How Is Bond Trading Like Online Advertising?
I love our clients. They are so insightful and always provide for interesting and intellectual discussions about our business.
Which leads me to today's post. I was visiting with the CEO and the SVP of Operations at a large online publisher and we started talking about ways to increase revenues and efficiencies. The CEO asked what kind of skills are needed to best manage the online ad business and make sure that the revenue needle is pegged at all times. To my surprise and delight, the SVP answered, "bond traders."
That got me thinking about what a great question (and answer) that was. And provided me a topic for a quick post.
To digress, some background on how I got into this business.
After graduating from Duke with my MBA, I got into the derivatives "trading" and portfolio management business. I experienced it both from the "sell side" (working for large banks) and the "buy side" (working for a boutique asset management firm).
I hypothesized that there were many similarities between financial book management and online advertising management (little did I realize how right I was!) and founded my company as a result.
A Day in the Life of a Bond Trader
What is it like managing a portfolio of financial instruments? Most of the time you are evaluating your "book" and determining what trades can be made to improve the composition of the portfolio. This means considering not only the trade itself, but also how it fits within the existing book of trades. We generally called this optimization. Sound familiar?
There were a set of "levers" that could be pulled; we could buy or sell bonds, enter into a swap, buy or sell options, etc. so that the portfolio better matched the current market situation. We had systems that helped us perform the analysis and make the trade as well.
We could also "shade" our prices (when we were market makers), bidding more aggressively for a bond (or trade) if it fit our book and/or lowering our offer (the price that we sold at) when we had an overabundance of similar assets.
As that industry matured, we developed tools to provide more transparency so that our customers could see what we had available to sell and so we could see what our partners had to offer. The tools, which were updated in near-real-time, streamlined transacting and book management.
In online advertising, shouldn't we be looking at our business in a similar way? Shouldn't we be thinking about our ad contracts as a "book" of business? What levers can be pulled to change the profit potential of our book? (See my prior post for some ideas).
We all use the term optimization. But are we using it to describe our book management or simply a single campaign? Want to buy traffic (a bond)? What should you pay for it, given your current set of ad contracts? Too much or too little demand for your premium inventory? By how much should you shade your prices?
Why not leverage technology (as we did as traders) to provide visibility into our daily revenue and inventory? And to provide our customers direct access so that they can book a trade directly, while updating availabilities in real time?
Getting back to the impetus for this post, should we be hiring "bond traders" to help us manage our ad business? Maybe. Maybe not. But the attributes that bond traders possess are certainly a good fit here:
- Analytical minds that are not afraid to leverage data to make informed decisions.
- Confidence to pull all of the available levers to increase revenue.
- Numbers-driven, with the ability to think creatively.
- And, for better or worse, "MBA-like" training.