• by Bill Wise , August 7, 2006

Last Friday's Wall Street Journal discussed the new e-Media Exchange, an automated ad auction exchange created by disgruntled blue-chip advertisers, with technology managed by eBay. The advertisers, which include Toyota, Wal-Mart, Microsoft, Hewlett-Packard, and Home Depot, have decided to move away from unaccountable, non-transparent, human-controlled networks, creating, instead, an exchange that sells cable and broadcast TV, radio, and print ads through automated auctions. Automated auctions are more accountable because 1) in any auction, the market--and not the networks--set pricing; and 2) because technology allows for better metrics, and better metrics let advertisers know that they're getting their money's worth.

Meanwhile, also last week, Google sealed a deal to offer radio advertising through XM Satellite Radio. (Google has already purchased major radio advertising software vendor dMarc, earlier this year.) Put together, the XM deal and the Exchange demonstrate why auction-based advertising will be the new norm by 2010. To see why, you need to start with a small detour through MSN adCenter.

AdCenter, MSN Search's advertising network, serves up ads based on highly granular demographic information, including a searcher's geography, socioeconomics, gender, and the time of day or week of the search (dayparting). For those who know how to leverage that data, adCenter offers targeting capabilities that once lay beyond advertisers' wildest dreams. Whereas keywords let you respond to a searcher's intent, deeper demographics show you whose intent you're responding to--helping you send the right message, to precisely the right person (the holy grail of all advertising). AdCenter works because Microsoft has a treasure-trove of demographic information, collected through subscriber services like Hotmail. (Full disclosure: my own firm, Did-it, worked with Microsoft to help develop adCenter.)

The new auction-based media are positioned to take the adCenter model, and push the concept beyond the online world, into the offline one. Both XM Radio and cable TV operate through subscriber bases; so they've got the capability to leverage their user data to deliver more relevant ads. Meanwhile, through relationships with the auto manufacturers that install XM Radios, XM is able to know the type of car it's delivering ads to (which translates into socioeconomic metrics); and it can apply GPS tracking to know where a listener is positioned--which is key information for providing locally-targeted ads.

From this perspective, it may not be a coincidence that Microsoft and Toyota (which installs XM radio in its cars) are both key forces behind the formation of the e-Media Exchange: both know, firsthand, what's to be gained from knowing your audience. It also may not be a coincidence that, while e-Media Exchange's site offers a wide range of traditional media options, the service's PR seems to be talking primarily about its cable TV offerings--cable being a resource with very rich data about its subscribers.

For now, e-Media Exchange advertisers seem to be turning to auction-based media only on a smaller scale. Home Depot's senior vice president of marketing, Roger Adams, predicted a "two-tier upfront"--with remnant inventory like after-hours TV going up for live auction; and prime time continuing to be handled by human-run networks. The reasoning, explains Adams, is that prime-time slots include tricky buys like product placement; the implication being that product placement is too complicated a proposition to leave to mere auction-management technology.

Whether that thinking is a) truly reflective of advertisers' thinking, b) a way to appease ad networks with which advertisers still need to do business, or c) simply code for "let's try this out and see what happens"-is entirely a matter of conjecture.

Regardless, it's faulty logic: the trickier your advertising problems are, the better accountability and more sophisticated analytics you need. And advertising is getting trickier all the time, while accountability is increasingly becoming the mantra of upper management. Sooner or later, advertisers will publicly acknowledge this, and adopt auction-based media buys full-force. I'm betting that it will be sooner rather than later.