RTB Exchanges vs. MX Programmatic Forwards

As a new wave of excitement starts to build around the third generation of ad tech (programmatic direct and programmatic forwards), a fissure is appearing between those who provide ad delivery plumbing and those who provide the transaction pricing plumbing. Why does this matter? Well, if the first generation of ad tech, ad serving, and the second generation, RTB exchanges, are  any indication, ad delivery plumbing is a quickly commoditizing business. The more standards are set in place the more commoditized a business becomes.

So, technologies that enable accurate pricing will be a differentiating force. Look at Wall St., the "big money" is made by those that can most accurately measure value and generate a profit by exploiting the difference between the real value and the market price.  It's simple, hedge funds are rock stars and the clearing houses are the night janitors.

To measure the difference between value and price, one must be able to measure the depth of supply liquidity and demand liquidity. In other words, at what price would a thousand unit transaction clear? vs. at what price would a million unit transaction clear? The ability to measure the depth of forward liquidity does not exist in RTB exchanges. A buyer does not know at what price a transaction can be had, a buyer can only estimate at what price a transaction can be had based on historical information. Knowing is better than guessing.

Now that we have set the baseline, lets tackle this beast of a question: What's the difference between an RTB exchange and a MX programmatic forwards?

MX programmatic forwards:

  • Depth of forward supply and demand liquidity can be measured
  • Supply competes for demand and demand competes for supply in the same auction
  • Buyers can query sell orders and sellers can query buy orders; each can query the price and amount required to fulfill their order. Buyers can search for supply and Sellers can search for demand.
  • Buy and sell orders stay open. Since the auction is continuous, a buyer can describe their demand, in a way that can be understood by any seller, to identify if they have matching inventory they may want to offer in reply, and vice versa. These are resting orders.
  • Market data is deterministic

RTB exchanges:

  • Depth of forward supply and demand liquidity can't be measured
  • Demand competes for supply, but supply doesn'tcompete for demand
  • Buyers can query sell orders but sellers can't query buy orders
  • Buy and sell orders expire very quickly - at the end of each auction
  • Market data is stochastic

These differences are not esoteric features like the difference between a flat head and phillips head screw driver, they are like the difference between a screwdriver and a saw: different tools for different uses. MX programmatic forwards automates the process of matching the best inventory at the best price.

To achieve the best inventory at the best price. for both buyers and sellers, means that a 'translation engine' needs to sit between the buyer and the seller to 'normalize' the way supply and demand are expressed. RTB Exchanges (one-sided auctions) do not fulfill this function. For example, in a market such as eBay (a one-sided auction), if a seller misspells the brand of the product they are selling, e.g Zildjian cymbals, the buyer will never find the sellers inventory by searching for the brand. While this is an unorthodox example, it is a simple illustration of why normalizing the way in which supply and demand are expressed is key the superior value of an exchange. In reality, the way in which the expression of supply and demand are normalized in MX is a financial engineering innovation that is part of our 'secret sauce.'