programmatic guaranteed

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.


How To Spot The Harbinger That Will Revolutionize Media Trading

Its summer, so like every other year, we make our annual family trip to Copenhagen. Strolling down the beautiful old streets I began wondering if the folks who buy and sell media on a daily basis know that real media trading will probably never include a 3-letter technology in the middle. But, the technology is not the primary barrier to this revolution. The current standard terms of media buying contracts are the biggest obstacle to true media trading.


Buying media via programmatic direct, a la an Ebay style 'buy it now' tile is not trading. Buying impressions via a bid in an Ebay style auction, is also not trading. If you are not buying and selling the same media your are not trading. Real traders make their money by buying and selling, not procuring or producing. Most of today's media buyers are brokers, not traders. The only folks in our industry who actually do any real trading are maligned and ignored by most technology related media types, the media barter agencies.

Real trading in media will look much more like the old fashion and out-of-vogue barter business. Media barter companies make forward investments into goods and services companies such as printers, hotels and hospitality companies to acquire products or services at below the market rate. These are then traded on a $ for $ basis with media owners enabling the barter company to create a margin on media space. Sometimes the barter firms even 'resell' media inventory the agency no  longer has a use for, but has committed to purchase. Effectively, barter agencies buy promises to deliver media with payment in many forms.


Promises Promises

That being the case, it's time to cut out the messy part of paying for media with airline tickets or cars, for simple promises of cash payments. To do that, we don't need any 3-letter ad tech. The technology for buying and selling promises is very different from the technology to buy impressions. But, the technology to deliver on those promises has been around for over a decade, the 1st and 3rd party ad servers.

When agencies make forward investments in promises to buy media, for which they (and not the advertiser) are on the hook, media trading can become a reality. Today, one of the industries most influential media trade organizations, the IAB, promulgates a standard media contract where agencies are not 'on the hook' - "...Agency will use commercially reasonable efforts to assist Media Company in collecting payment from the Advertiser..."

Real Trading

In order to truly trade, buyers need to be liable for the promises they make and both buyers and sellers need a market mechanism to help determine the price of media 'promises,' based on market conditions.

The first step in accomplishing this goal is to provide for a biddable programmatic direct environment where bids and clearing prices are transparent. A market price can not be truly determined without all market participants understanding what others paid or sold for in the past and what they are willing to pay or sell for in the future.

Real trading can happen when the promise of media delivery is specific enough to drive increased publisher revenues, provide profit opportunity to the trader, and provide better performance to the buyer. If buyers know that they are running their campaigns in a brand safe environment, where real people view their creative, and the expected performance metrics are achieved, they don't really care who the publisher actually is. This is where a trading opportunity exists that creates value for the advertiser, publisher, and the trader, and is a win-win-win.

Real trading only happens when everyone believes that they have a fair shot at winning.

What AdTech Can Learn From Bitcoin

Advertising is undergoing a fundamental rethinking. Over the last decade, a set of radical technologies have ushered in massive waves of transformation in the publishing and advertising businesses. New revenue sources for content creation and opportunities to reach audiences in completely new ways have brought fourth many new technologies. That is where most of the focus has been. Given the technology the media industry has in place today, what would we come up with if we started from a clean slate? We are living through that moment in our industry. We are having a “Facebook” innovation moment because of a “Bitcoin” disruption.

The evolution of technology in advertising is shifting because of a focus on new areas of innovation. The last wave of advertising innovation focused on bringing advertising from the old manual-space into a machine-automated environment. But, the processes that we automated were originally designed to be done by people. Now that a majority of processes originally designed for manual human-driven tasks have been automated, the focus of innovation is about optimizing the system in its current state. It’s like the leap from email to social media. Email is just an electronic letter while social media is a communication innovation that could only exist because we have the internet. The “Facebook” innovation.

The technology space in which advertising operates today is very different than a decade ago. But like advertising, the financial ecosystem has also changed so much in the last decade. Innovation now focuses on things that you simply couldn’t do without computers, as opposed to computers being automaters of human tasks. The new space of innovation is focused on a better understanding of a network of advertising transactions. Now that innovators can examine the network, they are rethinking its fundamental parts. In finance, technologists rethought the entire idea of money. Rethinking fundamental parts of the system is where real innovation is happening today. The “Bitcoin” disruption.

We can draw a parallel to money. Money was originally made of a precious metal, to carry its own value. Then paper money was invented, physical value was uncoupled from the currency. Then checks, physical representations of money. Then credit cards, which are debts that represent future checks. Today, bitcoin. Bitcoin is a purely mathematical representation of money, it uncouples money from the government or country whose currency it represents. There is no such thing as a physical bitcoin, it is not issued by any government or body, and it’s just data. To put that in perspective, Satoshi Nakamoto invented a way to move and store value, Bitcoin, that innovated on the invention of fiat currency in China over a thousand years ago. All that happened because of the technology network underpinning finance.

So what does that mean for advertising technology? It means that we need to start being mindful of rethinking the most fundamental ways in which the business works. Should we be buying impressions? Should we be buying GRP? or should we be buying something else? Now that the industry has so much technology built-in, what can we do now that we simply couldn’t do a decade ago? The answer is the way supply and demand get defined, measured, and are made to meet.

Be Prepared for the Great Advertising Technology Tsunami

What is the next big thing out there that is really going to change the media game? I’m talking about tectonic changes. The way the introduction of display advertising really changed the game or what we are witnessing today with mobile. Where is the next big wave of disruption? It is going to be the expansion of markets and trading technologies. That might seem a bit obvious, but I think what is driving the change is very different than what drove it in the past. It is this reason that will make the next wave of media trading so disruptive. The most recent disruption in this space was the ability to buy impressions in real time. The difference is that real time was a bolt on to the existing system. Real time bidding made something possible that didn’t exist in the past, the allocation of an impression based on real time market dynamics. The next expansion will be different. The next expansion of advertising and media technology will not be a bolt-on, it will drive changes at the heart of media buying and selling.

So, how can disruption be measured in our business? For media, disruption is measured in the ability to shift spending on a media plan. Better ways to achieve campaign or media buying goals is the measure by which media products are judged and priced.  The better the product, the more demand it will capture. Looking back, it is clear that the advent of display media really moved a significant amount of budget around in media plans and that mobile is doing the same today.

We saw the first move in the expansion of trading technologies when programmatic direct became possible in display. That small foothold has been expanding into things like print and outdoor media. The new changes are starting to build. The new systems are not the media planning platforms of old. Those were just messaging and ticketing systems that automated the paper process. These new changes bring new processes. Much more efficient processes.

There are literally billions of dollars of opportunity to create value by eliminating fraud and unviewed impressions. To do that, processes have to be better. We all know that the old way of media buying is just not measurable enough anymore. Measuring better means more efficient capital allocation and better outcomes. It means that sellers need to be able to slice, dice, and price their available inventory much better, and buyers need to be able to find it and bid.

This is the next disruption in media. Media transactions will be smaller and more frequent. Buyers will be buying shorter flights and more targeted audience segments. This means buyers and sellers need the tools to help them do what they already do, but at scale. Give people more time to make more decisions by speeding up or automating more of the basic administrative stuff. It’s like the difference between a hacksaw and a Sawzall. They do the same thing, except the Sawzall allows the carpenter to focus on cutting without worrying about powering the saw. The next disruption in media is power tools for buyers and sellers that meaningfully impact how budgets are allocated across and within media plans.

Publishers are NOT Economically Irrational

By Amihai Ulman Last week we met with one of the self-proclaimed 'god fathers' of ad-tech to discuss our exchange. Like many of his kin, this technologist repeated an often-used derogatory accusation of publishers - "They're not economically rational."  Throughout the course of many meetings over the last two years I have heard this malarkey repeated behind closed doors with technologists that have been working to create value in ad-tech. I have long scratched my head at these statements, as they did not seem intuitively true. Now that I have taken the time to think these through, I'm ready to disprove this nonsense.

First, let's look at the management teams at these large publishers. Like all major firms, publishers seek smart management well versed in their ability to run businesses. Are there less Ivy league graduates in the management teams of the large publishers? do publishers have fewer MBA's among the ranks of their management teams? Do these management teams not hire the same McKinsey, BCG, Bain, or AT Kearny consultants? The obvious answers to these questions are just the first point in my argument that publishers are no different than other business leaders.

Now, lets look at the impacts of ad-tech sales technology in the last five years. In this conversation, the 'god father' did make a good point about how confusing the ad-tech landscape has been for publishers. On this point he is right, particularly because much of what has come about was sold using jargon that misrepresented reality. For example, contrary to all the 'exchanges' in ad-tech, none are actually exchanges. While all exchanges claim to enable transparency, none actually have real transparency. There are loads of these examples of ad-tech marketing folks making "stuff" up. Publishers have faced armies of sales people tossing about promises of better yield, more revenue,and more efficiency driven by this made up "stuff." Folks on the publisher side quickly adopted that old adage "Fool me once, shame on you. Fool me twice, shame on me."

Oddly, most of the promises made by ad-tech sales platforms  are true... this is where explaining reality gets a bit choppy. The claims made by these firms do generally improve the price of the inventory to which it was applied. The problem is that an explanation with made up "stuff" is much easier to use than the nuanced reality.  The publisher's reality is that the value created usually came at the great expense of other inventory. For example, the rise of the RTB environment increased the price of "remnant" inventory but only because buyers shifted from higher priced guaranteed inventory.  This is a perfect example of the ad-tech service providers being right in increasing the value, while the publisher's overall revenue gets crammed.


If a sales platform does not increase the number of buyers in the overall market, disintermediate another higher cost solution, or unlock value that competitor publishers do not have, a publisher's revenue will always drop. Don't get me wrong, I don't think ad-tech sales platforms are bad (I'm building one). This is how markets work. I am just making a point about the finger-wagging from some holier than thou 'god father.'

After the 'god father' made his statement, I asked "has ad tech been good for major publishers over the last five years?" an awkward silence followed. Then, a poorly constructed argument about how ad-tech benefited long tail publishers was shared. At that point, it became clear to me. Publishers act in a way that is economically rational across their whole portfolio. While some of the actions in isolation seem irrational, in the context of maximizing overall revenue they are rational.

I have come to the conclusion that the people who toss about this false notion that publishers are economically irrational, simply do not understand the nuances of the publishing business. They open their mouth, and in an attempt to prove how smart they are, show the world their foolishness. So, if you work for a publisher, hold your head up high, dust off your lapel, and go on running your business.

RTB Exchanges Are Unusable For Guaranteed Inventory

By Amihai Ulman Do you remember that little interstitial on Sesame Street where a song played in the background with the lyrics "one of these things is not like the other," while a picture appeared challenging the viewer to figure out which one is not the same? Having worked on making all advertising truly tradable, that song repeats more loudly in my head every day.

Over the course of the last few years, I have come to realize that the main reason why advertising has not been made truly tradable is because of a lack of innovation. 'None of these things is any different than the rest.' In short, all of the solutions we have seen to date have all shared a single approach to market and exchange product development: what do we have that works elsewhere that we can apply to advertising?


This is a fundamental misunderstanding of the nature of advertising. One should first ask: does advertising behave like other traded assets? If the answer is yes, than we can ask: what do we have that works elsewhere that we can apply to advertising? The problem is that advertising does not behave like any other traded asset. If you have followed this blog, you may recall that we talked about advertising behaving more like real estate than any other asset. That should be an important clue. Real estate does not trade in an exchange. Real estate does not behave like other tradable assets. So, if we really want to make advertising tradable, we must go back to square-one and build an entirely new exchange framework. While the Sesame reference seemed to be tongue-in-cheek, it was absolutely serious.

Market structures for advertising require a completely new approach to structure the media transaction. It might not be obvious how badly the media trading markets needs this new approach, but it becomes much more obvious when compared to the numerous other transaction markets within our economy. Global media spend will exceed $600 billion in 2013. That is about 1.5% of global GDP! RTB is a wonderful innovation, but billions of dollars in advertising (television and print) have no use for trading real-time impressions. These markets need to transact on a forward basis.

So, let's consider how other markets handle transactions. As I noted in an earlier post, "In nearly all other exchange traded products, all buyers will realize the same value from the transaction." It is this nature of other exchange traded products that translates into relatively tight spreads between bids and offers in liquid markets. Conversely, in an advertising market with many buyers and sellers, it is unlikely that the price of orders to sell will match perfectly with the price of orders to buy. It is this ambiguity of a generally agreed upon value and price that makes advertising so different than any other asset. In other words, a market price is not derived through a consensus of all buyers. Forcing a consensus among buyers is the very reason why second-price (one-sided) auctions have failed as an exchange structure for reserved or guaranteed inventory.

Sequential auctions, the fundamental structure of RTB 'exchanges', have the effect of limiting the information that is available to bidders and of limiting how bidders can respond to information. With sequential auctions, bidders must guess what prices will be in future auctions when determining bids in the current auction. Incorrect guesses may result in an inefficient assignment when ad placement values are interdependent. A sequential auction also eliminates many strategies. Using existing exchange structures for guaranteed inventory, a seller cannot switch back to an earlier item if prices fall too low in a later auction. Bidders are likely to regret having sold early at low prices, or not having sold early at high prices. The guesswork about future auction outcomes makes strategies in sequential auctions complex, and the outcomes less efficient.

Unfortunately, it seems unlikely that the RTB market participants will be able to determine accurate reference prices, particularly given the fact that price discovery is limited only to a knowledge of the clearing prices of what an individual market participant transacted. A secondary market simply does not exist —recall that this is the rationale for the need for MASS Exchange's innovation—and the few transaction prices known (as well as the bids) can be presumed to be highly misleading indicators of value. Inaccurate reference prices give rise to an adverse-selection problem.

The experimental economics literature strongly supports our conclusion that dynamic auctions outperform sealed-bid auctions in terms of efficiency and price discovery. In sealed-bid auctions there is a tendency to consistently overbid (Kagel, Harstad, and Levin 1987; McCabe, Rassenti, and Smith 1990), often resulting in inefficient outcomes. While the second-price methodology seeks to alleviate this problem, the second-price method is only a solution where each impression is auctioned separately. Guaranteed impressions will always be sold on a forward basis and thus can not be priced at the individual level, making current RTB market model unusable for guaranteed inventory exchanges.

Birth Of The Advertising Trader

By Amihai Ulman The media business has a unique nuance rarely seen in other transactional markets; the difference in transactional behavior between the buy-side and the sell-side. In traditional media, the sales team on the media's side does very few things similarly to those which are done by the media buying and planning teams on the advertiser's side. These differences are an outcome of an industry lacking traders. This is not a good thing or a bad thing, it just is. As markets develop, the specialization of trading will create a whole new set of roles on both the media buying and selling sides.

One of the constants of our economy is the increasing specialization of individual roles and the disappearance of antiquated ones. The requirements of modern business drive hyper-specialized roles in the economy to unlock very specific value hidden deep in the business process of highly specialized functions. There used to be a time when the wheat market consisted of three participants: the farmer, the miller, and the baker. As time passed and our economy grew in complexity, farming, milling, and baking all became highly specialized businesses. Over that same period, business functions like transportation, trading, and financing fragmented away from the three traditional roles, became specialized, and spawned an array of new businesses to enable the farmer, miller, and baker to focus on what they do best. In the same way, we see a current evolution in media. This process will likely take another decade to fully materialize in the media space.

In the meantime, there are 'wheat farmers', 'wheat' exchanges, but very few sell-side traders in today's media markets. In the next two years, a large shift in strategic sales focus will take place at major and mid-tier publishers to build out these capabilities. The current lack of infrastructure and specialization on the sell-side presents enormous opportunities for arbitrageurs to 'pick up' the money that publishers 'leave one the table' with every RTB transaction.

Lest you think I am too hard on the sell-side... the buy-side still has a long way to go as well. RTB is the tip of a massive iceberg waiting below the waterline. This is a good iceberg. An opportunity iceberg. Continuing our metaphor,  today's agencies are like bakers who seek to make a cake but can't buy just the specific ingredients they need. It's not that they don't know what they need, to the contrary, they know very well. The problem is that they have no choice but to buy the 'flour sampler' if they want to get the pastry flour. How do we know this is true? The 2012 comScore vCE Charter Study showed that across 18 Campaigns,  2,975 Media Placements, 380,898 Site Domains, and 1.8 billion Ad Impressions "...In cases where there were two variables (e.g. women + 25-54 years old), the accuracy of targeting decreased to an average of 48%, and with three variables  (e.g. women + 25-54 years old + with children under 18 in the home) the average was 11%." (pg. 17) That's a whole lot of stuff the baker doesn't want but just has to buy.

To solve this problem, buyers will have to define what they want to buy at the line item level. They will need the tools and skill to price each of those line items at their respective value. What placements and specific audience segments does the buyer want and what are they worth? Buyers will bid on those placements and audience segments they want and will leave the publisher to sell the remaining segments to other buyers who find value in those segments and placements. Of course this will drive a sea change in pricing. Good inventory will get more expensive and bad inventory will get cheaper. I don't believe all prices will drop, I just think that they will be different.

With these new behaviors, buyers and sellers will be giving birth to a truly specialized trading professional, driven by the similarity of behaviors on both the buy-side and the sell-side of the transaction. In the end, a true trader is both an effective buyer and an effective seller.

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, 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.

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.

The Third Wave of Advertising Modernization

In the first wave of advertising modernization, radio and television consecutively consolidated a hugely fragmented advertising environment from local newspapers. At first, the consolidation from radio enabled advertisers to reach large audiences through a limited number of channels. In 1870, New York City alone had over 90 newspapers with 118 editions. For large advertisers, the advent of radio reduced this channel complexity enormously. By 1942 New York City had 12 radio stations broadcasting to an area greater than ten times that served by its local newspapers. In the second phase of consolidation, the proliferation of radio stations along the dial was again consolidated by the advent of television. In 1960, there were only three television stations in New York City. I call this wave of advertising modernization the Reach Revolution.

While the Reach Revolution was instrumental in changing the advertising industry, a huge sacrifice was made in the efficiency of targeting. The low cost of content production and distribution at scale compared to print publishing made that inefficiency moot. Nobody really cared because it was so much better: efficiency through sheer scale.

Like the first wave of advertising modernization, the second wave was driven by a new type of media, the internet. While we are still in the throes of the second wave, one thing is clear. The second wave of advertising modernization focused on relevancy. The internet enabled audiences to be segmented across many publications, devices, contexts, and their individual geographic locations. The second wave enabled advertisers to see their audience with much more detail and understand how to increase the relevancy of their messaging by including many more variables than just age and gender. We are now at the apex of the second wave, Real Time Bidding (RTB).  I call this second advertising modernization wave the Relevancy Revolution.

And so, here we stand at the end of the second wave and the start of the third wave. RTB stands at both the apex of the second wave and the trough of the third wave. While RTB enables the targeting of individuals and provides the highest possible degree of targeting, it also enables the introduction of market forces to create a truly dynamic pricing environment. RTB is the tip of the iceberg and MASS Exchange is the iceberg.  The third wave is the Pricing Revolution.

In the coming years, the way in which all media transactions are priced will change. The new wave in advertising recognizes that advertising is not a commodity, that publishers may each have a unique brand value, that advertisers need volume discounts, and the media buying should be managed like a portfolio of advertising assets across media and devices.