Invision: Advertising Exchanges for Television: If or When? - Mike Stoeckel - MediaBizBloggers

In the late 1990s and early 2000s, Internet advertising exchanges, though armed with the promise of eliminating friction and waste in the often manual and cumbersome buy/sell processes, mostly floundered. At the time, leading Web publishers could not fathom the idea of giving up control of their inventory, pricing and brands to third parties. Though many of the pioneering exchanges presented intriguing solutions and indisputable examples of electronic trading success in other businesses, you couldn't introduce a company with a name like AdAuction.com to your sales managers without conjuring up images similar to the blind trading of commodities such as pork bellies.

Early in the new millennium, with Internet access sprinting past its early-adopter phase, the supply-demand imbalance we all know too well today in Web advertising started to rear its ugly head. Still fearful of external sellers though, most Web sites were willing to give up revenue opportunities on their remnant ad inventory and just serve up house ads (promos). Promoting an internal personality or driving traffic to sections of a Web site in need of additional ad inventory via house ads appeared to be an honorable and sometimes profitable solution. However, most sites did not have the internal marketing and creative resources available to churn out the volume of house ads required to match the unsold impressions. The result was house ad burnout (no offense to Larry King, but I was as tired of seeing his static banner running on our CNN.com homepage as I am currently aggravated by dancing mortgage ads).

Like many steps in the evolution of Internet advertising, cultural changes were set in motion with the bursting of the Internet bubble in 2001. Pressured to monetize every single pageview on their sites, Web publishers were now open to discussions with third party sellers. Early ad networks such as Advertising.com, which was acquired by AOL in 2004, were the first to benefit by offering services and incremental revenue in a fashion very similar to traditional television rep firms. In 2003, Right Media, now owned by Yahoo, emerged and took advantage of this open climate by creating an Internet ad marketplace that not only afforded the efficiencies promised years earlier but also became popular with some top ad sellers. Quickly, other exchanges were launched or acquired by Microsoft (AdECN), Google (DoubleClick) and ContextWeb.

Does the proper environment exist today for a television ad exchange to blossom in a similar manner as online exchanges did a few years ago? Let's look at some of the primary criteria:

1. Friction in the Buy/Sell Process: The need for automation exists in television and, for certain functions, exceeds the problems found in web advertising.

2. Supply-Demand Imbalance: Networks held back more inventory from the Upfront than usual this year in favor of scatter, and television ad inventory continues to become more fragmented. However, this in no way approaches the oversupply found in Internet display advertising.

3. Willingness to Work with Third Party Ad Sellers: In spite of points 1) and 2), I don't see the desperation in the television marketplace today that permeated many Internet ad sales offices during the post-bubble era.

Does this mean that it will take years before a viable business model exists for a television ad exchange? Inefficient workflow and inventory oversupply are problems that will continue to fester. Additionally, revenue desperation does not have to be the driver of ad seller approval of an exchange (it would help though). The successful television ad exchange will gain acceptance by automating processes between sellers and buyers in order to eliminate friction and maximize deal-making performance while providing sellers with at least as much control over their inventory and pricing as they would via legacy manual procedures. I believe that the world is ready for such a marketplace today.

Executing on this mission is not trivial but can be accomplished via a two-step process of automation and self-service. As I stated in an earlier post, most national television sales teams are armed with a mature set of ad sales management tools. Typically included in such toolsets are stringent controls and approval mechanisms for functions such as ad product packaging and pricing. Most sales managers will be comfortable with an automated media plan generator if these constraints can be duplicated and the generator is initiated and administered by an internal sales planner. Once at ease with automated proposal generation, upgrading the system to a self-serve tool for media buyers, sans initial contact with the sales planner, evolves into an exchange with the appropriate level of checks and balances for cautious television sales managers.

Michael Stoeckel is Vice President, Digital Products for INVISION Inc.

Read all Mike's MediaBizBloggers commentaries at Invision - MediaBizBloggers.