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The Auction Media FAQ

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Google’s plan to adapt its auction-based advertising system to non-search and offline media, plus the gathering momentum of eBay’s E-Media Exchange, have caused the term “Auction Media” to begin appearing more frequently in industry news coverage.

In an attempt to add some clarity to a term which many might not understand, I’ve decided to put together a quick FAQ. Its purpose is to explain what Auction Media is, how Auction Media Marketplaces work, and why you, as a marketer, should be interested in them.

1. What is Auction Media?

Auction Media is a term describing the method by which the marketplace determines the value of advertising through an auction. Unlike private exchanges in which individual buyers and sellers negotiate behind closed doors, Auction Media marketplaces (AMMs) are open, dynamic and operate in a way similar to stock exchanges.

2. What are its Benefits?

a. For publishers, AMMs provide two powerful benefits. First, they provide a way for underutilized non-premium media inventory (often referred to as “remnant” inventory) to be more easily sold. While each item in such inventory may not have much inherent value individually, when aggregated, this “long tail” of inventory may represent significant value to the publisher that would otherwise be lost.

Beyond monetizing non-premium inventory, the more significant benefit occurs when AMMs function using advanced audience segmentation technologies, which now include geographical, demographic, dayparting, and behavioral targeting. Because advertisers will be willing to bid more for media exposures to customers more likely to be receptive to their messages, AMMs improve inventory yield and publisher profit.

b. Advertisers realize enormous benefits from AMMs. Because they are automated exchanges, AMMs eliminate inefficiencies associated with traditional media buying practices. More importantly, because the market, not individual buyers and sellers, determines the value of any given advertising unit, AMMs equalize the power disparities which may obtain in media markets (such as broadcasting) where one party (the broadcasters) has traditionally enjoyed an unfair bargaining advantage. Finally and most significantly, AMMs, when combined with targeting, let advertisers design and execute smarter media plans which minimize waste and maximize ROI and market share growth.

c. Consumers of advertising also benefit from AMMs, because targeted media plans reduce the likelihood that these consumers will be the recipients of irrelevant messages.

3. Who is Doing it?

a. Search Engines. Google currently conducts the largest auction media marketplace in the world, with hundreds of thousands of individual bidding decisions happening per hour. Although Google commands the lion’s share of queries and search marketing spending, the other engines, including Yahoo, MSN, Ask, and others all have adapted the auction as the preferred method of selling search-based and contextual inventory. The primary billing method of Search-based auction is CPC (cost-per-click), but CPM (cost-per-thousand impressions) and CPA (cost-per-action) may also be appropriate methos for valuing non-search based inventory, such as contextual placements.

b. Online Auction Sites. Although EBay’s bread and butter business is auctioning hard goods, it’s an important AMM player, given that it has agreed to provide the technology infrastructure for the E-Media Exchange, a pilot program sponsored by a consortium of blue-chip advertisers whose aim is to provide an automated auction-based alternative to the television industry’s annual “upfronts.”

c. Interactive Agencies. A small group of agencies with an expertise in running Search campaigns in AMM marketplaces are now running test campaigns involving the buying and selling of media in non-search channels. My own employer, Did-it, is among the first to integrate non-search media within an AMM framework.

4. Why is it Happening Now?

AMMs are “hot” right now because of a number of intersecting megatrends which together provide extraordinary challenges to the status quo ante. These include:

a. A fragmenting media landscape in which traditional “mass” forms of advertising are yielding diminished returns for advertisers, even as the advertising establishment refuses to adjust pricing to reflect this diminished effectiveness.

b. The advent of sophisticated automation technologies (such as those provided by Google, MSN, and (soon) Yahoo capable of scaling to handle thousands of individual media auctions per hour.

5. Where Will AMMs Go Next?

Google has clearly demonstrated an intention and a capability to bring its AMM-enabling technology to non-search media, most notably through its acquisition of radio ad automation vendor dMarc. Adwords advertisers will soon have the option of incorporating radio into their search and contextual campaigns, and dMarc’s technology is capable of providing equivalent functionality for the creation of TV-based campaigns.

By early 2007, the E-Media exchange will be up and running, providing advertisers with an alternative to the traditional “upfront” process. While the E-Media exchange has been criticized by broadcasters and agencies fearing that such an exchange will cut into their profits, at least one cable network has decided to participate in the program.

At least one large cable company, Time-Warner Cable, has announced an interest in using an AMM to sell targeted ads to its cable viewers. This would be very easy to do, given that TWC’s latest generation of cable boxes provide the intelligence necessary to provided targeted advertising.

6. Will All Media Be Auctioned in the Future?

While the first wave of AMM-based media buying is already happening now, it is unlikely that AMM will replace all forms of media buying anytime soon. Some forms of media do not lend themselves to the auction process. One example of this is print advertising. While it might make sense to create an auction for preferred positions (e.g. placement on the inside or outside cover page), auctions function best when the commodity in question is scarce (e.g. a position on a SERP or an original work of art). Because a newspaper or magazine can simply print additional pages, auctions have hitherto been unsuccessful, and it is not clear whether print positions will be sold this way in the future.

7. What Should I do to Prepare for the AMM Era?

If you’re an Adwords, YPN, or adCenter, you’re already a participant in an AMM. As AMMs extend their reach beyond search and contextual media, you will be presented with more options to create smarter, more efficient media plans that minimize waste and maximize your chances of reaching your best customers.

To get the most out of an AMM, you’ll need to achieve mastery of the way these auctions work, and design media plans which are more sophisticated than yesterday’s insertion order-based plans. Make sure your inhouse team or agency has the expertise required to perform these tasks. AMM is the wave of the future, and marketers who will most benefit from its advantages will be those who embrace, not resist, this exciting and qualitatively new form of buying and selling advertising.

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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.

The Auction Media FAQ
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