike and congrats.