Birth Of The Advertising Trader

By Amihai Ulman The media business has a unique nuance rarely seen in other transactional markets; the difference in transactional behavior between the buy-side and the sell-side. In traditional media, the sales team on the media's side does very few things similarly to those which are done by the media buying and planning teams on the advertiser's side. These differences are an outcome of an industry lacking traders. This is not a good thing or a bad thing, it just is. As markets develop, the specialization of trading will create a whole new set of roles on both the media buying and selling sides.

One of the constants of our economy is the increasing specialization of individual roles and the disappearance of antiquated ones. The requirements of modern business drive hyper-specialized roles in the economy to unlock very specific value hidden deep in the business process of highly specialized functions. There used to be a time when the wheat market consisted of three participants: the farmer, the miller, and the baker. As time passed and our economy grew in complexity, farming, milling, and baking all became highly specialized businesses. Over that same period, business functions like transportation, trading, and financing fragmented away from the three traditional roles, became specialized, and spawned an array of new businesses to enable the farmer, miller, and baker to focus on what they do best. In the same way, we see a current evolution in media. This process will likely take another decade to fully materialize in the media space.

In the meantime, there are 'wheat farmers', 'wheat' exchanges, but very few sell-side traders in today's media markets. In the next two years, a large shift in strategic sales focus will take place at major and mid-tier publishers to build out these capabilities. The current lack of infrastructure and specialization on the sell-side presents enormous opportunities for arbitrageurs to 'pick up' the money that publishers 'leave one the table' with every RTB transaction.

Lest you think I am too hard on the sell-side... the buy-side still has a long way to go as well. RTB is the tip of a massive iceberg waiting below the waterline. This is a good iceberg. An opportunity iceberg. Continuing our metaphor,  today's agencies are like bakers who seek to make a cake but can't buy just the specific ingredients they need. It's not that they don't know what they need, to the contrary, they know very well. The problem is that they have no choice but to buy the 'flour sampler' if they want to get the pastry flour. How do we know this is true? The 2012 comScore vCE Charter Study showed that across 18 Campaigns,  2,975 Media Placements, 380,898 Site Domains, and 1.8 billion Ad Impressions "...In cases where there were two variables (e.g. women + 25-54 years old), the accuracy of targeting decreased to an average of 48%, and with three variables  (e.g. women + 25-54 years old + with children under 18 in the home) the average was 11%." (pg. 17) That's a whole lot of stuff the baker doesn't want but just has to buy.

To solve this problem, buyers will have to define what they want to buy at the line item level. They will need the tools and skill to price each of those line items at their respective value. What placements and specific audience segments does the buyer want and what are they worth? Buyers will bid on those placements and audience segments they want and will leave the publisher to sell the remaining segments to other buyers who find value in those segments and placements. Of course this will drive a sea change in pricing. Good inventory will get more expensive and bad inventory will get cheaper. I don't believe all prices will drop, I just think that they will be different.

With these new behaviors, buyers and sellers will be giving birth to a truly specialized trading professional, driven by the similarity of behaviors on both the buy-side and the sell-side of the transaction. In the end, a true trader is both an effective buyer and an effective seller.