• by Ellen Siminoff , May 3, 2006

Many of you likely are aware that Google recently dipped its toe in the waters of the print ad world and found those waters to be choppy. Some industry experts and the media have commented that the lackluster performance of Google's magazine ad auction test proves that print (and even radio or TV) media buying can't be transformed into an online biddable marketplace like search.

I'm not so sure about that. I do see it happening. And when it does, ad inventory will go through the roof, resulting in even greater complexity than what media buyers are used to today.

Yes, I know, there certainly are some distinct market dynamics of offline advertising that don't match up perfectly for a biddable marketplace. However, the fundamental principle does--there are buyers and sellers. And, as history tells us, advertisers will continue to demand greater efficiencies and solutions to generate a higher ROI. That's what is making search click right now.

So what needs to happen? A lot. For instance, the market needs time to mature and reach a critical mass of buyers. Search engines need to build an integrated marketplace. Advertisers need to be educated. The list goes on and on.

When all that will happen is anyone's guess. But one thing is certain. Many media buying firms, including search marketing agencies, are going to have to adapt. We're not just looking at keywords or a print campaign. We're looking at a fully integrated ad buy that includes search, print, radio, TV, billboards, etc., etc. To manage this likely scenario effectively will require sophisticated tools (such as optimization technology) and portfolio-management expertise.

We can learn a lot from how Wall Street does it.

Portfolio Management, Wall Street-style

While the dynamics of the capital markets aren't exactly the same as search and what offline media buying may become, there still are some valuable lessons to learn from Wall Street. The most important: how mutual fund managers run their portfolios.

Mutual fund managers trade in an opaque and extremely dynamic marketplace that changes in real-time. Sound familiar? And, like many paid search marketers today, they manage a diverse set of investments as a single portfolio. But that generally is where the similarities end and the lesson begins.

A fund manager's No. 1 goal is to produce a high rate of return on the entire portfolio, not on one or two specific securities. At the end of the day, the manager's performance is judged not on what an individual stock did, but on the overall fund's rate of return. Fund managers rely heavily on intelligent technology to help them with their decision making, This technology is laced with advanced, statistical arbitrage decision-making processes to evaluate and forecast the most effective bid or sell price based on the overall fund's goals. These trading algorithms treat the fund as a total portfolio, allowing the manager to run trade-off scenarios among different securities to create a reliable and consistent higher rate of return.

Pretty heavy stuff. But they've been managing portfolios in a biddable marketplace for a very long time. And if search marketers, or offline media buyers, want to know how to do it right, look no further than Wall Street.

Lesson Learned

What I took away from Google's test is not that it failed or if it will work in the future. It was the notion that all advertising may become biddable, with portfolio management and technology playing an important role. We in the search engine marketing world should view it with excitement. And we should learn from how Wall Street executes it.

Google, keep on trying. You are on to something, because I have to believe that the days of advertisers accepting standardized ad rates that are based only on yearly readership or viewership audits and not bottom-line business results are coming to an end--sooner rather than later.