Before exchanged-based media marketplaces bring value to both media buyers and sellers, these changes must occur.
Media buying is about information superiority. Superior information allows parties of a bilateral transaction to quantify the value of the asset being bought and sold.
Consider the television upfronts taking place in coming weeks - they are all about information superiority. Unfortunately, value is based on the amount of increase (or decrease) to the market price and not on the underlying asset's actual value. In this instance, market price is not determined by a transparent bid process. Instead, it's determined by the amount of inventory large buyers acquire early in the process, allowing sellers to increase the aggregate market price for all inventory. In such a marketplace, the distribution of information is tipped toward sellers.
If the upfronts functioned like the display real-time bidding (RTB) marketplace (at mature liquidity and with transparency), many novel methods of obtaining information advantages and the volume of information capable of being deployed would increase substantially. In an exchange-based market, information superiority comes from data unique to the advertiser or information that is unknown to competitive buyers. Exploiting either allows for more accurate asset valuation and for each party within the transaction to achieve more perfect pricing. As a result, the price reflects the accurately measured value of the asset. But before my digital brethren rejoice or heap praise upon one another, we should note that the RTB marketplace lacks the required liquidity for perfecting pricing and often lacks the requisite transparency. I'm confident this is an evolutionary phase and that all media marketplaces will move toward a more perfect market with near perfect pricing. Why do I have such confidence? Because both buyers and sellers will benefit in the long term from such a marketplace.
What is the prescription for moving exchange-based media buying forward? The simple answer is to say that increased liquidity from both supply and demand will spur change. But that answer is overly simplistic. An increase in quality liquidity is required. The term "quality liquidity" represents an attempt to simplify multiple concepts including notions of more demand and better supply. It means competing for inventory more on proprietary data than generic data and it means transparency.
Without quality liquidity, there is no way to derive a competitive advantage and therefore no vibrancy for the marketplace. In the long run, there are no audience bargains that your competition unwittingly passed over because multiple competitors march into the ad buy with the same information. In effect, prices are lower than they would be for transparent inventory, but higher than they should be for blind inventory. Both the premium publisher and the brand-sensitive advertiser lose. Incentives are currently misaligned, causing unnecessary friction, misvaluation of the underlying asset, and a suboptimal market.
In a real-time, exchange-based media marketplace, a synthesis of proprietary information and transparency of the underlying asset determines the true value of the inventory for a given campaign for a given advertiser. This change requires the new buyer to focus on inventory valuation, not the easier task of commoditized procurement. These buyers aren't trying to get advertisers cheaper ad spends with little advertising effectiveness. They strive to provide clients with efficiency: identifying targeted customers at an optimal price. As for the sellers, ad exchanges allow for them and their content to receive fair-value pricing for the seller is optimized automatically.
The continued proliferation of real-time exchange advertising transactions will become more efficient for all parties. More notably with time, a seismic shift will occur from advertising marketplaces that function with emphasis on price and little respect to value, to markets designed to maximize value for both buyer and seller.
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Edward Montes leads DataXu's sales and marketing activities on a global basis. A respected international leader, Ed has a deep understanding of how advertisers can apply technology to become data-driven and transform their business. More than a decade in the digital advertising ecosystem has given him considerable experience with combining technology, services, partners, and people to deliver optimal solutions to marketing challenges. Prior to joining DataXu, Ed was co-founder and chief executive at Digilant. He also held leadership positions at Havas Media - spearheading several expansion efforts and doubling the agency's digital billings and capabilities during his tenure - as well as Yahoo and TechTarget. Ed is a graduate of Boston University School of Law and the University of Massachusetts, Amherst.
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