The Trade Desk, Inc. (TTD) Earnings Call Transcript & Summary

Thank you, Jason, and thank you, everybody, for joining us for our second annual NexTech Conference. I'm talking to you from the Adweek office. And we're lucky enough to be joined today by Jeff Green, who is the CEO of The Trade Desk, arguably the largest independent ad tech company out there and one of the examples of how an independent ad tech company can operate outside of the walled gardens, which I'm sure will come up over the course of the next 20 minutes. First of all, Jeff, thank you for taking the time to speak with us.

My pleasure. Proud to be here.

Awesome. Look, before we get started, I know this session is about the convergence of TV and the industry -- sorry, the online industry. Earlier today, we wrote a little bit about a very interesting development with your company. Before we get into the whole CTV conversation, can you just talk us through a little bit more, give us the elevator pitch about The Trade Desk's Unified ID 2.0 just because we wrote about it earlier today? And to all of you watching and listening, it's on the website. It's written by my colleague, Andrew Blustein, and you should check it out. It's very exciting. But can we get the elevator pitch, Jeff?

You bet. Before we get in the elevator, let me just give you a little bit of background in order to take the ride. So many of you listening may know that a few things have changed on the Internet in the last 3 or 4 years. One of them is that there've been a lot of privacy initiatives starting with GDPR, and the Internet hasn't responded optimally, in our view, especially things like little pieces of toast at the bottom of every website you visit that say, "there are cookies" without any explanation as to what that means. And so the average consumer is confused by that, even frightened by it, saying, "I don't know what a cookie is, but it doesn't sound good." And then also Google has announced that it plans in 2 years to get rid of cookies. So what we think that surfaces is a discussion that has been had for a very long time, which is really centered around 2 questions: How do we explain the value exchange of the Internet and the role of advertising in that value exchange, and then how do we ensure the power doesn't become too concentrated. It's interesting that all the antitrust cases revolving around the Internet have to do with browsers, whether it was NetScape or Microsoft or even discussions early around AOL. So we've basically taken the IAB's recipe, if you will, for how to remedy both of these problems, which is especially about the power concentration and cookies going away. And we basically come up with a solution that we're publishing and being very vocal about. And now for the elevator ride. So first, there's an Open ID. So it's similar to cookies, except for that it's open. You actually have to agree to a standard of service and it's encrypted. So it's an upgrade to cookies. The second thing is that there's a single sign-on. So this is different than the ID. People have confused it to a single sign-on, can be branded or white-labeled. So a brand can choose to put their name on it or they can use the brand that is yet to be revealed on the single sign-on. Then the third thing is a framework for publishers. And so this makes it possible for publishers to get consent in a better way than just declaring there are cookies. And we're going to expect publishers or content owners to explain the quid pro quo of the Internet very succinctly, so that we get better at helping consumers understand that basically the Internet is run by seeing relevant ads in exchange for otherwise free content. And then the last piece is a framework for consumers or users that basically makes it so that they can put in their settings with OEMs. So for instance, what Apple announced with their upgrades to iOS, where they'll allow and enable consumers to have more control. It's really important that we create a framework, so that we can ingest that, so that Apple can inform us about what the consumer has said. And then also, it can initiate a dialogue when they go to an app or a site that quid pro quo was broken, so that you can prompt the user to give them an opt-in. So those are the 4 components of the solution that we've been talking about.

Okay. And just to let everybody know, before we go into the CTV conversation that there will be a Q&A at the end. So if there's any questions about that or the conversation over the coming 20 minutes, you will have the opportunity to have your voice heard. Jeff, okay, so let's go into things. I listen in to just about all of your quarterly earnings calls. CTV always seems to be a big part of the conversations around that, especially questions from the ratings analysts. Could you just tell us a little bit more about where The Trade Desk is with its CTV capabilities?

Yes. So I've been saying for a few years now that everything we've done in our 11 years as a company has been a dress rehearsal for what's happening in Connected TV. And I'm constantly eyeing that 5, 6 years from now, global advertising will be $1 trillion market, and I anticipate that about half of that will be in some form of video. And the lead for that will be the premium content that is sold over Connected TV. So it is the future of our business. It's the thing that we spend the most amount of time thinking about how do we grow. And honestly, COVID, because people are trapped at home and because sports is -- according to the survey we did, 60% of users say that the #1 reason why they hung on to cable is for sports. And when you couple that with 40 million plus in unemployment, the most expensive part of the cable bill, which is their cable -- I'm sorry, the TV experience bill is their cable bill. And so that's made people move more to on-demand. So between all of those vectors, it has been a huge accelerator for Connected TV sort of being the primary way that many consumers are now consuming television.

Okay. And [ those ] UDID does that apply to Connected Television because one of the things is that it is noncookie reliant which should mean that it is -- you kind of track and measure performance of ad campaigns across screens, but it did come up in some of the conversations that Andrew had. Could you just -- whilst we're talking about the 2, could you explain a little bit more about how it might eventually come to apply to CTV?

Yes. So one of the things that works better on CTV and mobile and really everything that's outside of the browser, and it's kind of like the browser is the most antiquated methodology for delivering ads, which is like cookies are not really the best technology. If we were designing the Internet from scratch, we wouldn't use cookies the way that we did. It was just kind of a legacy theme that got -- people sort of innovated an adapter for, which is what all the cookie syncing and all those sorts of things do. But in every other form, which for The Trade Desk is about 70% of our spend comes from noncookie-based environments, where you have a device ID, whether that's on the phone or whether that's on the computer. A device ID isn't always present, though, and what our solution proposes, again, just following the lead of the IAB, is to enable e-mail address to be the theme that gets pinned to users, both consent as well as their ability to control the ads and then you can also create an ID associated with that e-mail address. You should only have to do it once, but that exact same system can work in Connected TV, where in the absence of a device ID, a log-on that you've used for any of the apps can be the methodology which gets keyed in. And so long as those apps are connected to each other, then you would -- the user wouldn't have to do something again.

Okay. Great. Well, on a slightly related manner, on Twitter over the last couple of days, I've been saying, if there's any questions, please send them out. So we're starting to have some questions come in from our participants, but here's one that was interesting that came in via the Twittersphere that I got asked. One of this is a lot of people would perceive that The Trade Desk strength in CTV is about its ID graph, which some would say is quite IP [ best ]. Given that we are having a lot of scrutiny from regulators around the use of IP addresses, could you talk to that, please?

Yes. So there are cases where we use IP address. We only do that where it's permissible, of course. In some places, it's not, especially in Europe, so we don't use it there. So we don't use it in places where we can't. But in general, and I think it's really important to just keep an eye on this, the quid pro quo of the Internet has been you see relevant ads in exchange for free content. I couldn't agree more with Linda, by the way. I think I might be the founder of the Linda Yaccarino fan club. She did such a great job of explaining what Peacock did on July 15. But in order to get access to that premium content and in order to fund it, we have to be seeing relevant ads, like the consumer will not tolerate commercial breaks that are as long on Connected TV as they have been on traditional television. And the only way to then fund the content is to get the premium that comes with relevant. And so we, as an industry, have done a bad job of explaining that quid pro quo. And what we're trying to do is change that. We're trying to help content owners have a better dialogue with the consumer about what that quid pro quo is. And because I believe there's very few institutions in America, really in the world, that are more sacred than television, I don't believe that that quid pro quo can or will ever be changed. And as I -- the last time, Linda and I were on stage together, she said something that I think is very important to keep in mind, never underestimate the power of free. And then when people are critical of, hey, isn't Peacock behind in getting launched, I think that's a great rebuttal and especially in a moment where the consumer is under pressure. And so we just have to explain that quid pro quo because it's not going anywhere. And so if you focus on that, it makes it possible for you to step back and instead of thinking about IP address or device ID or Unified Open ID or anything else, you just -- you realize that that quid pro quo isn't going to change. We'll find a way to make that quid pro quo enabled. But the only way to do that honestly and fairly is to better explain to the consumer how it works.

Okay. Great. Well, look, I see a lot of the questions are starting to roll in. We will get around to them in just under 10 minutes or so. But before we go to that, one of the things that I was interested to ask, Jeff, was that when we speak to -- when I certainly speak to some of the people from, let's say, legacy TV business, I hear that there are a lot of fears that people from that side of the media industry have seen how ad tech, let's just say, and the Internet as a whole, has impacted the traditional publishing industry. So let's just talk about desktop advertising, how it's really destroyed rate cards, et cetera, et cetera. And we see how the upfronts this year especially has been disrupted. What do you say to people who are from the traditional TV side of the industry that might express such fears that if we let digital in, it's going to mess up our entire thing and then we'll just have the big guys of MAGA or FAANG or whatever you want to call, big tech, that they will be the only winners and we'll just be another -- yes, another injured party in their march towards dominance? What would you say to that?

Yes. So I really appreciate this question. So let me rewind a little bit. So about -- I guess it was 13 years ago, I was working at Microsoft. We were the tiny ad exchange that they bought. The last company I founded was company called AdECN. And we are trying to navigate this massive company that was Microsoft. And I spent the first year trying to paint a picture of what programmatic would look like in 10 or 15 years. I'm trying to explain what I think is happening today. And the first year, I was focused on that end state. Why won't we talk and think and focus on end state? That's the only way we, at Microsoft, can catch up. We're behind Google and almost everything, focus on end state. What I found worked better rhetorically in sort of the second year that I was there, was instead of saying, "hey, stop focusing on what we have right now and how much we don't want the world to change and instead, ask yourself this question, can we stop it?" And so what I would say to those traditional TV people that don't want it to change or are afraid that there'll be another casualty, if you look at every industry that has been affected by the Internet, the music industry, almost imploded; journalism has been under a ton of pressure; publishing, just in general, has been under attack. All the people who get hurt, even Microsoft and Yahoo! have been hurt. Yahoo! is not worth nearly what it was before. And for me, it's all because people find a sweet spot and they say, "I don't want to change. I would rather let the Internet operate like ad networks, so I'm not going to change." And so if you instead ask the question, can we stop it? Can we stop consumers from demanding on-demand content because on-demand over the Internet is better? And we've turned this into a religious debate about pipes, which is just ridiculous. And instead, let's focus on the consumer. They want to watch it on-demand, and let's make it about the content. And I think many companies like NBC or like a CBS have done a great job in saying, "hey, we're going to focus on the content, and we're going to meet the consumers where they are." That's the right approach. And the only way the Netflix of the world don't run away with it all, we have to adapt and not say we love yesterday.

Okay. Awesome. So by the way, just everybody would know, we've got roughly 5 minutes to Q&A. They are stacking up already, some good ones. What would you say to those who might look at how, say, Amazon signing up premium sports rights? I believe they have NFL. I don't watch NFL. I watch Premier League. It's not that -- I know they've got the rights there in certain territories. What would you say to people who look at that, like, look, they are coming in, they are kicking off that ad space, what's your thoughts on that?