Its time to add a new type of platform to our ad tech lexicon. Let’s name it using words whose definitions are used to describe their actual meaning and welcome the Advertising Futures Exchange. What is an Advertising Futures Exchange? its advertising futures (guaranteed audience segments and placements) traded through a platform that enables the automation of price discovery and transparency using bids and asking prices. A two-sided auction market model. Unlike conventional RTB auctions with one seller and many buyers, a two-sided auction has many sellers and many buyers.This is not Programmatic Direct. In recent months, nascent programmatic direct providers have reared their heads in the news and the infamous Lumaspaces. While not too many people in the ad tech space really know what programmatic direct is, some real differentiation is there.
By now you are probably sighing and asking yourself why do we need yet another platform? The answer is simple: "The Fat Middle" of inventory. There is a great deal of inventory sitting below the high-touch sales-driven insertion orders and above remnant, a small amount of which is being monetized using RTB, a method that artificially drives down price. I would say it is the absence of a well conceived auction structure that causes the under-monetization of "fat middle" inventory. Underneath any market mechanism, there exists an implicit auction structure which strongly determines how the mechanism performs. None of the RTB market mechanisms is really aimed at creating a market where there is a win-win for "fat middle" inventory, the basic necessity for ongoing trading. Without a premise of win-win for buyers and sellers, one side or the other should not show up. Thus the lack of expansion in "fat middle" inventory in RTB. Based on the downward trend attributed to RTB, it appears to us that the demand side is dominating the space. Falling CPMs suggest the demand side is winning and the supply side is losing. So why would publishers bring more inventory to the RTB table?
In all of our discussions, we have talked about creating a win-win structure. It is possible to create win-win opportunities across audience categories and content categories: A two sided auction, that by construction does not favor one side or the other.
To accomplish this win-win, some levels of anonymity are needed. Publishers do not want to have their pricing power undermined and advertisers do not want their purchase strategy divulged. Assuming that is the case (as a full explanation of this would require a whole other blog post), an exchange that creates a win-win provide buyers and sellers full access to their own information: what they traded, at what price, and with whom. But, information about the bids and transaction of others is also important. Enabling buyers and sellers to understand what the supply and demand landscape looks like, the price of historical transactions, and the volume of inventory traded in those transactions is critical to establishing price discovery.
Further, having full control of how one’s identity surfaces in the exchange along with orders and transactions enables market prices to be understood in a forward looking manner. Knowing the asking price without understanding the similarities and differences in the inventory that drive value, will not do. For a win-win situation, buyers and sellers must be able to understand the price of their desired trades in the context of a broader market, and the value of their desired trade in the context of many other trades they can make as substitution.
The next evolution of ad-tech is an advertising futures exchange where publishers, advertisers and agencies can transact guaranteed audience segments and guaranteed ad placements, at scale.