Comparing Ad Automation To Wall Street Exchanges

Madison Avenue can learn a lot from Wall Street about the business of automated buying and selling of digital advertising, or programmatic trading. The financial markets have been taking advantage of automated exchanges longer than advertisers and publishers have. The ad tech industry can benefit from taking a page out of the financial industry’s.

Let’s look at some of the differences between the two industries. One major difference is that Madison Avenue is an unregulated market, while Wall Street is regulated. While we certainly aren’t suggesting that the government get more involved in the ad tech space, Wall Street regulation creates a base set of standardized rules for exchanges and promotes transparency. Madison Avenue’s digital marketplaces (exchanges) fundamentally lack transparency.

Also, financial exchanges are wholly accountable and liable, while  recent contracts suggest ad marketplaces seek to avoid both responsibilities. Until recent exchange consolidation, the competitive nature of Wall Street markets has driven down electronic transaction and other costs (spreads) incurred bridging buyers and sellers. On Madison Avenue, spreads are growing, with transaction and other costs thousands of basis points higher than what is charged on Wall Street for matching buyers and sellers.

Another aspect of this lack of transparency in the ad business is the confusion between precision and accuracy when it comes to reporting and invoicing. Financial companies are required to be 100% auditable, which means being completely accurate on price. Financial investors are risking capital -- as are media investors -- but demand to be informed exactly how their trades are managed. This is too often not the case in ad tech, where imprecise and/or inaccurate cost, placement and performance estimates -- or no campaign reporting at all, for marketers or publishers -- is the standard. Too often Madison Avenue’s digital media invoices are a miracle of simplicity, unbound by the need to depict how they were derived, or any sense of auditable accountability.

Independent media traders (IMTs) could be part of the solution to these problems. IMTs are typically more transparent than agency trading desks, offering greater accountability for their trades. Similar to Wall Street banks, which are required to be fully auditable and offer transparent reporting and invoicing, IMTs typically outline exactly what trades and services they are doing on behalf of clients and are willing to explain every charge on an invoice. For example, their bills may include an itemized list of every action surrounding a buy or sell, the costs of media, technology, data, labor and other such fees. IMTs are also flexible in terms of how they bill and are willing to work with a client to determine a pricing structure. As specialists, IMTs often provide clients with a more insightful picture of what is actually occurring in the market.

Transparency is important in programmatic advertising in particular because it offers stakeholders the promise of more control derived from receiving a more complete, faster picture of how trades are actually being filled. Without it, marketers, agencies and publishers will miss maximizing programmatic’s twin key benefits: greater efficiency and incremental effectiveness..

Programmatic trading may still be young on Madison Avenue as compared to Wall Street, but it offers a world of potential to improve the way the industry does business. We have a long way to go. Our industry can learn a lot by exploring the practices already established on Wall Street.

Tags: programmatic, rtb
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6 comments about "Comparing Ad Automation To Wall Street Exchanges".
  1. Ronnie Jeremy from Digital Entertainment , June 12, 2014 at 11:04 a.m.
    While I appreciate that Bill and Ted are backed by Wall Street banks as they embark on their excellent adventure, they continue to compare the purchase of tangible assets to that of a perishable product in ad space. The entire argument falls flat. Great piece in AdExchanger explaining it more. In short, an ad impression is not a stock, and Madison Ave and Wall Street don't intersect in Stamford. http://www.adexchanger.com/data-driven-thinking/stop-comparing-madison-avenue-to-wall-street/
  2. Ted Yang from MediaCrossing , June 12, 2014 at 1:53 p.m.
    An ad impression is definitely NOT a stock but that doesn't mean that ad impressions are not going the way of capital markets and thus there are many lessons to be learned. Wall Street is a lot more than stocks. There are financial markets that have instantly perishable intangible underlying instruments like ad impressions, for example, energy.
  3. Ronnie Jeremy from Digital Entertainment , June 12, 2014 at 2:12 p.m.
    What an utterly ridiculous comparison. While you can purchase future options at set pricing that is a far cry from buying an ad impression. In your mode of comparison it would be the equivalent of purchasing a specific kilowatt as it is being delivered to a household and monetizing it when a person presses the button on their toaster. To the best of my knowledge this sort of buying is not happening in Wall Street or Chicago. The only similarity between Wall Street and Madison Ave would be the way some nefarious ad networks are attempting to arbitrage publisher inventory, a problem SSP's are helping to solve.
  4. R.J. Lewis from e-Healthcare Solutions, LLC , June 12, 2014 at 2:47 p.m.
    Ronnie, very clever Bill & Ted Adventure reference... I have to agree with Ted though if we strip the argument down to simply the fundamental functions of a good capitalistic marketplace. If you do that, it really shouldn't matter what we are selling. Capitalism, and efficient market theory, relies an a few key fundamentals such as equal access to information, a set of fair rules, no cheating on those rules, etc... transparency helps a lot, but the rules and "standards" (ala regulations in the financial industry) are key as well. I too would not advocate for regulations in online advertising, but we all need to agree on standard fair rules. For example, the fraud issue in online has to be addressed uniformly and consistently by all. I'm not sure the IAB has the resources, firepower, or will to be the industry leader. Absent a strong independent industry leader, individual companies will step in (aren't we mostly playing by Google's rules already)? Isn't Facebook redefining the norms of privacy? I agree these industries can be compared on all levels, but he basic concept of "free markets", and what makes them efficient, can be applied to both.
  5. Ronnie Jeremy from Digital Entertainment , June 12, 2014 at 3:11 p.m.
    RJ all valid points. However, again the Wall Street comparison is a stretch. The value in an ad impression is the end user, not the impression. It is still advertising, and therefore a people business. Wall Street is based on commodities. You are discussing the need to have transparency in an open market. Agreed. Perhaps we should compare Madison Ave to FDA labeling regulations on food ingredients. However, having CEO's of companies who have case studies, discussing how they flushed client budgets as rapidly as possible, arbitraging inventory in a "transparent manner" making this case is not helpful.
  6. James Walsh from self , June 16, 2014 at 2:59 p.m.
    Wow lots of vitriol here. There are numerous precedents in Wall St. for bundling pools of heterogeneous assets into trade-able securities. Not always with lots of success, but it's not a non-starter. Exchanges exist on Wall St. in part for the purpose of price discovery. Sellers and buyers benefit from price competition amongst their counterparties. RTB introduces some of this, but only in the "spot" markets for advertising it seems.