Floors are not Fraud

Hi all.  I have been thinking about cracking my knuckles and getting back to the literary salt mine for a while now and I saw an article yesterday that just I couldn’t resist.

Right off the bat, the headline “Are Artificial Price Floors The Next Iteration Of Ad Fraud?” almost audibly screamed Betteridge’s Law. (OK, I had to Google the name, but I swear I remembered there was such a thing).  So, in honor of Mr. Betteridge and his predecessors, let me state clearly that with respect to this headline, “The answer is no.

I can certainly understand why the buy side might not like price floors, but a buyer calling floors fraud is like King George III calling George Washington a terrorist.

Would it be fraud if one bought for 25¢ CPM an impression that’s worth $25 CPM from an ROI perspective? That’s a much bigger disparity between “true” value and transacted price than the example in the AdExchanger byline. Yet this sort of transaction happens all the time because, leveraging technologies like re-targeting, a buyer often knows much more about user value in the context of a particular campaign than a seller does. If they were being candid, many (if not most) buyers would tell you this is kind of the point of sophisticated, RTB-based buying strategies.

So, then, Is Precise, Data-Driven Targeting The Next (Next) Iteration Of Ad Fraud? Of course not.

What would a “true” or “real” floor price for an impression even be, as opposed to the “false” or “artificial” floor to which the author objects? Would it be the small fraction of a cent that it costs the seller to serve the impression? Would it be the seller’s operating expenses divided by its impression volume? Maybe add some margin? What’s a fair margin? Would it be opportunity cost, which the author implies would be his choice? (Second price approximates opportunity cost if one makes some reasonable assumptions.) Something else?

It’s not like I have written a book on this stuff or anything, but I have to tell you that I don’t see any reason why one of these options is more “fair” or “true” than the others. On the contrary, I see all kinds of reasons why all of them are less fair than the outcome of a voluntary transaction between two independent and accountable market participants.

To be clear, the seller has an obligation not to misrepresent what she is selling; misrepresenting what one is selling is bad (just ask Volkswagen). But where else in commerce do we even expect, much less require, a seller to disclose their reservation price transparently?

Do we get mad at the person who sold us our house because they didn’t tell us their brokers’ open was poorly attended and they really need to move immediately? Do we get mad at the car salesman who bargains harder because we forgot to take off our nice watch? Do we get mad at the movie theater because there were empty seats and so their opportunity cost on our ticket was $0? For that matter, do we even get mad at the movie theater for the $10 bag of stale popcorn? No. We expect that behavior and we do our best to counter it, but at the end of the day we decide whether the price offered is worth it to us in context and we buy or don’t buy.

The bottom line is that sellers should be free to use any and all (legal) tools available to them to manage their businesses in any way they think will meet their business objectives. Buyers are free to change bidding strategy, negotiate special terms or look elsewhere if economics on a transaction don’t work for them. Reasonable people could debate whether or not price floors are good for the efficiency of the market overall, but thankfully nobody is setting policy for the market overall – this isn’t 1950s Stalingrad.

Floors, “artificial” or otherwise, are a valuable and perfectly legitimate yield management tool for sellers.

Don’t be cute

Wholeheartedly agree with Jonathan Mendez in yesterday’s Digiday.

Kirk McDonald’s WSJ op-ed reminded me of my abortive attempt to land a finance job in my early 20s. Someone told me I should read the Wall Street Journal and pick up the lingo. I read the C section dutifully for a couple months, but still had no idea what was going on. So in my interview to become a bond trader, when I was asked what most interested me about the bond market, I said “I’m really interested in LIBOR”.  Which I am sure to the interviewer sounded as cute as when I asked my 3-year-old son Alex what he dreamed about last night and he said “a cheese sandwich”.

Cute doesn’t get you the job.  Nor should it.

If This Process Is So Broken, Why Hasn’t Anyone Fixed It?

For those of you who found Part 1 in my AdExchanger series on Programmatic Reserve interesting, here’s Part 2.

Enjoy!

Programmatic Reserve: Let’s Solve The Right Problem

Just a quick post today, to steer readers of this page to AdExchanger for some thoughts on programmatic reserve.

Enjoy!

Google: “Programmatic” is all about the buy-side

Did anyone else think yesterday’s virtual “hang out” with Google’s Scott Spencer was fascinating?

First of all, where was he?  Was that a jungle or a conference room?

More importantly though (much more importantly), did anyone else find Google’s definition of programmatic a little lopsided?  According to Scott:

  • “We define [programmatic buying] based on the fact that the buyer gets to define the targeting”
  • “The ability to not buy is a critical attribute to programmatic buying”

This is a fair characterization of RTB as it exists today, but defining the entire Programmatic market this way isn’t exactly seller-friendly.  The real eye-opener for me though was the response to a question from the audience on delivery guarantees (good question, Tom!).  Scott made it clear that in the context of Programmatic Reserve, any delivery guarantees should only go one way.  So for Google, a programmatic delivery guarantee means that the seller guarantees they will provide the inventory, but the buyer doesn’t guarantee they will buy it.

Huh?  You have to admire the frankness, but if I was a publisher I’d be very concerned about that perspective.  I think for programmatic reserve to “really happen” it’s going to take a much more balanced approach that addresses both buy-side and sell-side needs.

What do you think?

Great Creative from Merrill

I just saw this campm2aign on Y! Finance and it caught my eye, half as a consumer and half as an ad guy.  Clicks through to microsite here.

As I have mentioned before, the creative really matters and this is a great example of what’s possible when creative is designed around an online, 2-way experience.  Fantastic way to ingrain the brand impact and the social sharing feature at the end of the process is a great earned media idea (although I personally am too vain to broadcast my 80-year old face).  Great campaign, and I bet they will see great response.

Banners don’t work?  BS.

How do we make Programmatic Reserve really “happen”?

Interesting article last week on Programmatic Reserve by Jay Sears in Ad Age (call it “‘guaranteed” if you want – just don’t call it “premium”).  Jay’s a smart guy and right on the money with respect to the potential for a broader definition of “programmatic” to fundamentally change the online ad landscape and dramatically expand the pie.  So from that angle I was in violent agreement, but two things still kind of grated on me as I read.

First was the shifting tense and implied timing.

Seemed to me that we went freely back and forth between present and future tense as the article unfolded.  We were talking about a ripe opportunity for Programmatic Reserve, then something that was happening now, then sorting out the technology to make it happen.  Those of you who know me (and/or read this page) know this is a topic near and dear to my heart.  It’s most certainly a ripe opportunity.  But it isn’t happening now to any meaningful degree.  Lots of talk.  Maybe almost that much work going on too, but not a lot of real money moving yet.  Perhaps what he means is that this is the year that the work bears fruit and Programmatic Reserve becomes real.  Possible, but we really have our work cut out for us.

Which brings me to my next issue – what needs to happen to make it real?

Jay outlined a vision including structured electronic RFPs on the buy side, structured electronic catalogs on the sell-side, even index funds.  This was a good synthesis of many of the ideas that have been discussed over the years.  So I love the aspirations, but I think the harder part is how to get there.  That’s what folks haven’t been able to figure out yet (yes, that includes me when I was at Brand.net).

Exactly what problem are we trying to solve?  Are we (as this article’s subheader suggests) trying to get up front budgets running through RTB?  Not really.  Are we trying to compete with excel as some others have suggested?   I’m not sure that’s exactly right either.  Is this primarily a buy-side problem or a sell-side problem?  Seems to depend on who you talk to.

I think we’d be most productive as an industry to answer these questions once and for all, rather than spilling more (virtual) ink on the high-level vision for the future. So I am going to do my best this year to do just that.  I.e. figure out what’s the right path to get us to this future we all see and frankly must create to keep growing long term.

I’ll keep you posted, and I’m very much looking forward to your input!

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