The confusing language of ad exchanges

Our industry is filled with confusing concepts and equally confusing names. We have constantly done ourselves no favors by trying to simplify the concepts by reusing names from other industries or from parts of our industry that are not quite a match.

The most confusing area of our industry right now is anything touching or associated with advertising exchanges. I've heard all sorts of names for "things" in this space, and for whatever reason, we never seem to really get things "right." The names that cause the most confusion and agitation in our space include ones like programmatic, spot, futures, guaranteed, reserved, etc.

Let me hit the term programmatic first, since this one should be easy enough to nail down. Programmatic media buying and selling really just refers to the fact that the buying and selling is automated. Programmatic buys might make use of the ad exchange (typically these are called programmatic real-time bidding campaigns, or programmatic RTB.) These are buys that use demand-side platforms (DSPs), such as MediaMath, Turn, or AppNexus, and are what most of us think of as ad exchange powered media buys. Programmatic buys might also make use of a toolset like Bionic Advertising Systems or connect to an API like iSocket. This type of buy is typically called a programmatic direct buy because the buyer is accessing inventory sold directly by the publisher, not over an exchange. But it is still an automated buy.

Television terminology

Another point of confusion that I hear about a lot is people trying to apply the concept of "spot" media buys to the exchange. The person using this term equates "guaranteed" media buys with the television upfronts and ad exchange buys with the television spot marketplace. Sometimes the term "scatter" gets used here, but not too often.

The television spot and scatter markets are essentially the same thing: spot applies to broadcast, and scatter applies to cable. These two markets basically cover all the non-upfront buys that happen in television. In broadcast and cable television media sales, the networks try to sell large blocks of ad inventory in bulk -- several times a year. These sales extravaganzas are glitzy, involve a lot of money being spent in all directions, and lead to a large number of bulk sales of ad inventory in the television space.

There have been many attempts to replicate this upfront process in digital media, with varying degrees of success. The interesting thing is that the upfront process is really a discount mechanism for the media buyers. Media buyers agree in advance that they'll pay a certain amount of money per gross-rating point (GRP) for television media inventory in order to get the sellers to give them a discount. The sellers are OK with that discount because it mitigates the risk that they won't be able to sell that inventory later.

The rest of the television advertising inventory is sold on an ad-hoc basis in advance of the date of the show. Typically the price of inventory in the spot and scatter marketplaces is higher than the upfronts. Non-upfront buys (spot in broadcast, scatter in cable) are sold as far in advance as the buyer is willing to sign up, to as close to the date of the show airing as the seller can support technically (usually a day or two before the show is aired).

For some reason in digital, some people think of upfront as the equivalent of guaranteed and spot as the equivalent of ad exchange buys. The really interesting thing is that every "guaranteed" buy we do in digital is exactly the equivalent of a spot buy (or scatter buy) in TV. Spot buys are essentially guaranteed (reserved), and they're bought anywhere from one day to months in advance. So we shouldn't use the term "spot" to describe the ad exchange; this is technically incorrect. There is no traditional media equivalent to digital media ad exchanges -- at least not yet.

Spot and scatter buys are reserved in advance, with make-goods and all the other nifty things expected in "guaranteed" digital buys once the contract is committed. The only minor difference here is that most buys are "pre-emptible." That means that if another buyer comes along after the contract is signed, and the new buyer is willing to pay a high enough price to get the inventory, the seller can preempt the existing contract (usually this involves a penalty that the seller has to pay) and can substitute the new buy for the old one. Take note digital media folks: This is actually desirable to the buyers, and they'd love to be able to do this in digital. We just don't support it because we didn't design our systems that way. It would be great to really offer reserved buys instead of guaranteed buys.

Financial market terminology

The other thing we screw up in our space is trying to use stock exchange or commodity marketplace language to describe what happens in the digital media exchanges. But there isn't an exact equivalent of most of these concepts. While the term "guaranteed" is used to describe "reserved" buys that are sold in advance in digital media, when people in our space want to discuss selling reserved buys over the ad exchange infrastructure, they try to talk about it in terms of "futures." The problem is that a futures contract is not the same thing -- not even remotely -- as a guaranteed media buy.

In the financial markets, a futures contract is a very specific thing. It implies a whole lot of infrastructure and implementation that simply isn't supported anywhere in the digital media infrastructure today. The biggest problem with trying to implement a "futures contract" mechanism in digital media is that the unit of inventory we sell -- an ad impression -- only exists for milliseconds. There isn't an equivalent in the physical world that matches this scenario in which "futures" are sold for shares of a company or of a commodity that will exist and continue to exist after the contract expires.

Of course, I'm not an expert in the mechanisms used in the financial markets, and there might well be some more esoteric mechanisms I'm not aware of that more closely match what we do in digital media. But the danger here is that we push too far forward on something that isn't a close match to what we actually need in order to have a healthy business. I don't think it would be a healthy business decision for us to build marketplaces where "futures contracts" on ad inventory could be resold, for instance. There are plenty of reasons that this would be a bad idea.

Eric Picard is CEO and founder of Rare Crowds.

On Twitter? Follow Picard at @ericpicard. Follow iMedia Connection at @iMediaTweet.

 

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