Advertising Auctions: An Unstoppable Force?

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Welcome to the brave new world of convergence, one in which the Web more closely resembles TV, and new forms of TV advertising rely on methods and technologies which proved their worth on the Web.

Auction-based ad buying is going mainstream. Back in February, popular video blog Rocketboom used eBay to auction off ad space in its online TV shows for $40,000. This week, a firm called TechNation is using eBay to auction ad space in its podcasts, hoping to get $12,000 for such placement. Most significantly, on Monday, Glenn Britt, Time Warner Cable’s CEO, announced that the cable giant is considering plans to create a “Google-like” auction-based ad marketplace for its VOD (Video-on-Demand) channels.

Britt’s announcement is significant because Time Warner Cable’s audience is big: we’re talking more than 10 million households: the second biggest cable audience in the U.S. Not only is this audience big (approximately half the size of AOL), but it’s measurable and segmentable: cable TV subscribers, unlike search engine users, all have known fixed physical addresses, and it’s long been known by marketers that once you know a person’s address, you can infer a treasure trove of demographic information about them.

Take this big, segmentable audience, monitor its usage for awhile (especially its use of VOD programming, which, like search keywords, clearly demonstrates audience intent), establish demographic and psychographic models based on this activity, and you’ve got a gold mine to auction off to advertisers at rates much higher than the $20-$30 CPM ordinarily commanded for cable TV ads.

Amazingly, even though Time Warner Cable completed the all-digital technical infrastucture required for such advanced ad-selling and audience segmentation several years ago, this powerful system has never been turned on, because until now, there has never been a compelling reason to do so. Cable audiences have never demanded that advertising be more relevant, and advertisers have never demanded that ads deliver better results.

But this scenario is changing quickly. As cable TV viewers continue to tune-out irrelevant messaging, and advertisers continue to complain that traditional 30-second spot TV ads have grown ineffective, the pressure to move to a more accountable ad platform serving more relevant messaging will become irresistible. Whatever institutional resistance to change may come from traditional media buyers (because they are used to buying fixed-price, reach-based TV spots) is likely to crumble once the potentials of such a system become known and the first advertiser is able to report a spectacular success story.

Of course, this happy prediction assumes that Time Warner Cable executes its way-new ad platform properly. Constructing a “Google-like” auction-driven ad exchange isn’t just a simple matter of reverse-engineering Adwords (even if Google’s patent lawyers would allow this). Beyond building a workable front-end, there’s plenty of sophisticated data mining and modelling that needs to be done, and it remains to be seen whether such number crunching is within Time Warner Cable’s core competencies.

Given Google’s recent investment in AOL, one would think that Google would be the logical choice for designing and deploying such a system. But Time Warner is a huge, fractious company whose semi-autonomous divisions often go their own ways, much to the detriment of the whole company. Just because Google has invested in AOL doesn’t necessarily mean that it has entree with anyone else at Time Warner.

It’s far too early to proclaim that Time-Warner Cable will be the one to deliver a workable auction-based TV advertising solution (as its CEO admitted, such a project is at the very early stages of development). Of course Google, for it’s part, isn’t going to be waiting around for Time Warner to get there first: instead, it’s already plunging into offline media buying technology, as demonstrated by its January acquisition of radio industry automation provider dMarc. With Google’s’ secondary stock offering bringing it’s cash war chest to over ten Billion dollars, Google is in a position to offer publishers, cable TV systems or any other media company a lucrative guarantee as part of any business deal. AOL may have been just the beginning.

Welcome to the brave new world of convergence, one in which the Web more closely resembles TV, and new forms of TV advertising rely on methods and technologies which proved their worth on the Web.

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Mr. Frog is a leading Search industry visionary. Mr. Frog is a member of the Did-it Search Marketing team which accompanies him to most major
marketing conferences.

Advertising Auctions: An Unstoppable Force?
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