Auctions and media: search is just the start
The trading models for online advertising have always been progressive. A transparency in the data, and a keenness to relate advertiser success to media space quickly created the Cost Per Click trading model in the late nineties, and then the Cost Per Action model. Since then sharing the risk has become a regular part of the media buying discussion, and the role of auctioning clicks has become embedded in the trading of search engine advertising.
But now the worlds of media are set to collide. Search engine advertising offers the most widespread experiment in business-to-business media auctions. It's proved not only successful for the companies, but highly efficient for the market. Auction theory may be a new skill for most marketers, but it's one that is now going to explode from the silo of search advertising to go truly mainstream in media.
Whether its English, Dutch, Sealed-bid or Reversed auctions, the potential for them is vast now that the model of GoTo, Overture, Google and Yahoo has been proven. Analyse the trading of media and you'll see barriers and frictions all over the market. Buyers can’t see each other, and in classical economic terms, their market knowledge is ‘imperfect’. Price is rarely transparent and through this, the role of media sales teams has been focussed on relationships and negotiation. One side effect is that market prices evolve gradually and even major changes to the system only happen slowly.
But online platforms like Ebay or PriceRunner have proved that in the digital networked economy, there are new ways markets can be streamlined. Information can be collated and structured effortlessly for millions of items from thousands of suppliers. Those trading models are already removing frictions within some markets, so why not the wider online advertising industry?
In 1998 I made the over-zealous prediction that 'within ten years the price of media will set through exchanges'. Timing is everything in forecasting, and I was clearly wrong with the pace at which auctioning in search would wash across other media. But it has to happen, and soon. The banner advertising market will be first, although initially just the remnant space, then it's probably the turn of radio. In the broadcast radio space market factors such as the electronic trading of space (we use the JET system from MediaTel here in the UK) and some strong price pressures triggered by the erosion of local advertising, will combine to create the right ingredients for that remnant space to switch as well. Newspapers and television will follow, and eventually even outdoor. We'll see a market price established which is set by the collective behaviour of the sector, in a process that will be a real shock for many media owners and agencies. And eventually, channel by channel, it won't be the remnant space any longer, it will be the premium inventory of all but the premium media brands.
Somewhere along the way 'auction theory' will play a big role and that means hiring people with auction talent right now is a smart move. Business strategists in media groups and agencies should begin planning for some price destabilisation in media space, but also accept the potential to reach new customer bases with these more efficient models. When exactly all this happens is still an open question, but it feels like it's now within the next 36 months in the UK and the creation of the DELTA trading platform will be one of the next catalysts in the process. While the timing is unclear, what's certain is that the media industry is in for one massive change in media buying and sales.
What are your views? What do you think will happen next in your market?