Agency Uses Unusual Means To Negotiate Online Ad Buys: Online

In the span of less than an hour late Tuesday afternoon two of the biggest online portals - AOL and MSN - participated in an unusual sales process that netted them hundreds of thousands of dollars in advertising budgets that would have otherwise taken them weeks to negotiate. The process was unusual, because it was conducted entirely online, doing away with much of the meeting time, paper-pushing, and back-and-forth haggling that can drag such deals out for days, or even weeks.

The negotiation took place virtually, via a cool and dispassionate private auction conducted by spunky ad agency The Gate Worldwide, and by the time it was over AOL had picked up the lion's share of a healthy six-figure advertising budget from Gate client State Street Global Advisors, and MSN picked up a smaller, but still decent size piece of business from the financial services marketer. A third competitor, CNN Money, got left holding the bag.

With the exception of chatter around the conference room table of the Gate's media team reacting to the progressive bidding from the media companies competing for its business, the entire process was silent, quick and incredibly efficient, yielding buys that were "30% to 40% below historical prices" for comparable buys, according to Eric van den Heuvel, director of media solutions at The Gate, who moderated the auction, which was the first of its kind conducted by his agency.

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The auction was one of about 90 conducted over the past year between agencies, media shops and/or advertisers directly, utilizing a new system developed by New York-based Enversa, and comes as big advertisers and agencies are once again looking at online auctions and trading systems as a means of improving the process of buying and selling media. But unlike many of these projects, such as the ad industry's high-profile eBay For Media initiative that will be tested later this year, which are aimed at using online systems to create an efficient market for buying and selling traditional media like television, almost all of the Enversa auctions have involved online inventory. Three of the 90 auctions enabled by Enversa were for out-of-home media. The rest were online.

The main reason, says Naomi Bradford, a business development executive at Enversa, is that many of the traditional media still feel uncomfortable about using an online auctioning system to compete for business. Based on the Gate's experience, some online players do too. AOL, CNN and MSN were three of six financially-oriented sites invited to pitch the State Street business, but three others - Dow Jones & Co., Forbes.com, and Yahoo Finance - declined to participate.

Yahoo demurred because its executives felt the online auction process might conflict with a new, behaviorally-targeted, run-of-network advertising buy dubbed the "Y Network" that Yahoo is trying to roll out. Both Dow Jones and Forbes.com cited concerns expressed by many traditional media companies: that the efficient nature of an online auction might commoditize the value of their inventory by removing the human element from the negotiations, according to the Gate's van den Heuvel.

Based on Tuesday's results, they may have good reason to be concerned. Van den Heuvel estimates the winning bids were as much as 40% below the historical prices State Street has paid for comparable buys. But the impact of the auction wasn't relegated purely to those outlets that competed in the bidding. He says even those that opted to pass on the online auction have since come back to the Gate to pitch State Street's business with "more aggressive pricing" than they historically would have offered, and he believes that sales behavior was directly influenced by the fact that they knew the Gate was auctioning the business.

Beyond that, van den Heuvel says he believes the process could influence market intelligence in ways that some sales reps may not have fathomed.

"The ones that did not participate have no knowledge of how this process went. Now I have even more leverage over them the next time," he says.

Beyond the price efficiency and insights gleaned from the experience, van den Heuvel says the process generated another big dividend for the agency: precious savings in time and labor.

Estimating that comparable buys negotiated offline would have taken upwards of two weeks of his staff's time, he says Tuesday's auction compressed, "One and a half weeks of that process in a few hours."

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