Leftover Ad Space? Exchanges Handle the Remnants ( Via New York Times) July 29, 2008
Posted by Mark Blei in : Uncategorized , trackbackJoe Zawadzki’s traders spend their days in front of two computer screens, feeding their systems with data and trying to perfect their trading algorithms.
But they are not analyzing stocks. They are analyzing advertising.
What they are measuring is activity on advertising exchanges, where companies bid to place their online ads on space provided by publishers. As advertising exchanges gain popularity — Yahoo, Google and Microsoft have all moved into this arena recently — Madison Avenue is borrowing tactics from Wall Street.
It is reminding some observers of what happened when technology came to the stock exchange, including the arrival of trading advisers like Mr. Zawadzki’s firm, MediaMath, that are running numbers and promising to offer sophisticated financial instruments.
For now, Mr. Zawadzki is using the exchanges to buy and sell ads instantaneously as opportunities arise — a spot market, in Wall Street lingo — but he is working on more complex trading strategies.
“Right now it’s more the in-the-moment, taking advantage of the spot market with aggressive bid management,” said Mr. Zawadzki, whose firm is based in New York. “But we’re certainly thinking about where that goes later in terms of secondary markets, derivatives, options, hedges, all the rest.”
Big publishers try to sell Web site advertising space through their sales forces at high prices. Most cannot sell all their inventory, so they send the leftover, or “remnant,” space to an ad network or to an ad exchange. These deliver an ad, but at lower prices than the publishers’ sales forces fetch — usually around $1 per thousand impressions, versus the $20 and up that top sites’ sales forces ask for.
Ad networks and ad exchanges are both in the business of selling remnant inventory, but they do it in slightly different ways. The networks, which function as middlemen, sell chunks of inventory through their sales forces, which can simplify the buying process for advertisers.
Exchanges, on the other hand, let advertisers buy ads directly, and place them one by one. Because there are usually lower fees, buying off exchanges tends to be cheaper — though more labor-intensive — than buying through networks.
In 2007, exchanges sold about 15 percent of the remnant inventory, and about 5 percent of online display advertising overall, according to ThinkPanmure, a research and financial services company. Most of the other 85 percent was sold through networks.
The major appeal of exchanges is that with some analysis, advertisers can buy ads one by one, and track the performance of each ad. This contrasts with ad networks, which roll up broad audiences for advertisers (often using the exchanges) through their own sales forces.
Ad exchanges have gotten a few big boosts lately. In 2007, three major portals announced they were buying exchanges. Yahoo bought the Right Media exchange for $650 million; Google announced it was buying DoubleClick in April, which had announced weeks earlier it was setting up what is now called the DoubleClick Advertising Exchange, for $3.1 billion; and Microsoft acquired the exchange AdECN.
Last month, the advertising holding company Publicis Groupe said it would start working with DoubleClick and Right Media’s exchange to buy advertisements. The advertising companies Havas Digital and WPP have announced similar deals with Right Media in recent months.
But it is not so much the exchanges themselves that is interesting the advertising world — it is what can be done with them.
“The exchanges are just a platform to buy and sell media, but you have to layer the measurement and data on top, which could come from different areas: some agencies will build it, some agencies will partner,” said Darren Herman, head of digital media at the Media Kitchen agency.
“We use the analogy of, anybody can trade on the financial markets, anyone can get an eTrade account, but it’s how you’re smart about how you use your eTrade account that determines how well you’re going to do trading,” Mr. Herman said.
With some Wall Street-like analysis, advertisers can find individual Web surfers, figure out how much to pay to show them an ad, and analyze how those ads have performed. Firms like Mr. Zawadzki’s are analyzing which of those users might be attractive, then tracking whether people click on the ads they see. If an advertiser wanted to reach a very specific group — say, people in Atlanta who have already visited its home page — it might bid more to get that audience.
The growth of exchanges has a clear benefit to advertisers, allowing them to test multiple ads quickly with specific groups, potentially minimizing expensive campaign testing and focus-group work.
READ THE REST OF THIS ARTICLE BY CLICKING HERE
Comments»
no comments yet - be the first?