• by Skip Brand , August 27, 2014

Since the mid-2000s, Madison Ave has been compared to Wall Street. This helped fuel innovation and investments, and brought more scientists and engineers into the area. Despite all of the good, the industry is now seeing some of the bad and the ugly by trying to put forth the financial stock exchange model as the primary method for purchasing online advertising. The problem with this is that the financial exchange and ad marketplace are fundamentally different.  An ad impression is simply not a stock.

The Good

When ad exchanges were presented as equals to the financial markets, they were great for the advertising marketplace. This comparison helped convey a proven model, define market efficiency, add automation, and introduce standards for impressions. Heck, it even put forth the idea of fairness. Introducing the concept that every buyer competes on the same basis for a given impression just like we do for a financial commodity was good for the marketplace.

The Bad

Ad exchanges provide less transparency, standardization, and clearing than their financial exchange big brothers do. First, transparency is difficult because -- among other things -- exchanges simply offer ad inventory by the tonnage through an auction model, while buyers have to bring their own data and make sense of the exchange through experience. Despite many advertising leaders discussing data-driven decisions, there is no good data on the impression level for both buyers and sellers. The more transparent the data, the better the chance for a good buying decision.

Standardization is important for stock exchanges, since it is the basis to become a truly efficient market.  In the ad exchange world, the MRC just this year started to rate impressions based on viewability. Many believe this is just a baby step to remove bots, fraud and junk inventory, and more standards are needed to keep the bad actors out and gain creditability.

Clearing in a financial exchange is a way to tackle problems such as price and discrepancy between buyers and sellers. On Madison Ave, parties need to work things out themselves with inefficient means like “makegoods.” Also, when fraud or non-payment happens, the publisher is completely at risk. Wall Street, on the other hand, is heavily at the center of their activities and has a process for accountability, and account systems for non-payment.  

The Ugly

Many believe it is silly to compare the stock market to today’s ad exchanges due to the fact that media markets trade on a much bigger scale than stock exchanges. For example, the New York Stock Exchange has 30 billion trades per day, and today’s estimates have the ad market in the U.S. at 400 billion transactions and growing.

The ugliness continues with the inefficient dissemination of price information. In financial markets, the players simply include a buyer, seller and an exchange. An ad exchange can be more complex, with buyer, agency trading desk, DMP (one for buyers, one for sellers), DSP, exchange, SSP, and Ad Server -- each having a fee. Therefore the impression price could be low based on all the hands in the trade.

Despite the good, bad and the ugly, the comparison between the two markets has served us well until now. Our ad exchanges are used as a tool to unlock the power of data, move to more automation, technical innovation and media entrepreneurship. Despite their faults, ad exchanges are changing the face of advertising for the better.