Roku and The Trade Desk

I’ve been synthesizing some thoughts after reading some articles, The Trade Desk’s conference call and the Roku thread here. I want to start a new thread to share what I’ve deduced. Hopefully someone can tell me where I’ve gone wrong and/or build upon this.

We take it as a given that the investing thesis behind both of these companies companies involves CTV. The Trade Desk is entirely focused on Ad Revenue, part of which will come from CTV; Roku is entirely focused on CTV and part of its revenue will come from advertising. Someone in the last Roku post said that it seems like Roku is exactly where The Trade Desk wants to be. I’ve been trying to reason through that to see if its the case. Advertising is complex and I’ve been trying to figure out how supply side works, how demand side works, and how walled gardens fit in to all of this to compare how Roku and The Trade Desk are positioned.

The Trade Desk is a demand side platform. It doesn’t have its own advertising space that it sells. Rather, it offers a service for people people who want to find a space to put their ad. It offers a value proposition to the ad buyer, and takes a commission. Jeff Green has said he wanted to create a demand platform because it is his belief that, in advertising, the demand side always has the advantage. He believe it is sustainable for The Trade Desk to take a 15-20% cut, but they would only be able to earn around 5% if they were on the sell side. I think he is saying that 5% is what they would net if the helped ad sellers to allocate the ads that they sold, but I’m not sure where exactly this number comes from(no matter).

The sell side, as I understand, are people who have space to sell that can be used for advertisement. I think my initial confusion in this space was in thinking of an ad seller as someone who creates the creative work that comprises the advertisement rather than the space through which the ad is broadcast. If I make a website, and want to sell advertising space on my website, I would be an ad supplier.

Most of the ad supply on the internet is sold through two major “walled gardens”. A walled garden is an ad supplier that does not allow third parties to act as agents for their ad space. Customers need to work directly with the walled garden and therefore shut out any demand side intermediaries, such as The Trade Desk. If every ad supplier was a walled garden, there would be no place for The Trade Desk.

But not every supplier is a walled garden and the Trade Desk is able to collect data from literally every other place that is not a walled garden and use that data to create valuable targeting for ad buyers.

So where does Roku fit in? In the previous thread, it was mentioned that one of the most substantial portions of Roku’s revenue is ad space that a streaming service gives to Roku in exchange for offering that streaming service on its platform, as well as through its own ad space. Thus Roku is an ad supplier. Advertisers choose Roku as a medium through which to place advertisements, and Roku sells the ad space. Roku presents a very compelling proposition to ad buyers because they collect user data across platforms. The question remains as to how unique this proposition is, because from some other posts it seems as though Amazon and Apple may be getting in to this game. Regardless, their revenue stream from selling their ad slots should consistently rise as the paradigm shift towards CTV progresses.

So, is Roku exactly where the Trade Desk wants to be? I would say, not at all. The business model is completely different. The Trade Desk is creating a demand side marketplace and Roku is selling advertising space and using its data to create a high value proposition for their ad space. At this point in time, Roku’s value proposition is high enough that it is able to use the walled garden model.

Since Roku is only allotted a portion of the ad space of any given streaming platform, the rest of that ad space may or may not be available through The Trade Desk’s platform. It depends on each streaming provider to decide whether or not they are going to be a walled garden. At this point, it seems to me that most streamers will not have the leverage to function as walled gardens and The Trade Desk will have access to their inventory.

So let’s say for example that streaming service X decides to give Roku 5% of its ad space in exchange for having it’s service on Roku’s platform (as an aside, I’d be interested in knowing what the actual percent Roku usually takes). The other 90% of advertising is offered directly by the streaming service and the streaming service is not a walled garden. Imagine 27.7% of the remaining ads are purchased through The Trade Desk’s Platform. The Trade Desk then takes a 20% cut of that ad spend. In this Scenario, Roku and The Trade Desk have generated equal ad revenue from a single CTV streaming offering: 5%. The difference is that they have collected that revenue in entirely different ways.

Going a step further, in the end buyers are going to have a preference. They will either see Roku as having the better targeting through its walled platform data or the DSP as having the better offering through its data set. If the DSP has the better offering, prices for the non-walled ad space will rise relative to the walled space. Eventually, it becomes prudent for the walled garden to take down its walls. If the walled garden has the better offering, it is able to charge more for its space because the supply is more limited. I think this is where Jeff Green comes in with saying that the demand side is better. I think he is saying that ad suppliers have very little ability to raise their prices, even if they have an excellent offering, due to the nature of inelasticity within the ad space. In this case, I think The Trade Desk is forecast to build the better data set and eventually win out. But, in terms of the relationship between Roku and The Trade Desk, it is not a winner take all game.

Another thought - In reference to Roku’s competition with Amazon, Amazon will have CTV data as well as data from e-commerce that it can use for targeted advertising. Roku will only have CTV data. With this in mind, Roku taking down its wall could be a key strategy for competing with Amazon to fill its ad inventory.


excellent post. thanks for sharing…

Roku’s owning consumer interface is a key sustainable differentiator in my mind but for sure, there are many many factors to consider here.

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Nice post, BobbyBe.

I think the real question is whether Roku can better maximize their profitability using inside teams/technology to offer ROI to advertisers than can The Trade Desk. If ROKU wants to be a walled garden they are either going to have to deliver on ROI or become so large that ROI is assumed but maybe not measured well.

For instance, many companies gripe about digital advertising with Proctor & Gamble being a prime example in recent years. The idea of digital advertising is to be better than the “spray and pray” method of spending on ads. However, companies like Facebook don’t provide great insight and flexibility as to where ads are placed and what is best for the advertiser. Facebook has an inherent conflict of interest in this regard. They want to sell space at the highest dollar where the buyer obviously wants to pay the lowest. Advertisers flock to them because of the eyeballs on their site. They have no choice and Facebook doesn’t really need to report much back to them. Until someone else comes along that can provide better ROI with truly anonymous data…like The Trade Desk.

I’m not suggesting Facebook will open up the gates to their kingdom. I am suggesting it will be quite difficult for companies just gaining eyeballs to do so.



I agree with your analysis. I am wondering about a more basic question though. Given that Roku is a walled garden currently, is TTD able to track someone if they are accessing an ad funded channel from inside the Roku platform? For example, when you are online, TTD can track you through its unified ID when you visit MF for example and know that you visit MF say 1 h/day. Not sure if they can track what all you do inside the walled garden FB for example. If TTD is unable to track you inside Roku then its ability to target ads disappears. Sure, the ad funded channel inside Roku can make its inventory available to TTD’s DSP but if no one can identify you (and link with TTD’s unified ID) it is harder for them to monetize in a programmatic manner.

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I don’t know for certain, but my best guess is that if a streaming channel was played through Roku, both Roku and the channel itself would have access to that data. If the Channel is interested in allowing DSPs to bring buyers to its ad space, it makes sense that the channel would make its data somehow available to the DSPs.

The question is how well The Trade Desk’s id solutions facilitate this data exchange.