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The Trade Desk: One-on-One CEO Interview

The Trade Desk: One-on-One CEO Interview

Trade Desk: One-on-One CEO Interview

Date Published:

Written by Tiernan Ray and Ophir Gottlieb


The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.

Hello, all. This is Ophir writing. This is a snippet from a CML Pro dossier.

LEDE At the 2019 Consumer Electronics Show (CES), we had the opportunity to meet for nearly a full hour with the CEO Spotlight Top Pick, The Trade Desk (TTD).

We will not review the bullish thesis in this dossier, as that is well presented in our Top Pick Dossier: The Pick-Axe to Technology's Crown Jewel.

This interview is quite lengthy. Tiernan did a fabulous job with this and I do recommend a full read, even it takes two bites. CEO Jeff Green references Koa, The Trade Desk's artificial intelligence platform, and we have a separate dossier on that subject for those interested. Buckle Up, The Trade Desk May Be Having Its iPhone Moment, Right Now

The remaining portion of this dossier is from Tiernan.

The Trade Desk
The Trade Desk (TTD) turns ten years old this year, and the chief executive of the ad broker, Jeff Green, sat down with Capital Market Laboratories to discuss how his industry is changing and what his top priorities are.

The huge shift to online viewing of video means that advertising within streaming content is an opportunity for growth for the company for years to come. So-called "connected TV" is the hottest thing in media today, avers Green.

And streaming, Green contends, needs ads because it's got to find a way to recoup the spiraling cost of producing content.

"If you're CBS, and your content is more expensive than ever, you need programmatic [ad sales] in order to get higher CPMs (cost per thousand, the average price of an ad] to pay for it," says Green.

"And if you're a consumer, you're saying, I would rather see ads than pay another $9.95 to avoid or to just increase my overall TV bill to $200 plus [per month]."

Green talked at length about the economics of the streaming business. He also discussed how his company is a hedge for his clients, the ad buyers, against a world dominated by Google and Facebook. And he described how artificial intelligence technology was instrumental in allowing Trade Desk to make its financial numbers last year.

Jeff Green, CEO The Trade Desk

Jeff Green: I'd like to talk about what I don't think most people know about us. You know, aside from the fact that our stock has gone up a few hundred percentage points since going public.

CML: You'd think they would have noticed that...

JG: I do think that a lot of people on Wall Street noticed that, but they don't really know the story behind it, and the way that I would summarize that story is, Google and Facebook are responsible for monetizing Google properties and Facebook properties, and The Trade Desk is really helping buyers figure out what to buy on the rest of the Internet.

And it's kind of silly to think that the Internet is just two places. Especially as television is moving over to the Internet, the amount of fragmentation creates the need for somebody to objectively and holistically buy across that entire landscape without owning any media. So to me the story is that Google and Facebook have become media companies. And enough so that companies like --

CML: They're no longer pointing you as much to other things.

JG: Yes. And that is why, when Disney asked Sheryl Sandberg and Jack Dorsey to resign from their board 12 months ago, they essentially said, hey we compete with them as media companies. While we, at The Trade Desk, don't own any media. And so part of our success is just a pure play on helping buyers figure out what to buy across the rest of the Internet which is, I think, a key part of our success, because we are something of a hedge to the Facebooks and Googles --

CML: For investors...

JG: For investors -

CML: Right. And for your clients to an extent...

JG: Exactly, exactly.

CML: What are your priorities for this year?

JG: So, the single biggest thing for us this year is connected TV. Connected TV is the most interesting thing happening in new media from my perspective. You know, I think the most bullish number we've ever shared with Wall Street came last year when we said that connected TV spend increased by 21x, year over year from Q1 2017 to Q1 2018.

CML: 21 times, not 21%?

JG: 21x. And then Connected TV spend on our platform more than doubled from Q1 to Q2 of 2018. That trend line has moved connected TV into material numbers. And if you just extrapolate that growth you know what I have been saying now for years, connected TV is the most important channel we've ever touched and probably will ever touch. And it's a really important time.

CML: Okay, and so there's that phenomenon, but how do you prioritize things?

JG: When there's lots of concentration, there isn't as much need for technology to figure out how to decipher between one media provider and another. So take search where --

CML: The big three TV networks back in the day.

JG: Or TV, yeah, TV in the 1970s. But if you take search, where Google has 75 percent market share, or 80, and Yahoo basically has the rest. Then if you're Marin or Kenshoo, where you're a tool to help people buy and you can't really layer on any other data and you're basically optimizing between two places, your average buyer's just going to say you know, I'll just log in directly to Google -

CML: Get a script to do it -

JG:Yeah, exactly. But if instead you're trying to layer lots of data and there are thousands of or millions of inventory sources that are all fragmented, then logging into all of them, and then not measuring holistically, is the kiss of death. So because connected TV is so fragmented - I mean, there are just so many places to get inventory or content from.

CML: Right, but I mean, it's not millions of -

JG: That's right, but hundreds.

CML: It's somewhere more than two.

JG: And especially when you include MVPDs, and virtual MVPDs, and then you also include content owners. Nearly all content owners, especially those outside of the skinny bundles, are trying to develop relationships direct with consumers.

So where five years ago, Discovery Channel was totally dependent on the MVPDs to distribute, now they're trying to get a relationship direct with consumers. Disney is doing exactly the same thing. They weren't in that business before. They said we have to be in this business. They've spent significant dollars to get in it.

CML: So, they're breaking out of the funnel.

JG:Yeah. So they want to go direct to consumers and learn from the Netflix playbook. And when they say, hey I want to go direct to consumers that means that they have to be in charge of some amount of their monetization, and that means that the world is fragmented and they need somebody that aggregates demand, which is what we do, and then help marketers choose in a data-driven way what media to buy.

CML: So, there is a lot more sellers going to market, and there is more activity in consumers switching to it. When you talked about 21x last year (Q1 2017 to Q1 2018), which was the driving force, was it consumption, was it sales of available inventory, was it the buyers?

JG: Yes, so I would summarize it with this narrative, which is, two years ago, about 70 percent of America had Netflix and about 70 percent of America still had cable so the bulk of people are using both. And then, with prices going up for Netflix, and prices going up on cable, without adding any channels, the average consumer is tapped out on how much they can pay for their TV experience.

Even though content is at the top of its game, so is the cost to the consumer. So when somebody like Hulu comes along- Hulu did a good job of understanding the landscape, which is, if we offer something free but with ads or, we give them the choice to pay more to get rid of them, or get rid of much of them, what do consumers do? 80 percent of consumers said, Show me the ads.

So what's happened is as on-demand is so obviously preferred by consumers, and content creators because of their cost of content, content owners said, Hey, we have to make this available online, we have to get the incremental revenue from online. Now as they publish that they're saying, wow, an ad-funded experience is a more sure way to monetize my content. And because CPMs are high, because they're data driven for the first time in TV, meaning, that instead of the guessing or the spray and pray that has been television advertising in the past.

Now, it's data driven, that advantage more than accounts for the increase in cost. So everybody wins. So if you're CBS, and your content is more expensive than ever, you need programmatic in order to get higher CPMs to pay for it. And if you're a consumer you're saying, I would rather see ads than pay another $9.95 to avoid them or further increase my overall TV bill to $200 plus [per month].

CML: So it's really this movement of, a form of what had been the monetization in broadcast into this new domain. And the movement of more, more inventory into that to domain.

JG: Exactly.

CML: As the buyers are responding to that, as they see it, it wasn't just that the content owners and the subscribers said, this works for us. Buyers stepped up.

JG: Yeah, it's all of those. And the thing that is I think especially unique about connected TV, or just TV in general, is that you know, programmatic, ten years ago, really cut its teeth on display advertising. And that was really driven by advertisers saying we want to buy this way because data driven is better. Advertisers were demanding it. And of course, advertisers want that in TV as well.

But I think the biggest movement and the fact that this channel is migrating so quickly is because of consumers, so this is the first channel where it feels like it's really consumer driven, where consumers are saying on demand content is better. I want that. And the only way to do that really well is over the Internet. With that comes the ability to do data driven programmatic advertising.

CML: What do you do this year to take advantage of this phenomenon?

JG: So the biggest thing is we continue partnering with all of the biggest media companies in the world. Providing access to the content that they're bringing online and then making certain that we help brands see the increasing value in TV. They already know it, roughly half the pie already goes in that direction anyway. But to see the incremental benefits of measuring TV in a way that you never could before.

CML: If you're a consumer brand, you cannot afford on some level not to have some spend here, but how do you know how much you're supposed to be trying out if you're a brand, at this point? To see what that incremental ROI is?

JG:So, I think that there is almost no big brand in the world who can afford not to. And there is this phenomenon that is pretty widespread about what I call the missing generation, which is that when I was a kid there were five TV channels.

You know, I'm dating myself, but there were times that I changed the TV by turning the dial, and it never even occurred to me that there wouldn't be commercials. When I watched Saturday morning cartoons, which I had to get up early to watch, instead of just whenever I wanted --

CML: Yes, childhood deprivation.

JG: Yes, that's right, exactly. And learning to wait, the nerve! But we did, we learned to wait. And, it was there that my preferences on what breakfast cereals I would eat were influenced, in those commercials. It's inside of that sacred Saturday morning that arguably McDonald's did its greatest work, right?

But you fast forward to my kids and they watch a hundred percent of their TV on demand. They don't know how to use the linear TV tools. They do everything on demand. And so if you are a brand, like - Cheerio's won my heart on linear television, what is their avenue to do that for my kids? And they do, they have to, embrace connected TV in order to avoid losing the next generation.

CML: So, what hope is there for them to do?

JG: So, because of that 21X, because all content is racing to get online so they can be on demand and make those higher CPMs, the last 12 months has provided a real opportunity for brands to solve their missing generation problem. All of the tools are there, now the only real barrier is just keeping up with the pace of change, whether that's from the technology, from the targeting capabilities, or just the landscape itself, like content that wasn't available 12 months ago.

And if you went to your Roku four years ago and thought I don't really like any of the other channels beyond Amazon and Netflix, there's a whole bunch of channels that have great content now, so much has changed in that time.

CML: And still there's appointment television, it hasn't gone away.

JG: Yeah, yeah. Sort of continues to decrease, but yeah.

CML: Let's talk generally about this issue of cost. That implies something generally for yourself, your partners, your customers everyone in this field. What is the right way for everyone to adapt to the fact that that costs are high and probably going higher.

JG: So as content costs for TV go up, there is no way to offset that without data driven ad offerings. So it doesn't mean that there won't be ad free options available from nearly everything. I do believe eventually Netflix has to provide an ad offering. In other words, let me offset some of the costs of all this content by letting you see ads, and I, Netflix, will create a great ad experience, so that you can pay 10 bucks instead of 20 bucks, or five bucks instead of 20 bucks, and then supplement it with ads.

I think that many content owners including Netflix will need to offer that. However, the majority of consumers will say show me some amount of ads, because I would rather do that than pay more money.

CML: You have to expand the pie, is the way to deal with this cost issue, you have to bring in a class of consumer perhaps that's not going to go for -

JG: Exactly, and you need CPMs to go up, so if essentially the cost per view of your content is going up, where it's like, Okay the price per episode in Breaking Bad is higher than it was for Mash, but a hundred million people watched the season finale of MASH and six million people watch the season finale of Breaking Bad, so the per episode cost is way more for Breaking Bad.

There's no way to make that math work other than to make the price of the ads go up and there's no way to justify that without more relevance. And data and programmatic are the only hope for TV in a world where the content costs are at an all time high.

CML: This is I think I began to ask you about cannibalization here and, again, for the specific parties like Roku, but broadly speaking, there's been reports that you know there is increasing competition by VC backed startups in the digital ad market, like things are heating up. Then there's also talk of, like I've heard of Google and Facebook canceling holiday parties because there were not ad sales targets met.

So I'm trying to figure out, for the traditional, the non-streaming-TV ad market, digital ad market, is there, what's going on there, is streaming media eating into that streaming ads, is programmatic having a hard time online? Are these startups affecting things, I'm trying to figure out with all these things, what do all the moving parts mean?

JG: So let me let me speak at a higher level without talking about The Trade Desk specifically. In broad strokes, I don't think that the startups in the ad space are moving the needle much. So there was a lot of investment in ad tech 10 years ago, and I think there's, we're more in a period of consolidation than like, investments and innovation.

CML: Oh, there was the rocket fuel era.

JG: Yeah.

CML: We're past that.

JG: That's right. That's exactly right. It doesn't mean that there are - I mean there's still tons of innovation coming from companies like ours, but they are companies that have been around for a while. That's where all the real innovation is being done.

CML: Startups, you are saying, are not as much of a factor pushing the needle, but it seems like big companies, we're worried, are missing targets. Does that say something about online, if you leave aside streaming TV?

JG: The 2017 numbers for Facebook included about 40 percent growth. When you're that big, and you put up numbers that huge, that's one of the greatest accomplishments on Wall Street, ever. Having those growth rates and being that big, is just super impressive.

So in 2018 you have a bunch of mistakes that they made in privacy. You have to testify in front of Congress. Then a bunch of users fall out of love with a company that only 18 months ago could do no wrong with Wall Street or consumers. And now they seem to be in the penalty box with them. And the government.

And then it's also at the time when after you put up numbers like they did, it's just really hard to do it again just because of the scale. I think people look at all of those things and think, Oh that's a commentary on the macro market. I don't think it is. I think it's a commentary on just one company getting really big. And then also one company making a few big mistakes. So I think that the Internet continues to grow rapidly.

CML: Is connected TV taking some share away from other parts of digital? Is it still early days for there to be an impact that's measurable?

JG: It is true that connected TV is taking some share away from other parts of digital, but it's still early days. But there is an impact, small but it is an impact.

CML: Do you expect it to be much larger in years to come?

JG: Yes.

CML: This year it will be bigger than maybe all the other years put together. This is why we started out talking about this, this is where some priorities are shifting -

JG: Exactly.

CML: For sellers and buyers.

JG: That's right. And so, if you're a buyer who is looking for a broad strategy - so, it's not that you don't want to spend on Google or Facebook, it's that you want reach. There are more alternatives than ever, and connected TV is the most enticing one arguably ever.

CML: You made a good case the top of this for why it's helpful to your business what goes on with companies that become media companies. Do you have any concern that they also have such control that they lock out of you and your customers from their platforms and say it's our content, it's our money? You know, forget it we don't need you.

JG: You mean Google?

CML: Yeah, Google, Facebook, as they morph, they say now, right, as you say, where it's the walled garden. Is there any concern about that effect?

JG: We haven't bought on Facebook for years. We do buy on Google but we buy almost no YouTube.

So for the most part our pitch is, if you want to buy Facebook, go to Facebook, if you want to buy Google or YouTube, go to Google. If you want to buy the rest of the Internet, come to us. And so, the fact that the rest of the Internet is growing so rapidly, and that's where all all the non user generated content (UGC) video is.

People often forget that much of Facebook is user generated content. And the majority of content on YouTube is user generated content. The rest of the premium content is monetized elsewhere.

CML: And they had said things that would imply they would have more professional content over time, but it doesn't seem like that has materialized.

JG: Yeah, I remember a conversation with some senior people at YouTube, I think it was last year, maybe it was the end of 2017, but they were just saying, we think UGC will always be the core of who we are and what we do. It doesn't mean that we don't want more premium content to supplement, create stickiness and increase the compelling nature of our offer. But it will never be the core because there are just so many people who create something and put it on YouTube.

CML: I would imagine for people who are investing to go back to that discussion of economics, at some point they need what you do or they need the market to be efficient. Otherwise where's all this spending going?

JG: Exactly.

CML: Because there's a limit to what you can, what valuable inventory you can generate if there's no mechanism to sell it.

JG: That's right. I mean you can't log into a thousand platforms and you can't then coordinate the aggregation of all that data so that you know if you made good choices or not. And that process of figuring out which ads were successful and which were not without wasting money - I mean, that's the reason we went public because we believe that our business can and should be around for 100 years plus. Because it's a new era where data driven is the only way to stay competitive.

CML: Should we think about connected TV, streaming TV, non-traditional video, is that the most important thing over the next couple of years for the company.

JG: Yes.

CML: From a growth perspective?

JG: Yes, absolutely. And the other thing that I would add to it is international growth. I look at it from a standpoint of global advertising is over 700 billion dollars. It will be a trillion dollars in about eight years.

That pie today is, basically, two thirds of it is outside North America. Advertising roughly grows at twice the pace of GDP. So it is the fuel for economic growth. And if you look at where economists believe all the GDP growth in the world is going to come from over the next decade, with China taking roughly 12 percent of its population currently in the middle class to 70 percent by 2030, and Indonesia with numbers that look not that dissimilar from that, as you look across Asia - I think we're currently seeing the largest ascension of the middle class in the history of the world. And it's just an amazing time to be a part of that. And that's something that we think we fuel and enable. And it's an opportunity for us.

CML: There's a whole category of trying to reach those individuals that hadn't existed.

JG: Exactly.

CML: That had no access to material goods.

JG: Exactly. And there's something about it that's really beautiful in the sense that, when people choose a car or a laundry detergent for the very first time. You know, so much of CPG's work in the U.S. is trying to get you to switch brands, where instead, in those markets it's often trying to get people to choose you first. And it's an exciting -

CML: Starting again from the ground floor -

JG: Exactly.

CML: In the time we have remaining, you need to wrap up shortly what is a machine to you does it the rise of executive interest or concern.

CML: What does AI mean to you, does it rise to the executive level for you as a concern or an area of interest?

JG: It's a huge area of interest. In fact, last year, in 2018, we launched our first AI product, called Koa. We have a surf culture, and Koa is this wood that original surf boards were made out of, and it's really hard and dense, and it lasts a long time. We wanted to name ourselves after something that would last a long time. Because it does seem like AI is the buzzword of the last year.

CML: So in a bid to save yourselves from doom, you went with AI...

JG: Well, because it's a real thing. It's critical. Basically, the way we think about it is, sometimes when you hear AI, the average consumer or the average reader thinks, oh, that's the robots taking over things. I don't think about it the same way Elon Musk does, or so many that are focused on how much do I need to worry about machines taking everything over, or can I get them to take over as much as possible.

Instead, I look at it as, there are things that humans are really good at, which is creating hypotheses, and being creative, and connecting with other human beings. Machines don't do that very well. But machines are often way better at doing math, they are way better at testing hypotheses.

And we currently ask too much of human beings in terms of doing math and analytics, and there's lots of AI that we can point at huge data sets that we have to make better choices on their behalf so they can spend more time being creative and connecting with other human beings and doing what advertising does so well, which is winning hearts and minds, that's what real advertising does, it wins hearts and minds. And that is as much art as it is science.

CML: The creatives...

JG: Absolutely. We are about using AI to fuse with human beings so that together they are making better choices, and we are freeing up time for human beings to do what they do well. We are not in the business of trying to replace people.

CML: Can you give me an example of what Koa does?

JG: I'm trying to think of one that's not too nuanced. So, there are two hundred and fifty companies that a marketer could buy gender identity data from. What I need help identifying is the user on the other end of the screen a man or a woman. You can buy that data from hundreds of companies. Some of them get it right, and some don't.

How can I use data across all the impressions shown to check and validate the likelihood of being right as well as the cost for that accuracy? We can and have pointed AI at that to help advertisers make buying decisions that would take a huge amount of analytical work and arguably data that an individual buyer will never have so that they can actually figure out which source they should buy the data from.

CML: You mean point them at the various sources of data to vet...

JG: No, we'll just do it for them. We will look at all two hundred and fifty and then say, hey, if you want to target on this, we will help you choose based on value.

CML: In a sense you are a middle man there, where there is an ad buyer and there is a data supplier, and you step in and say, we are going to help you figure out...

JG: We will use data and AI to figure out what you should do.

CML: To make the decision about whether to purchase that data?

JG: Exactly.

CML: It's producing results for you and the company?

JG: Yes. Aside from things like our tools for connected TV, it's probably the biggest release of our company's history.

CML: Can you say how it's impacted your business?

JG: There's no way we would have reached all of our goals in the first three quarters of 2018 without that. In those three quarters, we beat and raised guidance each time and that was in part because of in the middle of Q2 we launched all these products that centered around AI to make better choices.

CML: Not just Koa?

JG: Yeah. Next Wave is the name we gave to the new platform launch, including Koa and two other products, a data-driven planning tool and an intuitive new user experience.

CML: And they are responding in the sense that they are taking your word for it that this stuff does something that you couldn't do without it, this AI stuff?

JG:Yes, we basically say, opt in to it, and then we will show you the results. And half of our customers have opted in to it. When you think about operating systems, like for Apple, I still haven't installed it. But that launched about the same time. So when you consider even in operating systems it takes a while to get that.

And when you think about the fact that we are supporting both our legacy platform and our new platform, clients don't have to switch and more than half have. It's a commentary on the product value.

When you consider even in operating systems it takes a while to get that. And when you think about the fact that we are supporting both our legacy platform and our new platform, they don't have to switch and more than half have. It's a commentary on the product value.

CML: And they are like a subscriber, they are into your marketplace...

JG: Yes.

CML: It's not like saying buy a new SKU from you...

JG: That's exactly right. It is would you like to run on the new system or the old one?

CML: But it has an impact on a quarter, you're saying?

JG: Yeah, we've seen a positive impact for the quarters we've reported to date, through Q3 2018.

CML: How does it have that impact for you, generally speaking? Does it raise rates for you?

JG: We make a little bit more money, but way more importantly than making more money, we are adding way more value. In my analogy of, we will help you figure out which data set to buy, I might make another penny because I sold some data where I wouldn't have before. More importantly, the data is worth it to you so you just made a better buying decision. So that's where we are really adding the value.

CML: And for you, that turns into retention or cross-selling, or ...

JG: Both retention as well as clients realizing that this is the most effective media that I buy. Instead of buying $100 of media, I'm going to buy $1,000.

CML: It just makes you a better facilitator and boosts the volume of business?

JG: Yes, and we think about our business similar to the way Amazon thinks about their business, which is all about the fly-wheel. I want people to be buying more through us.

CML: Give them a great customer experience...

JG: Yeah, I just want people to buy more through us, so how do I add more value? So, Amazon does a great job of saying how do I add more value? Oh, I'll add Prime Video. I'm going to make it economically irrational for people not to sign up for Prime.

We want to do the same thing, which is, make it so obvious that they should be using The Trade Desk to do their media buying, and especially the people that are already using it, they have such a good experience, and they keep getting more for their dollar, so that they keep saying, Of course I'm going to keep using it. That maybe the shortest way to summarize our success.

It's understanding technology that gets us an edge to find the "next Apple," or the "next Amazon." This is what CML Pro does. We are members of Thomson First Call -- our research sits side by side with Goldman Sachs, Morgan Stanley and the rest, but we are the anti-institution and break the information asymmetry.

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The author is long shares of Invitae in his personal account and call options.

Thanks for reading, friends.

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