The Black Swan of Ad Tech

I recently had a great breakfast with a friend in the industry that has been of like-mind with us for a few years now. It was quite a breakfast, an eye opening experience of how fast the online advertising industry is about to change in ways only a handful of people see coming. Moreover, there are only a handful of companies working on this change and here's a hint, none of them are a part of RTB or the newly coined 'programmatic direct' class of technologies. If you have been in the industry for a while, you are likely thinking to yourself 'this is just another blogging prognosticator predicting something he knows nothing about...' In response, I provide the following definition of a black swan event "an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight."  The point is that when emboldened by our successes, we think that we achieved control or at least can see what is coming next. The search for patterns and order is a dangerous trap, distracting us from "the impact of the highly improbable." The coming black swan in ad tech is the result of the confluence of technologies that are so synergistic, they will displace a significant portion of existing technologies.

Black swans
Black swans

So, why is this a black swan and not just run-of-the-mill disruptive technology? Well, it is not 'a technology' it is a combination of technologies that are each mildly compelling when alone,  but together can be disruptive squared. This combination of technologies enables online publishers to classify, forecast, price, and inventory manage ad placement and audience segment inventory at the page level. Effectively increasing the resolution of guaranteed inventory transactions from the section/tag level (without audience segment) to the page level (with audience segment) the resolution of inventory grows by three to four orders of magnitude.

As far as I know, there is not a wide recognition in the industry that the very basic foundation of inventory management and forecasting are about to change. By itself, this new approach is not a black swan. But, added together with a number of other technologies that derive increasing value to the user from increasing complexity, things change mighty quick. It's like the difference between MS Access and Hadoop.

The fundamental reason for the black swan nature of this disruption is simple, it enables all supply to meet all demand regardless of transaction size. Have you ever wondered why Google can get north of $50 for a single click? Simple, they are the publisher, they are the exchange, buyers have data on what clearing prices will likely be, and transactions are not limited in size. Using AdWords, all supply (Google's) can meet all demand for search inventory regardless of transaction size. Now, imagine that model across the entire display ecosystem for guaranteed media.

Using a page level infrastructure for transacting guaranteed inventory, high-value long-tail inventory can be transacted in ways that are today nearly impossible, with far fewer intermediaries that are now increasing cost for advertisers and decreasing revenue for publishers. Shifting to a page-level forecasting and transacting infrastructure, a far greater portion of guaranteed display advertising can be matched to demand that now flows to search and RTB. In short, it increases the substitutabilityof inventory without commoditizing it - demand that is not mapping back to display supply will be. In effect, the black swan increases the addressable demand for display inventory without increasing the supply.

The restructuring of display supply will be a win-win for advertisers and publishers. Advertisers will pay higher unit costs but buy less media (saving money) and publishers will be able to address a larger demand pool driving higher revenue on aggregate, as the overall number of buyers in the market and the gross applicable budget grows. This is not magic, the money will come out of someone's pocket, it always does, but so long as the publishers and advertisers are the winners, the ecosystem wins.