advertising pricing

Ad Tech's One-At-A-Time Architecture Is Missing Its Other Half

Anywhere there is advertising, there is a story that needs to be told to a group of people. The revolution and evolution of digital media since the early days of the internet was driven by a mantra of “One At A Time.” No longer would advertisers be bound to large blocks of audience in take-it-or-leave-it transactions with television broadcasters, cable companies, newspapers, magazines, and radio. This was a true revolution for advertising.

Real-time bidding enabled buyers to individually select and price every pair of eyeballs they buy. To achieve this new vision, an entire infrastructure was put in place that dwarfed technology for transacting traditional media. We have seen multiple unicorn IPOs in digital, while technology for traditional media languished. But for many years, the secret everyone knew was that the money flowing through the traditional systems was much larger than the money flowing through digital systems. But, with nearly a decade where all media spending growth was happening in digital, the divide closed. Today, ad tech is waking up to the green field opportunities in transacting traditional media.

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Unfortunately, the green field of traditional media is on the other side of a vast canyon. Getting to the other side of that canyon requires an ability to transact blocks of impressions, before they show up. This is a key reversal of how these markets and technologies for addressable media work. A one-at-a-time market requires impressions (supply) to exist before the buyer presents their demand. Conversely in traditional media, where blocks of impressions are sold, buyers first present a large block of impression demand which the seller then answers.

For those that have attempted to use the one-at-a-time architecture to sell large blocks of audience, Google TV Ads and Google Radio Ads proved exemplars that no amount of money will let you fit that square peg in that round hole. In a one-at-a-time environment the way demand overlaps inventory is explicit. Impressions actually exist and all the demand (bids) for each are collected in an auction. A one-sided second-price auction. In this type of auction demand only exists if supply is offered.

When large blocks of audience are offered, inventories must be forecast, and the way demand overlaps inventory must be computed. That means sellers must be able to understand how an individual bid is applied to inventory as well as how that inventory is impacted by all other bids. In a one-at-a-time market the auction knows all the bids and the inventory being considered is only a single impression, so we know exactly how the bids overlap, they all do. In a one-at-a-time market there is no chance that there could have been a better deal. Conversely, when large blocks of impressions are sold, the seller must always consider what other deals are being forgone so that this deal can be made. These sellers are always questioning if they took the right deal. They are constantly evaluating inventories, current deals, historical deal activity , and pricing.

The technology to answer these questions and respond to demand is not offered by any company other than us. This is the missing other half of the ad tech stack and the reason that today’s ad tech is still restricted to media that is device addressable.

 

Viewability: The Long And Winding Valuation Road

Over the past few months, the discussions in the marketplace about viewability have been important in establishing the importance of actual delivery. The most pithy view of the discussion was a quote from  a senior agency ad tech executive -  “Expectations are that if you buy an impression, it’s being viewed. Period. For that reason, I’d be surprised to see anyone agree to pay a premium for certified viewable impressions over today’s rates but would expect CPMs to start to fall.” If you believe the validation angle, the point about premium is spot on. In reality, the world is filled with people trying to 'work the system' and removing unviewed impressions will create supply constraint. So, he's right and wrong at the same time. No one will pay a premium for certified viewability, but prices will go up regardless, as supply is constrained.

In nearly all significant transactions, a third party is called upon to provide a quality validation service. In the diamond market there is GIA certification, when buying a house an engineer inspects, CPG organic products have certifying bodies, when completing a merger the target is audited. Why should advertising be different?

Ads that are bought should be viewed, it's that simple. If the ad was not viewed, then nothing was really delivered by the publisher. In print, proving that an ad was delivered is accomplished by a tear sheet. Since a print publisher can not prove an ad was seen, they have to prove the ad was included in the publication. To do the same, digital advertisers inserted their own ad servers in to the stack, they essentially create their own tear sheets when the ad call was received.

So where does this leave us? Simple, buyers want confirmation that they got what they paid for. Confirmation of delivery, confirmation of view, and confirmation of audience. In short, every element key to value validation will be confirmed by a third party in the near future. It started with advertiser ad servers, then click fraud identification, followed by view confirmation, and the new frontier - audience segment guarantees via PII data.

With all this validation scaling through the ecosystem, a real exchange is unleashed to become a super-powered price discovery engine. Knowing exactly what is being bought and sold let's the buyer bid without worry, as they know exactly what they are getting. We welcome all of these services with open arms. Why? Because an exchange works to provide a facility for establishing a common price for a shared understanding of value. Better understanding of value means markets work better.

What Is The Market Price For A Guaranteed Ad?

By Amihai Ulman In the few years that I have been swimming in the deep end of the ad-tech pool, I have found the question "What is the market price for an ad?" to be an extremely difficult question to answer. Even highly illiquid and opaque markets like real-estate have had technology, e.g Zillow.com, brought to life for enabling buyers and sellers to gain a basic understanding of what an asset is worth. Well understood standardized markets like debt, equity, and commodities are so easy to price that you can get the price for free from Yahoo's finance page. So let's get back to the question at hand, what is the market price for a guarenteed ad?

While some believe that RTB is an effective mechanism for pricing ads, most economists would argue that unless you can transact in a market that allows spot and forward transactions that can be transacted both long and short, the price of a transaction does not reflect a true market value. In other words, if you can't reliably forecast the price an impression will sell for in the market, you have no idea what the market value is. This lack of a basic understanding of value is bad for both publishers and advertisers.

So, what now? where do we go from here?

Let's break it down. A guaranteed ad has four elements driving price: (i) the target audience, (ii) the attributes of the ad placement, (iii) the premium unique to the publisher, and  (iv) the premium to secure the guarantee. Now that we have the basic components, we have to figure out how to determine the value of each element, their composite, and the distribution of the aggregate across the two parts of the transaction (the MASS Exchange innovation). That said, these  valuation models are guidelines. A true exchange gives buyers and sellers full control over their bids to buy and sell.  Our valuation algorithms are tools to help inform buyers and sellers, not to determine the price of a transaction. The objective is to inform buyers and sellers what are the prices at which they are most likely to get a deal done, based on market conditions.

Further, there is a whole other world of pricing problems when one deals with advertising that does not exist elsewhere, buyer-dependent value. In nearly all other exchange traded products, all buyers will realize the same value from the transaction. Said otherwise, all the buyers of a share of stock in a company like IBM will realize the same performance. This is not true in advertising. Different buyers can realize wildly different results from the same exact ad placement and audience. What is even worse, a buyer can not depend on constant outcomes. If an advertiser has a highly effective creative implementation and uses it for too long or too often it loses it's value and thus the ad placement is deemed to perform poorly.

With all of this uncertainty how can we determine price? A similar uncertainty problem may ring familiar to you if you have studied quantum mechanics. I would argue that we need to think like Werner Heisenberg and come up with the advertising industry's version of the uncertainty principal. An ad placement is many things to many buyers, all at the same time.

Trying to reduce an ad placement opportunity to a single price may be a paradigm that fits neatly into well worn heuristic pathways, but innovation comes by not accepting the present and blazing new paths. There are still lots of very big problems out there to be solved in advertising, you just need to know where to look.