What’s the future of the ad exchange model? It’s clear that ad exchanges and DMPs are the future of the media business, as media has become more and more of a commodity and data has become a requirement to add value -- but where are things headed?
Many people refer to the commodities exchanges as the future of the ad exchange model, but first there must be a marketplace for buying and holding media assets. I was initially skeptical of this version of the future, because there aren’t too many media buying shops willing to take the liability of those media assets on their books. But then I realized that this market already exists and thrives -- and is called the upfront. In the television upfronts, marketers and agencies buy and hold media assets until later in the year. In some cases they put all of these assets to use, while other times they put them back into the market as scatter, taking the financial hit in the form of a cancellation clause. If marketers had the chance to buy, hold and resell that media at either a profit or at least a break-even, wouldn’t they consider that?
The “futures” market is a tenuous one, especially in a volatile stock market, and one where economic indicators are across-the-board chaotic -- but the advertising marketplace continues to grow. More money is flowing into TV advertising every year, and the Internet continues to expand regardless of the almost infinite supply of impressions. OOH and print may not be growing, but they are still finite assets that retain value, and marketers still want to take advantage of them. A futures marketplace could indeed be valuable if marketers and agencies were set up to take advantage of it.
The agency category is the one I find the most interesting here, because it’s the model that has been most in flux over the last 10 years. The Internet and digital, more than anything, pushed margins down on agency commissions, so agencies have been innovating to find new revenue streams. Creative continues to be uncommoditizable, and strategy continues to be only semi-monetizable, so agencies have focused on media buying -- specifically by creating trading desks and analytics groups.
Agencies are focusing on the data and they are driving the media landscape into a commodities market. If you agree this is the case, then it makes sense that the agency category may shift to a buy-and-hold strategy for media. Some agencies have done it for years by entering into upfront agreements with portals and larger publishers. If you have money in the bank, and you know you’re going to be buying media for your clients, why not try to buy it at the low end and sell it at a profit, which is probably still a discount for your clients?
Of course there’s the argument that large marketers and public companies might be the ones to take advantage of this model because they are the ones who ultimately buy the media and are responsible for its use. I can foresee a model where marketers buy the media on the market, hold it, and pay their agencies to put it to good use, rather than paying them a commission for it. There could even become a secondary market for marketers who want to trade and barter media for their benefit. The opportunity is endless if you commit to the idea that media can be bought, held and sold on a futures platform rather than the way most agencies buy now, which is last-minute and through manual insertion orders.
For this model to truly succeed, media buying agencies need to mature. Currently they are full of young, undeveloped -- and, in too many cases poorly trained -- buyers. The new buyers would be analysts and traders. They would be evaluating trends and matching those market trends against the needs of the clients. I don’t see these buyers being compensated at the same scale as Wall Street bankers, but I see them commanding stronger salaries than the current media buyers. It’s a skill, one that could not be easily replaced by some smart person off the street.
What do you think? Can a futures model succeed in this business? Would it have to be cross-platform, encompassing online and offline, or could a stand-alone online marketplace exist and survive? Let me know what you think by posting a comment on the Spin Board!