The topic of "media as a commodity" sparked by a brief debate between Jim Meskauskas and Jeff Minsky on Facebook recently. This discussion resonated with me, as I have written on this topic in the past, and I've flipped back and forth on the issue as I've thought more about it.
Ultimately, I do believe that most media is becoming commoditized, and the question is -- what does this trend imply? Is media doomed? Does it matter if it's commoditized? Gold is a commodity, after all, and because it can be easily traded, it is more "liquid." That's actually not a bad thing at all.
Let's start as Minsky did with the Wikipedia definition of a commodity:
A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. The price of copper is universal, and fluctuates daily based on global supply and demand. Stereos, on the other hand, have many levels of quality. And, the better a stereo is [perceived to be], the more it will cost.
Commoditization occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. As such, goods that formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and silicon chips.
When we look at the state of media today, there are definitely elements of media that are becoming commoditized. A raw impression is certainly a commodity -- that is, an impression without any differentiating attribute. The ad networks of the world have figured this out, and take in a raw material, a "blind" impression, and add some categorization and targeting to it, creating a processed good.
But because these businesses only operate with any significant revenues and margins when they sell lots of impressions at a low cost of goods sold, even these "processed" impressions sold by ad networks could still be called commodities (e.g., auto shoppers or teens). And in this current hand-sold world, and even in the first generation of more automated buying processes -- like paid search -- these broad categories of audiences and content are being commoditized. A keyword is such a standardized unit that numerous disparate advertisers can bid against them in very straightforward way.
In the past, media planning and buying were arcane arts that intermingled very soft, difficult-to-measure methods with complex human relationships between buyers and sellers. As media has fragmented at an unprecedented rate, software has entered the mix to help automate planning and buying, and many of the various buying parameters have been streamlined.
The next generation of technology will change the way this works fundamentally. The matching of advertiser goals with publisher available inventory will lose its hard edges as we begin to translate goals into hundreds or even thousands of buying parameters. These types of matching, optimization, and filtering problems are far more complex than humans can manage. This is a classic hard problem that is perfect for software to address.
I envision a world where media planners will spend the bulk of their time defining the goals of the advertiser, and translating those goals into complex instructions that can be interpreted by software. The ad platforms of the future will match these instructions against available ad inventory that is enriched with targeting attributes based on user behavior and content associations -- and then optimized in an automated fashion by very smart systems.
We can already see some companies beginning to offer this type of technology. Companies like Invite Media, Turn, MediaMath, [x+1], AppNexus, and many others are beginning to apply this type of technical innovation to the various ad exchanges already. And this is just the first generation of these types of technologies.
The next few years hold many opportunities for the media world to evolve in ways that are pretty game changing. Media agencies that are not investigating these nascent technologies will be caught flat-footed.