Audience And Context, Not Audience Or Context

By Amihai Ulman One of the longest standing debates in digital advertising has been the superiority of buying audience vs. buying context. You will often see the colors of both sides on the stages of OMMA and IAB events discussing the benefits each has in terms of reach, lift, and relevance. It is an odd feeling to be sitting in the crowd listening to some of the smartest people in the industry discuss a topic that you know with certainty both sides are completely correct about.

"Half the money I spend on advertising is wasted; the trouble is I don't know which half."
"Half the money I spend on advertising is wasted; the trouble is I don't know which half."

In a better media buying environment, media buyers can price the attributes of the audience that they find most valuable and the attributes of the ad placement that they find most valuable. Next generation programmatic guaranteed does just that. More importantly, separating the price of the audience attributes from the ad placement attributes provides buyer and sellers the price discovery needed to understand how each influences performance.

The more buyers understand the value of what they are buying, the better price will reflect value. Good inventory will get more expensive and bad inventory will get cheaper. That's better for both sides.

Let’s look at an example. After consulting with the client, the media planning and buying team decide to target females between the ages of 18 and 35 that belong to an affluent consumer segment. In conjunction, one of the creative implementations chosen is a 300x250 in-banner video. Having the ability to price context separately from audience enables an analysis to determine the market value of the audience segment, the market value of the context and ad placement, and the ability to measure the unique publisher brand value that you just can't get anywhere else. With this data in-hand, the media buyers and planners can make very disciplined decisions about what to buy, where to buy it, and what to pay, based on market data and conditions.

While this may seem like a Utopian dream, the reality is that all of this can only be achieved with a balanced approach that provides equivalent value to the publisher and sets a level playing-field to enable buyers and sellers to come together. Further, the strategies of buyers and pricing strategies of sellers all have to be hidden from the broader market while simultaneously providing transparency to each side of the transaction. A guaranteed programmatic exchange provides true price discovery, price transparency, counterparty transparency, and transactional anonymity.

Programmatic Guaranteed vs. Algorithmic Guaranteed

By Amihai Ulman A curious thing happened when the calendar changed from '12 to '13, the change brought with it a blizzard of articles and blog entries about Programmatic Guaranteed. Having seen well defined words like ‘transparency’, ‘price discovery’, and ‘exchange’ lose their true meaning in the morass of ad-tech marketing, this seemed to be the perfect opportunity for clarifying the difference between programmatic and algorithmic.

A number of players in the industry have begun to use the term Programmatic Guaranteed to describe their business, a term that today has a different meaning than programmatic in RTB. So what’s the difference? Programmatic is used for automation and algorithmic is used for computation. Most people understand that programmatic in RTB includes a great deal of computation determining value and price in and automated marketplace. For nearly all platforms in the nascent Guaranteed Programmatic space, there is no bidding, value, or price computations. It is simply an automation value proposition.


What the advertising industry needs is actually an Algorithmic Guaranteed Exchange. I wrote a little about this in Smart Auctions vs. Not-So-Smart Auctions. An Algorithmic Guaranteed Exchange enables buyers and sellers to leverage the strength of computational algorithms, to optimally price their asking prices and bids, using some of the most powerful mathematical tools used by financial professionals with a push of a button.

For both buyers and sellers, the ability to leverage algorithmic technologies enables critical new tools in answering the most important questions they face on a day-to-day basis. What should I buy or sell to achieve my goals? How much should I pay? When should I place my order? Media buyers and publishers sales teams need better more powerful tools. Programmatic Guaranteed technologies will not answer your questions they will simply do as they are told.

Technology can be used to make things better, faster, or both. We're doing both.

The Programmatic Guaranteed Order Book

One of the main differences between the auctions of ad-tech and fin-tech is the CLOB  - Central Limit Order Book. Unlike an RTB auction where bids are received, a winner is picked, and all bids vanish, in a MASS Exchange auction, bids are submitted, collected into the CLOB, and persisted until a match is made or the order expires. Since MASS Exchange provides buyers and sellers the ability to programmatically transact guaranteed advertising inventory, the auctions do not represent impressions that are about to expire and orders to buy and sell can persist. Applying our innovation, the separation of the audience and ad placement components of a transaction, allows us to rest sell orders from multiple publishers on the same CLOB without commoditizing the inventory or artificially driving down the price of the transaction as other auction models do.


With a CLOB at the core of the exchange, price discovery and market data can be provided to both buyers and sellers so that each can understand the market price at which their desired transaction will clear. That's a big difference between us and RTB. In our market, a buyer or seller knows at which price they can find a counterparty before they enter their order, and if they don't like that price they simply choose another. Beyond price discovery, the MASS Exchange also provides the first advertising exchange environment where multiple buyers compete along with multiple sellers, in the same auction. Now that's a market! Both sides compete.

MASS Exchange allows the 'invisible hand' of the market to enable advertisers and publisher to determine what prices should be in a level-playing-field environment. Adam Smith would approve.

Smart Auctions vs. Not-So-Smart Auctions

If you have read my last few posts, it seems like I may be approaching the difference between one-sided and two-sided auctions with a bit too much passion. I've frequently heard statements like "the best technology doesn't always win" and "good enough is good enough." If that were true, we'd all still be riding around in horse buggies. The real question is whether the incremental increase in value is greater than the cost of adoption. When thinking about auction structures for advertising, I believe that there are two types of auctions, smart auctions and not-so-smart auctions. Single-sided and double-sided auctions can be either. This is the next layer of market structure.

A not-so-smart auction is like a stop light, it doesn't think, it just executes. In a not-so-smart auction a seller provides a description of the good, the auction is set up, and a bid request is issued without regard to what it represents. In other words, the auctions does not care what you are selling, it is up to the buyers to make all the determinations. A great example of a not-so-smart auction is eBay.

In a smart auction, the description influences how, and where the auction facilitates the transaction. Furthermore, buyers and seller have multiple of order types to choose from. Buy and sell is just not enough.

So why does all of this matter? Well, if you want to ask a seller to replace a smart sales team with a not-so-smart auction, participation will be driven as a  'sales channel of last resort.' If you provide a smart auction, you can really start to have a serious conversation with publishers.

Not-so-smart auctions solved a speed problem, smart auctions solve a quality problem. I'd rather be the tortoise than the hare.

Smart Auctions
Smart Auctions

The Publisher's Dilemma

Over the last few months, I have been struggling to come up with a pithy term to accurately express why all advertising exchanges to date don't truly work for publishers. Now I've found it - 'The Publisher's Dilemma' The Publisher's Dilemma describes the set of questions that remain unanswered when selling inventory through and exchange instead of a sales team. It is the challenge a publisher's sales team overcomes every day when they manage inventory sales. The reason people are so valuable in guaranteed and premium inventory sales is information. A good sales team will find the market and sell inventory across a spectrum of pricing that maximizes the publisher's revenue. These optimizations are achieved by managing information. For example, the little spender has no idea how big a discount the big spender got on the same inventory. This is the key, managing what information is exposed, to whom, and when. This is why publishers don't want to post their inventory into an open exchange.

While it might sound like heresy coming from the 'exchange guys', we completely agree.


The reality is that each advertiser is buying inventory for different reasons and is able to derive performance at different rates. This means that in reality each advertiser represent a unique market segment. Using a sales team, publishers naturally manage this complex web of market segments. In an exchange, an auction collapses many buyers into a single auction, and undermines all the work a sales team does.

So here's some of the questions that the Publisher's Dilemma describes:

  1. How do I sell volume discounted inventory on an exchange without undermining my pricing power on the rest of my inventory?
  2. If inventory can be sold on its own, as part of a package, or as part of sponsorship how could an exchange help me understand how to sell it?
  3. How can I leverage the value of my hard earned 1st party data to unlock its full value to my advertisers?

The questions go on and on. That was just a sample.

The team at MASS Exchange decided to do things differently. We didn't assume that some academic studying financial markets already figure this out, with all due respect to William Vickrey. We went back to the drawing board. We engineered an entirely new market structure for the advertising market. The first part has been patented but more great stuff is still to come.

We're ready to make The Publisher's Dilemma a thing of the past and we're well on our way.

Current auction models for advertising just don't work

I recently read an article by titled For Online Ad Industry, It's Time To Stop Being Nostalgic which was one of the clearest indications highlighting the fundamental misunderstanding of how single-sided auctions undermine publishers in every case, except search. As a caveat, let’s make one clear distinction before we go on. There is nothing inherently wrong with real-time bidding. The problem with RTB today is that it is only applied to the single-sided auction model.


I was perplexed by the statement "If publishers make peace with the fact that exchanges are here to stay, then they can make peace with RTB as well. Once they do, they can see how their CPMs will stay competitive and even go higher." as it runs contrary to the fundamental economic theory that drives the value of these auctions. Let's take a closer look at one-sided auctions...

Originally, the one sided second-price auction made waves in advertising when applied to search. In the context of search, one sided second-price auctions work very well. The reason is simple, in search all buyers are bidding on exactly the same set of audience attributes: the search terms. In other words, every advertiser that is bidding for the term 'car insurance' is bidding for the exact same set of attributes. Now, let's fast forward to RTB display. In the display market, impressions contain a large number of attributes visible to all market participants, the bid string, and some which are only visible to one or very few parties, 1st party data.

Here is where economic theory comes into play. When all the bidders have the same information and are bidding on exactly the same set of attributes, e.g. search, all buyers rest along a single demand curve and the market is well understood. In RTB one buyer may be bidding on an impression because it is 'in market' and another is bidding on a completely different set of impression attributes. In reality, this means that each bidder, whose bid is driven by a different set of attributes than other bidders, is defining a unique demand curve. The RTB auction collapses all of these demand curves into a single demand curve driven by the buyers informational advantage, thus enabling advertisers to bid down to the 'lowest common denominator' of price.When the buyer knows more than the seller, the seller always loses.

Using traditional premium inventory selling methods, publishers know more than buyers and can thus garner more economic value. In exchanges, information is power and power sets price. By moving inventory to a single-sided auction, publishers give up their informational advantage and pricing power. Display advertising is a different animal than search advertising. Until the innovation being brought to market by MASS Exchange, the single-sided auction was the best solution. Not anymore.

For those of you reading this that have a deep understanding of market structure and economic theory, the double-sided market model used by MASS Exchange will leave you unconvinced. If the aforementioned describes you, stay tuned. Our innovation is like an iceberg, there is far more of it that you can't see than that which you can.

STP - 2013's new ad-tech acronym


Like many others, we like to make predictions when unwrapping a new calendar and looking forward to a whole new year. 2013 will see a new acronym added to the ad-tech lexicon - STP. Straight-through processing (STP) enables the entire trade process for markets and payment transactions to be conducted electronically without the need for re-keying or manual intervention. In the last few years, we have seen curiously little discussion of straight-through processing.

Many folks in media buying dream about the day when straight through processing facilitates a media buy that can be briefed, proposed, trafficked, inserted, delivered, invoiced, and paid with minimal manual work.

The ad-tech ecosystem is full of many bright people working hard to solve each step of the STP problem. In 2013, we will begin to see a critical mass of the process automation required to form a ubiquitous infrastructure to facilitate STP. The increasing complexity of digital media buying and the push of addressable media technologies outside of display are creating the potential for unimaginable complexity that can only be rationalized by machine driven processes.

What does this mean for the front-line media buyers, planners, and sales teams? Simple, more thinking and less doing.

What's wrong with being a 20-something media buyer?


Having plowed through many of the seminal business strategy books of the last few years, I have found myself hearing smart people make comments about the advertising industry that just don't square with the macro view of how our business ecosystems work. We have all learned about  Adam Smith's "invisible hand" of the market, been inculcated in the belief that markets efficiently allocate resources, and maybe even read The Wisdom of Crowds. Even though we are all well familiar with the market's efficiency in allocating resources, folks in and around the advertising space continue to deride the industry. I can't  count the number of times I have been told that advertising is irrational while the speaker simultaneously praises the rationality of the free market and Wall St. exchanges.

As a newcomer, I look in with an outsider's eye and scratch my head in dismay. According to Dam Salmon's Digital Marketing Hub v2.0  "The global advertising and marketing services industry encompasses around $1 trillion" (2011). So let me get this straight, $1 trillion dollars of global economic activity defies the laws of economics? I don't think so.

So where does the 20-something media buyer come in? Right here. I argue that the 20-something at an IPG, WPP, or Publicis agency is just as rational as the 20-something trader on Wall St. The market works. With the exception of RTB, all of the trading technology solutions brought to the doorsteps of agencies over the past 30 years have been complete failures. It's not that advertising does not obey the rules of economics, it is simply that the solutions that have been attempted did not produce the outcomes that applying these solutions in other industries have produced. As I wrote in an earlier post there have been a few notable attempts to build an advertising futures exchnage, all failed.

20-somethings at agencies should stop being scapegoated as the naive foot soldiers holding back the industry. The advertising industry has collectively 'voted' against these other exchange solutions. We believe that the the collective industry is well aware of what works and what doesn't.

The MASS Exchange difference is that we listened long and hard, defined the business problems in advertising terms, and have the humility of knowing that the industry possess the wisdom of the crowd. It is not that advertising is intransigent and its people are somehow different, the industry does things because they work. There might be a theoretical way do to things more efficiently, but until they are proven out, people stick to what they know. After all, we were all 20-something at some point.

Why real advertising exchanges are so hard

Over the last two years, MASS Exchange has been working on the biggest Big Hairy Audacious Goal (BHAG) in advertising, a futures exchange. Not just any futures exchange, one where any type of addressable advertising can be traded. In that time, we have spoken to many of the smartest people in the industry at agencies, publishers, RTB exchanges, DSPs, SSPs, and data providers. One of the most consistent themes we heard was “Futures exchanges have been talked about for decades. Have you looked at ________ ?” The blank was always some company that tried to do something they called a futures exchange that inevitably failed. The first thing you need to know is that contrary to any company in the advertising industry using the term ‘exchange’ to describe their business, in actuality, none of them were actually exchanges. In his piece The First Rule of Advertising Exchanges - There Are No Advertising Exchanges, Ed Montes lays out the realities of RTB marketplaces vs. true exchange. (Well worth the read by the way)

If advertising futures had been talked about for so long and had been tried by others, what makes MASS Exchange different? We approached the problem, and the consequent innovation, from a very different perspective:  financial engineering.  In the past, attempts to solve the advertising futures exchange problem focused on information technology solutions. The reason these solutions failed is that they brought technology solutions to solve financial engineering and market structure problems.

So, what is the advertising futures exchange problem? Funny enough, the answer can be summed up in a single word: fungibility.  Fungibility is defined as the property of a good or a commodity whose individual units are capable of mutual substitution, such as crude oil, shares in a company, bonds, precious metals, or currencies. At this moment, you are probably thinking “advertising is not a commodity,” and you know what? You’re right. You have also applied conjunctive logic to conclude that if the solution requires fungibility and advertising is not a commodity (fungible), than an advertising exchange is impossible.  In a context where no real innovation is applied, advertising futures exchanges are impossible.

MASS Exchange’s core innovation enables the creation of fungible advertising units that do not create commoditization. Now things get interesting…

Second price auctions are not exchanges

Today, the world of advertising trading technology (ad tech) is dominated by real time bidding markets calling themselves exchanges. In actuality , they are not exchanges. What is even more astounding is the continual reference to liquidity in these second price auctions. So, let's take a look at what are the attribute of exchange facilitated liquid markets. Liquid markets tend to exhibit five characteristics: (i) tightness; (ii) immediacy; (iii) depth; (iv) breadth; and (v) resiliency.  Tightness refers to low transaction costs, such as the difference between buy and sell prices, like the bid-ask spreads in quote-driven markets, as well as implicit costs. - Second price auctions have no sell price, they have price floors.

Immediacy represents the speed with which orders can be executed and, in this context also, settled, and thus reflects, among other things, the efficiency of the trading, clearing, and settlement systems. - RTB markets execute and clear orders very well. Settlements is a whole other ball game.

Depth refers to the existence of abundant orders, either actual or easily uncovered of potential buyers and sellers, both above and below the price at which a security now trades. - Second price auctions have only one sell order and thus lack depth on both sides.

Breadth means that orders are both numerous and large in volume with minimal impact on prices.- RTB markets transact impressions one at a time and thus are numerous but lack volume.

Resiliency is a characteristic of markets in which new orders flow quickly to correct order imbalances, which tend to move prices away from what is warranted by fundamentals. - Unified second price auction models in use today don't result in uniform valuations based on fundamentals. For sellers, there is not way to determine the relationship of price to value.

These terms reflect different dimensions of the extent to which advertising inventory can be quickly and without significant costs can be transformed into legal tender.

While I am generally not one for keeping score, seems to me like second price auctions rate a 1 out of 5. MASS Exchange uses a double sided continuous auction, the same market structure as exchanges like NYSE and NASDAQ.

Here we go!

Welcome to the MASS Exchange blog, We want to share our journey, our learnings, and the ways in which advertising and financial markets can each learn form the other. So, let's start with what we are doing...


Mass Exchange is building the world’s first advertising futures market for programmatic media futures.  A key differentiator of our market is standardized upfront contracts that can be traded as part of a robust, transparent, and efficient organized market.  Our innovation applies to all addressable ad markets, including: television, online, and mobile, all traded through a single exchange.  Our novel processes provide transactional opacity, price discovery, and price transparency while providing optional anonymity to ensure that buyers’ and sellers’ advertising strategies are not exposed to the broader markets.

Since the 1970s, financial and commodity markets have developed conventions, objective governing rules, and standardized product terms to promote competition, transparency, and organized marketplaces.  While advertising has many buyers and sellers who engage in thousands of transactions a day, and a number of standardized products with objective definitions, advertising has no organized market to provide price discovery and transparency nor a way for buyers and sellers to meet efficiently to transact business using standardized products.

MASS Exchange is bringing over 40 years of market structure and electronic exchange knowledge to advertising.