RTB Is Terminally Ill

Recently, GroupM announced that they will no longer be participating in any open market exchange for impressions.  (GroupM plans to ditch open ad exchanges)That does not mean that they will not be using the pipes, as  GroupM Chief Digital Investment Officer Ari Bluman said (video), the RTB pipes will continue to be used. What does it mean when such an announcement is made by the largest media buying agency in the world? It means that one of the two main promises of RTB has failed to materialize. The foundational promises of  RTB were:

   1. Ads will only be shown to the audience of the buyers' choosing   2. Each impression will be priced correctly using the power of markets

GroupM's complete exit from open exchanges is a huge statement. It tells us that GroupM does not find value in the prices generated by open exchange environments. Why? How come the biggest buyer in the world finds no use in this information?

Information is only useful if it drives future decisions toward better outcomes. This means that the price data generated by open exchanges does not drive better future buying decisions. It means that GroupM believes that it does not need to know what others are willing to pay for media to make better decisions. Granted, they are the largest buyer with the greatest economy of scale in the market, but Citi bank is also a large buyer with economies of scale and they participate in open exchange trading (for financial assets) all the time.

So, what does a major bank get from exchanges that agency buyers don't? The answer is the information content of price. A basic premise in economics is that prices in markets aggregate useful information.  Central to that premise is the notion that in a market with asymmetrically informed agents (one side knows more than the other), trades convey information and therefore cause a persistent impact on price.

In the RTB ecosystem, the balance of information is so skewed that buyers and sellers have no way to interpret price. With every buyer bidding on audience segment attributes that are not known to everyone and with sellers lacking a comprehensive knowledge of what they sold, price is lacking a great deal of information content. Therefore, knowing the prices of other's transactions tell you almost nothing about how you should trade in the future. That is why GroupM pulled out of open markets.

A good deal of discussion about the GroupM decision was based on the fraud in the ecosystem. If media prices in RTB markets reflected what is known about fraud, then fraud would be priced in and its presence would be much more of a minor nuisance. In reality, prices on open RTB exchanges do not reflect the realities of fraud, and as such lack the critical informational content necessary for price data to be meaningful.

With that, one of the two fundamental promises of RTB is broken - each impression will be priced using the power of markets. Further, with the recent wave of measuring fraud throughout the ecosystem and the findings of very significant levels of fraud, the promise of 'ads will only be shown to the audience of the buyer's choosing' is also being broken.

There is a better way.