Can Agencies Be Sellers In An Exchange?

As we progressed through our discussions with the major agency holding companies on our Australian roadshow, I noticed an interesting fact. Nearly every agency media buyer and trading desk wants to have the ability to both buy and sell. While that is nearly impossible in the RTB environment because of market structure and latency issues, within a futures market, selling inventory as a non-publisher is a core part of the market's value proposition. Frankly, I was surprised by the giddy  excitement brought on by the thought of selling media  when our discussions with agency folks turned to the subject. For some, the idea of an agency acting as a seller may be a bit perplexing. So let me clarify. There are two modes of sales that an agency can undertake. The first mode is via the trading desk and the second is via the media buying team. Today, the core business of every trading desk is to sell media to agency clients as if it were a publisher. The trading desks provide this service to agency clients, but are limited by the manual sales processes that accompany their automated RTB media buying. Using a futures exchange, a trading desk can leverage automation on both the buy side, as they do today via RTB, and the sell side via the futures exchange. This prospect is quite exciting for most trading desk teams as it enables them to use their inward facing capabilities of selling to agency clients outward to sell inventory to any exchange participants. Thus, the agency trading desk can  become a profit center that generates revenue from agency clients and non-agency clients.

The second mode of sales is via the traditional media buying team. As we all know, major agency buyers have the buying power to secure inventory from the best publishers, at highly competitive prices. Leveraging this buying power to lock up large segments of inventory, enables agencies to create the supply constraint necessary to drive up price. With the ability to resell such inventory (a secondary market), a previously unavailable source of revenue is created for the agency.

By this point, if you are a veteran of the media buying/selling space, you are likely questioning why any publisher would participate in such a market. Why would someone allow their product to be resold without realizing the benefit of the resale? The answer is quite simple, price discovery. By allowing someone else to sell their product, the publisher has the opportunity to find out if other market players are able to extract more value from their goods. This knowledge enables the publisher to better price their inventory moving forward: "If someone else can sell my inventory for more money, so can I!" Moreover, with the knowledge that buyers may resell and may do so at a profit, an incentive is created for buyers to buy more than they have in the past, in an effort to create value. For publishers, this would mean the creation of additional demand from within their existing set of clients. Enabling a seller to generate more demand from existing clients is by far the most profitable type of demand; more demand at a zero cost of customer acquisition.

There is another side to this 'coin.' If agencies can sell, publishers can buy. Just as agencies are expert buyers, publisher media sales teams are expert sellers. In other words, publishers with insight into demand can buy-back their own inventory, or that of other publishers, and sell it again to another advertiser. Since the overall inventory in the market is unchanged by the activities of both publishers and advertisers, the supply remains constant while demand is substantially increased.

It is a poorly kept secret that many publishers do something very similar today in the RTB markets, they bid on their own inventory. The marketing euphemism for this is 'soft  price floors.' Publishers place bids in auctions for their own inventory so  that high spreads between the 1st and 2nd prices in the auction do not result in too much value loss. Effectively, publishers are inserting themselves into the demand pool to drive up demand. So, doing this on a futures exchange would be a familiar strategy to most sophisticated publishers.

The more flow of market activity there is, and the more 'eyes' are focused on media buying opportunities, the more the collective market will enable the distinctions between good inventory and poor inventory. In other words, price will increasingly become a reflection of quality and performance or media inventory; an outcome that benefits the aggregate market.