Mele’s Musings

Will Real-Time Bidded Inventory Change Media Planning and Buying Forever?

It’s hard not to see the tidal wave coming. Ad networks, data re-sellers, and remnant inventory aggregators have long been a major part of the online ad market, but it seems recently they are getting much more press, attention, and ad dollars. As more and more media moves to digital, avoiding the tidal wave will become very hard to do.In the beginning, digital ad networks really served two primary purposes: to aggregate audiences from multiple websites into tidy packages in order to make them easier to sell at scale (particularly for websites with relatively small audiences or who did not have sales forces) and to monetize remnant inventory on large publishers that went unsold but for which there were no scalable mechanisms for selling.

Image from Razorfish Headlight blog

Ads were usually sold in fairly general audience packages: by demographic or by context/interest. For example, one could buy inventory to target women based on the audience make-up of sites in the networks, or could buy inventory to target sports enthusiasts based on sites focused on sports content.

Fairly soon, ad networks and data re-sellers started to offer even more granularity in what audiences could be bought based on behaviors (if they bought, if they had been on sports sites but weren’t currently on them, etc.) or by known demographics based on registration information (when signing up for an email account, for instance, a user might identify their gender, age, location, etc.).

Although buying audiences in this way based on bid models is not new, there has been a flurry of activity and conversation in the space based on a couple of trends that have been outlined in the press. I recently read the following article from Business Insider on the topic.

The first is the rise of exchange desks at many agencies (Razorfish is owned by Publicis which runs the AOD platform) which are allowing them more control over the inventory for their clients, and allow them to leverage buying power better. The second is the rise in concerns over user data which some ad networks and exchanges use to target consumers. Concerns over privacy are a topic for another day, but, as you can read in some of my previous posts the concern is generally over-blown.

What these networks do is change the relationship between buyer and inventory creator in a fundamental way. Rather than the power of the agency being based on the power of media buying leverage (the more I buy, the lower price you will charge me), the power of the agency needs to now be based on the power of the information collected by the media agency in terms of performance AND, more importantly, their ability to act on it in a rapid and accurate way.

In many of these exchanges and networks, there is no set price for the inventory, rather, inventory value is based on how the audience performs - the advertiser sets the price they are willing to pay based on the performance of the inventory. What this means is that agencies need to be better at assessing real client data in real time rather than on aggregated audience data culled from surveys on an annual basis. This means that, while the importance of upfront negotiation does not go away, it diminishes in importance.

The implications of this are tremendous. First, as more and more media moves to digital (TV is obviously becoming increasingly digital) the ability to buy and sell ads in a bidded-network fashion will increase. This means that even TV ads will be evaluated not on the initial purchase price, but on the effectiveness of the media against client goals. Don’t believe me? Check out Microsoft’s Navic.

Second, media buying as it stands today may become more akin to search than it is to strong-armed up-front buys. In a world of auction pricing, there is no advantage to scale, and there are no discounts that can be given based on how much you buy. Rather, the market sets the price. It becomes more like the stock exchange than it does a retail outlet. The power in scaled leverage will be on the aggregator or ad exchange side, not on the agency side - the buyers who then resell - because they can take low-value inventory and re-bundle it in more valuable ways.

For media companies still focused on the power of media buying leverage as their backbone and upfront buying, it’s time to look out. Getting better at bid-modeling will not be a nice to have, it will be a necessity. And the current focus on time-honored but ultimately wasteful metrics like reach and frequency will give way to real metrics like traffic and sales which will be able to be measured in a variety of ways.

But, let’s not get too carried away.

The limitation of ad networks and exchanges is that they are indifferent to where the inventory is. You are buying the audience, not the property, they say, and isn’t that what you want really anyway? Well, sometimes yes, but sometimes no. Sometimes advertisers will want to advertise on a particular show or website precisely because the context matters. While I can buy sports sites or sports enthusiasts on networks, that doesn’t mean that they are more inclined to pay attention to my ads or communications when they are on a travel site or a webmail site.

There will always be premium value to be on premium sites - to know exactly when, where, and how your ad will show up. For heavy direct response clients, they may not care so much. But for clients where the brand is paramount, or where the context is part of the message, it will continue to matter a great deal.

This doesn’t mean that brands won’t have to start paying for this inventory in a bid-model fashion (although I doubt it because it generally drives prices lower on some inventory rather than higher), but it does mean that context, and scarcity of valuable context, like the Superbowl, will never go away or be discounted in some broad, generalized buy. Sometimes, the context does drive the value.

But the incoming tidal wave is not going to be stopped. We just have to ride it.

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