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Whats Ahead For Auction Media?

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The advertising industry is being rocked by seismic changes. Internet-based advertising has become the fastest-growing advertising sector, growing by 18.9 percent in the first half of 2006, according to TNS Media Intelligence.

The paradigm of media consumer as passive couch potato is dying, media companies are experimenting with Web-centric content distribution, and new ad-supported content formats are exploding, thanks to the ascendancy of heavily-tracked community portals such as Youtube and Myspace. Large advertisers such as Anheuser-Busch are even launching Web-centric marketing campaigns that completely bypass traditional media: witness the brewer’s recent announcement that it will launch “Bud TV” soon after the next Superbowl.

What hasn’t changed, however, is the way that most media is bought and sold. Institutional inertia, technological backwardness, and general ignorance have stymied the evolution of a smarter, fairer way of buying media. This is changing, however, as marketers join consumers in wresting control from media owners, and this change is exemplified by initiatives such as the E-Media Exchange, an automated media buying and selling system backed by a consortium of blue chip advertisers whose technology infrastructure is provided by eBay.

Much uncertainty remains over the fate of this initiative, however. To some in the advertising establishment, the arrival of any auction-based exchange represents a definite threat to be battled against. To others, it’s an opportunity to reform a bloated, inefficient broadcast and traditional media marketplace. As the members of the E-Media Exchange meet this month to hash over operational details, the advertising world watches, waits, and debates whether such an effort can succeed. Here is a brief summary of the thinking, both pro and con, surrounding the nascent automated exchange.

1. They’ve Tried it Before

Remember AdAuction.com? AdOutlet.com? Very few people outside the advertising industry do. But the founders of these late 1990′s automated media buying sites realized, perhaps much too early, that a world in which media assets were becoming increasingly digitized offered opportunities to reform the outmoded way of buying and selling media through phone calls and faxed insertion orders. Critics of the E-Media Exchange like to cite the failure of these sites as proof that auction-based marketplaces are doomed to fail. They overlook, however, the fact that in their time, such early automated marketplaces actually enjoyed significant success in selling off non-online media. None of these early auction sites failed because the service they offered was bad, but because of the way that they were funded, which guaranteed that they would be wiped out when VC’s and bankers stopped funding startups after the dot-com bust of 2000-03. Had these sites come along at a time such as this one, in which every indicator points to an accelerating shift of media dollars from traditional to online (with search driving between 40 to 50 percent of total outlays), it’s likely that they would have found a niche.

2. You Can’t Auction Something as Inherently Complex as a Media Plan.

Auctions have been phenomenally successful in the world of search, and one important factor in their success is that they are so fundamentally simple. There are really only two significant variables: price and position. The more you bid, the higher your ad appears. There are, of course, a myriad of factors determining whether a given search campaign will succeed, bidding strategy being but one of determining factor. But the idea of a CPC action is clear, and the fundamental process is fundamentally simple.

Buying and selling non-search media, on the other hand, involves dealing with multiple levels of complexity. Media buyers typically don’t buy media exclusively in small, manageable chunks, but each media placement is part large, complex campaigns that are blocked in advance, and stretch out over a period of months. Media planners have specific objectives with regard to reach, frequency, GRPs or other media metrics. Conversely, media sellers, fully aware that not all of their media is desirable to advertisers, practice “bundling,” which is a way for them to guarantee the sale of less valuable media by making it difficult or impossible for buyers to cherry pick the desirable segments. Differences in perspective and goals are worked out through human-to-human negotiations often over lunch.

These critiques are valid but beg the question: what if such a system provided for the auctioning not of component parts, but of complete, pre-built media campaigns? If the complexity of a modern mass media campaign can be addressed through a sufficiently sophisticated, yet intuitive computer model, there is no reason that such a scheme might not be attractive to buyers and broadcasters alike.

3. The Big Guys Will Never Go For It

Advertisers such as Proctor & Gamble and GM spend billions on advertising each year. These advertisers are large enough to dictate terms as to how media is bought and sold. And the big broadcasters still control enough eyeballs to make their threats to boycott any future auction-based ad marketplaces credible. Auction media, the argument goes, will fail because it doesn’t take account of the market power of these two groups in terms of setting the ground rules for how media marketplaces must work.

This argument has validity, but it ignores the fact that both large advertisers and broadcasters both have an urgent interest in making their offerings more competitive. Advertisers, including P&G, have sharply curtailed their spending on TV advertising in recent years because of unhappiness about the value of the media they’re buying and the media’s ability to target the specific segments of interest to the marketer. At this year’s annual Upfront, advertiser giant Johnson & Johnson completely avoided the annual ad-buying ritual. None of this turmoil would be happening if advertisers were happy with the value of the media that they are buying. (It’s interesting that Wal-Mart, a retailing giant whose annual ad spend is $570 million, is one of the founders of the E-Media Exchange). At the same time, broadcasters are waking up to the cruel fact that the effectiveness of their channels has sharply diminished in the age of Youtube, the iPod, and the DVR, a fact verified by a recent McKinsey report forecasting that in 2010, TV advertising will be only a third as effective as it was in 1990. Along with the change in media consumption, advertisers are acutely aware that online media can be targeted much more narrowly than broadcast media can and the situation seems even more ripe for change. Plus, with more and more broadcast media being delivered via cable, advertisers may demand the ability to narrowcast to only the households which meet their target criteria.

These two forces; advertiser dissatisfaction and broadcasters’ fading market dominance, are eroding the ground under the feet of those arguing that the status quo ante will prevail. It is impossible to predict whether the E-Media Exchange will gain a critical mass of buyers and sellers, but the next year promises to be a fascinating and tumultuous time in the history of advertising, and I plan to keep close tabs on the E-Media Exchange, as it evolves from lab exhibit to functioning marketplace.

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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.

Whats Ahead For Auction Media?
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