I'm liking a lot of the comparisons I'm hearing of media buying and selling to stock trading on Wall Street. Whether you choose to call them pork bellies or diamonds, impressions are commodities that carry with them the same properties of their counterparts on the
trading floor.
Like a good MBA student, I took the requisite finance classes and studied modern portfolio theory. The thesis is that no single stock purchase is efficient: it exposes you to
undue risk relative to its expected return. The more diverse stocks you buy, the more your risk/return ratio gets smaller, and the more you approach the "efficient frontier."
I like the sound
of that (looks like somebody else did too and founded an SEM agency with that name). I'm certainly not the first to claim that the parallel exists between exposing yourself to undue risk with a
single stock and exposing yourself to the ROI risk of running an ad on a single website. But let's focus on that efficient frontier now: on Wall Street its index funds and ETFs. What's the
equivalent here?
Ad exchanges (like AdBrite, RightMedia, DoubleClick, etc.) are the soft answer. But what does this mean? What stocks am I actually buying here, and which ones are making me
rich?
This is where we depart from the Wall Street analogy a bit. I claim that the efficient frontier of Display is the stuff we never thought we wanted, and the stuff I always get asked to
exclude by clients that ask for that kind of thing: user generated content (UGC), porn sites, and torrent search sites.
Here's why: this stuff is dirt cheap, as would be expected. But what's
not expected is that these sites are heavily trafficked, and are now becoming the wild west of some really, really cool retargeting. Suddenly a $0.0001 impression on a UGC site becomes immensely
valuable when you know the user looking at that impression did a search for laminate wood floors yesterday. Here's an experiment you can do: do a few searches on travel sites, on retail sites, and on
the home improvement example I just gave you. Then, go to a site like imageshack.us and refresh the page over and over for a while. It's the last place you'd expect to see the next generation,
science fiction ad campaigns but here they are (among some really lame ads as well, bear with me).
What's happening here is that by giving the campaign access to the entire market (akin to an
index fund or ETF), the market is determining where the best place is to show your ad, in this case based on wherever your customers are browsing. So, in that sense, this is indeed modern ad
portfolio theory in action. But, I would reject the idea that the whole web is the efficient frontier; I would modify that theory to apply to online advertising and say that an impression on the New
York Times is actually far less valuable (on a strict ROI metric) than the über-cheap long tail sites. The marginal cost of an impression on a premium site will never allow the ROI possible with
the marginal cost of an impression on a long tail site.
So what about targeting? Back to MBA school: segmentation, targeting, positioning! The idea that seemingly generic sites that provide
no targeting information of their own are the most efficient sites to target your customers is more than a bit counterintuitive. Fair enough, but we're imposing our age-old conception of content
targeting (from print) upon a web that contains far more user data than print media. User behavior and algorithmic media bidding are quickly changing the rules.