Musings from GroupM: Display Advertising vs. Modern Portfolio Theory - Vik Kathuria - MediaBizBloggers

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How AdExchanges and Real Time Bidding changes the game for advertisers and marketers

Modern Portfolio Theoryassumes an efficient marketplace i.e. all investors have access to the same information at the same time. This is the exact opposite of the current display advertising marketplace which is highly inefficient. There is a big gap between perception and reality when it comes to assessing what is premium inventory. This is mainly due to the absence of relevant (if any at all) measurable KPI's. Also, the majority of advertisers are not aware where all their ads are shown or against what context (i.e. competitors within the same category). There is also a significant percentage of impressions that are international for US based buys as well as ads being served "below the fold".

This inefficiency has created opportunity for adopting the data-driven approach to the buying and selling of media which is being driven by media trading platforms and Ad Exchanges. The premise of the exchange is to give agencies access to large pools of liquidity (Ad Exchanges) with a public auctioning system and full transparency to ensure efficient pricing and a complete tracking solution. These exchanges can either be accessed directly by the agencies via plugging into the exchanges API or thru media trading platforms interfaces.

The optimal way for agencies to take advantage of this is via private digital media trading desks. Using proprietary algorithms and targeting technologies, the systems assemble audiences from a vast pool of unsold impressions that meet the KPI's (key performance indicators) of clients and can be optimized in real time. The trading operations turn agencies from media planners into audience aggregators.

The approach is to extract maximum possible value from each impression by assigning relative value irrespective of source (i.e "premium" inventory vs. networks vs. verticals). This is only possible when the focus is on buying audiences and not sites. The goal of demand side platforms is for the advertiser to dictate multiple pricing points for a whole range of remnant inventory. This is only possible when publishers give access to audience data which allows the advertiser to focus on automated as well as spot buying.

Ad exchange platforms and their attendant real-time bidding ("RTB") capabilities will be an important factor in delivering an efficient and liquid "marketplace" for buying and selling data-driven audiences, offering enhanced scale, behavioral targeting, audience segmentation and improved transparency. This combined with (increasingly available) anonymous audience data that's stripped of PII (personally identifiable information) will allow for pinpoint measurement of incremental performance of individual campaigns and assign relative value to all level of inventory as opposed to current perception of "premium" vs. "non-premium" inventory. (In an RTB scenario, the focus is on audience rather than the environment, so if context is critical for a brand, this buying technology is less relevant for marketers).

Whilst the impact of real-time buying exchanges on the marketing effort still has to be understood, forward thinking Marketers and Agencies will do well to experiment with this new buying technology in order to stay relevant within an increasingly fluid display ecosystem.

Vik Kathuria is Managing Partner, Mediacom Interaction, responsible for overseeing all digital investments and trading.

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