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Ad Exchange Wars: eBay and Google vs. The Media Business

By Shelly Palmer (bio), Managing Director, Advanced Media Ventures Group, LLC

"Half the money I spend on advertising is wasted; the trouble is I don't know which half." — John Wanamaker, US department store merchant (1838-1922)

This may be the most famous quote in the advertising business. And for good reason — in the black art of media planning and buying lies the tacit understanding that at least half of what you are selling your client is snake oil. You know it and they know it. And, for more than a century, it really hasn't mattered. Brand advertisers generally look at a few metrics such as, brand awareness, lift and purchase intent and use them to calculate their return on investment (ROI) and their return on advertising spend (ROAS). As long as they could show positive results in these two budget lines, life was just fine.

With a wink (and with tongue firmly in cheek) most media-types agreed with Mr. Wanamaker's famous quote, but very few people went looking under the hood to see what made the advertising engine run. That was then.

Now, there are several different places to obtain metrics and several different types of analytics that can be applied to them. The quest for measurability and accountability has never been more prevalent.

However, in another corner of the business, some very large companies are trying hard to change the paradigm. In the next few months the gross impression advertising business may work a little differently thanks to eBay. Hoping to effectively compete with Google, the auction giant has created an online marketplace for radio commercial time. Will it work?

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For this thought experiment, let's assume that the technology is perfect and that the technical issues with change orders, insertion orders and post-buy reporting have all been solved. They haven't, but harping on things that can be fixed by smart programmers and engineers is a waste of time. Computers are great at doing menial, redundant processes and once properly programmed this system will technically work — but then what? Will people actually use it to sell and buy media time? Will the time buys made on an exchange deliver expected results? Which half of your advertising will you buy on an exchange?

First, let's acknowledge that there is a fairly large amount of media inventory that is purchased for transactional and direct response (DR) advertising campaigns. At certain points in their advertising cycle, these campaigns need very inexpensive airtime and lots of it. So it may make sense to go to the exchange and bid low for a bunch of airtime. But it probably won't work that way in real life. Auctions won't help these advertisers buy in bulk, which is the ultimate lever to reduce cost. And, more importantly, once a good target area has been found, the science and business discipline of DR kicks in and very dispassionate decisions are made about advertising efficacy and ROAS. Will planners find the exact times they are looking for on the exchange? How many places will they have to look? Will they be expected to create a trading floor and arbitrage some of their spending, while using traditional methods to do the rest of their business?

Media buyers are people, and people usually take the path of least resistance. If the new way is too hard, they'll just do it the old way.

Perhaps an exchange would be right for remnant, distressed or perishable time that broadcasters just want to dump. It sounds like a good idea, but there is a pretty highly evolved "standing order at a standing price" media business that works fine. There is also a bunch of public service announcements that stations must run and then, there is always room to run some additional "time and tune in" promos. After all, broadcasters still have to let people know when their shows are on.

Would broadcasters with distressed airtime make more money by selling the time at auction? Maybe, but what about the incremental cost of processing insertion orders and change orders for below market-rate spots. Will cost to process these orders eat up the difference between the higher auction rate (assuming that it is higher) and the standing orders for airtime at reduced rates and the run of station (ROS) spots they sell now?

Then, there is brand advertising. Well, actually, no there won't be. Big brands will continue to use best practices media planners because media planning and buying is both a science and an art. Although most of us would rather watch paint dry, a great presentation from a great media agency can be extremely creative and impressive. Especially when the post-buy results match client expectations.

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So who are the target customers for eBay's media marketplace? I don't see stations listing prime inventory with exchanges and I don't see big media planners and buyers using them. Regional clients actually require more planning work than national clients, so even if you could get a bargain or two on an exchange, it probably would not be worth the time invested. And local clients need local media partners who will spread their media across the various dayparts to achieve results. Otherwise, local buyers won't come back because neither half of their advertising will work.

And, at the end of the day, everyone in the value chain needs a relationship to shepherd their cause. Nobody just buys spots. That's not how to create an effective advertising campaign. Spots are just a part of a much larger approach to obtaining share of mind which translates into share of wallet. Exchanges are not people and they do not offer any value-add.

And lastly, is there any reason to think that if this type of media marketplace catches on that we won't see government regulation? If successful, hundreds of millions if not billions of dollars will filter through these exchanges daily. Is our business ready for government oversight? Your guess is as good as mine.

So what will we learn from eBay and Google and the march toward automated media auctions? I'm sure that half the money spent buying media time from exchanges will be wasted; the trouble is I don't know which half.

About the Author: Shelly Palmer is Managing Director of Advanced Media Ventures Group LLC and the author of Television Disrupted: The Transition from Network to Networked TV (2006, Focal Press). Shelly is also the 1st vice president of the National Academy of Television Arts & Sciences, NY and Chairman of the Advanced Media Committee of the Emmy Awards. You can read Shelly's blog at http://www.emmyadvancedmedia.com. Shelly can be reached at shelly@palmer.net.

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