Intelligence

What’s the future of the ad exchange model?  It’s clear that ad exchanges and DMP’s are the future of the media business as media has become more and more of a commodity and data has become a requirement to add value, but where are things headed?

Many people refer to the commodities exchanges as the future of the ad exchange model, but to do so requires there be a marketplace for the buy and hold of media assets.  At first I was skeptical of that version of the future because there are not too many media buying shops willing to take the liability of those media assets on their books, but then I realized that market already exists and thrives and its called the Upfront.  In the television Upfronts, marketers and agencies buy and hold the media until a later time of the year, in some cases they put them all to use and in some cases they put them back into the market as scatter, taking the financial hit in the form of a cancellation clause.  If marketers had the chance to buy, hold and resell that media at either a profit or at least a break-even, wouldn’t they consider that?

The “futures” market is a tenuous one, especially in a volatile stock market and one where economic indicators are so across the board chaotic, but the advertising marketplace continues to grow.  More money is flowing into TV advertising every year, and the Internet continues to expand regardless of the almost infinite supply of impressions.  OOH and print may not be growing, but they are still finite assets that retain value, and marketers still want to take advantage of them.  A futures marketplace could indeed be valuable if the marketers and agencies were set up to take advantage of it.

The agency category is the one I find the most interesting here, because it’s the model that has been most in flux over the last 10 years.  The Internet and digital, more than anything, pushed margin’s down on agency commissions and as a result the agencies have been innovating to find new revenue streams.  Creative continues to be uncommoditizable, and strategy continues to be only semi-monetizable, so the agencies have focused on media buying – specifically by creating trading desks and analytics groups.  The agencies are focusing on the data and they are driving the media landscape into a commodities market.  If you agree this is the case, then it makes sense that the agency category may shift to a buy and hold strategy for media.  Some agencies do it already and have done it for years by entering into upfront agreements with the portals and larger publishers.  If you have money in the bank, and you know you’re going to be buying media for your clients, why not try to buy it at the low and sell it at a profit, which is still probably a discount to your clients?

Of course there’s the argument that the large marketers and public companies might be the ones to take advantage of this model because ultimately they are the ones who buy the media, and are ultimately responsible for its use.  I can foresee a model where the marketers buy the media on the market, hold and pay their agencies to put it to good use, rather than paying them a commission for it.  There could even become a secondary market for marketers who want to trade and barter media for their benefit.  The opportunity is endless if you commit to the idea that media can be bought, held and sold on a futures platform rather than the way most agencies buy now, which is last minute and through manual insertion orders.

For this model to truly succeed, the media buying agencies need to mature.  Currently they are full of young, undeveloped, and in too many cases poorly trained, buyers.  These new buyers would be analysts and traders.  They would be evaluating trends and matching those market trends against the needs of the clients.  I don’t see these buyers being compensated to the same scale as Wall Street bankers, but I see them commanding stronger salaries than the current media buyers.  It’s a skill and one that could not be easily replaced by some smart person off the street.

What do you think?  Can a future’s model succeed in this business?  Would it have to be cross-platform, encompassing online and offline, or could a stand-alone online marketplace exist and survive?  Let me know what you think by posting a comment on the Spin Board!