Is 'The Market' Ever Wrong?
We don’t have to go back to the Dutch Tulip Mania in 1636 & ’37, or the South Seas Bubble in the early 1700s, to know that markets can be wrong. In my humble business lifetime we have had the Internet stock bubble, and the market gave us a housing bubble. Gas station attendants got mortgages to buy McMansions. Math geniuses made presentations at investment conferences on how data about past default experience proved the default rates would be low and the returns would be high.
In the world of digital publishing we share, advertisers are reportedly moving much of their spending through trading desks that operate automated audience buying through real-time bidding (RTB) on networks and private exchanges. The spending in question is going to media companies that are selling off their un-sold-and-unwanted inventory or other companies that invest in no direct sales force but display advertising exclusively sold by third parties from which they get ½ of a low rate to begin with. The amount of spending that is being moved is measured in billions.
Premium content publishers, meanwhile, seeking to build their business model on genuinely valuable content attracting desirable customers, providing advertisers a share of the scarce attention of their audience to deliver a commercial message, are having a hard time growing revenue even as digital spending grows. Newspaper websites, for example, which together add up to an audience of hundreds of millions attracted by trusted original content about matters of clear local interest, have seen their digital revenues -- not their audiences -- decline, as the money is moved to RTB.
Super-smart math guys and gals do presentations at advertising conferences about the magic of audience targeting. RTB networks say that advertisers no longer need to worry about who is selling them an impression. By utilizing a cloud of data on the past activities of individuals, along with data on the content the ad is about to be served in, numerous networks and services show successful case studies of how their advertising customers have been able to increase achievement of key performance indicators like click rates, site visits, sponsored game-play, even buy rates and return-on-investment. Have they successfully made an art into a science? Or has the market been fooled?
My own experience with audience targeting is unhappy. I am a United frequent flyer, so I visit the United website regularly. And for weeks after every ticket purchase, I get targeted with United ads. When I did some consulting work for a pet magazine publisher, I visited a number of pet-supply Internet marketers. Following that, I was targeted for a month with ads for cat-scratching poles! I hate cats.
The advertising networks have aggregated the trillions of impressions that can’t otherwise be sold. Worse, they can’t prove the ad impressions are viewable. August industry bodies are struggling to develop a standard that measures viewability. So far, no agreement. Today technical difficulties of proving viewability have to do with iFrames , among other issues. Tomorrow the difficulty of the guarantees will be due to a new digital tool or tactic, because change is the only constant in the digital market.
The problem here is very similar to the housing bubble. Banks and mortgage brokers frankly didn’t care if they were making good loans because they were selling them off to others who would take the risk of re-payment. The loan-buying market that was putting lipstick on pigs by disaggregating the interest payment from the principle payments, bundling so-called-bonds (Mortgage Backed Securities) and by providing ineffectual “insurance” to guarantee the payments.
Today too many Internet publishers frankly don’t care whether they are supplying a quality impression to the marketplace. These publishers, often content aggregators and content mills or SEO tricksters, simply don’t suffer any consequences if they supply and get paid for an ad “impression” that is of no value. They apply all their innovative ability to technical strategies to maximize their traffic and the number of ad impressions they can get accepted by a network and get “filled.”
There is an old saying that if you build a better mousetrap, the world will beat a path to your door. But more mousetraps were sold by itinerant vendors who promised a better mousetrap, but were long gone from the community when their trap didn’t catch mice. Today’s promises of better ad buying from agency “trading desks” and networks with data that is god’s gift to marketing should be viewed with the same care. Are the suppliers of the impressions genuinely on the hook for their efficacy?
The market genuinely wants audience targeting and RTB to be successful. Advertisers would love to save money on implementation of campaigns by making it more automated. Is there really a short cut to value? Can low-quality inventory really be bundled together to be more valuable?
S&P and Moody’s routinely said yes, lots of bad loans can be made to be good investments. That is what the market wanted them to say. What does the market want the IAB to say about bundling lots of un-sold inventory together?