An insightful post from investo-blogger Jerry Neumann yesterday on Ad Exchanger. I like what he’s thinking about in the post and agree with much of it, but there’s an important meta-point that he didn’t mention.
Jerry’s first point was that there is a huge shortage of experienced talent in the online ad industry and what does exists is primarily clustered within the myriad tech vendors in the ecosystem. Agree. His second point was that even as the exchange ecosystem (which at its core promises increased efficiency through a common set of pipes) grows, we see continued fragmentation of supply / demand relationships. Agree.
But I would also argue that these two observations are causally related. The reason things continue to fragment is largely that there are too many tech companies making too many pitches to too many media buyers and sellers that are still coming up the learning curve. Tech company convinces still-learning buyer or seller to participate in “private market” promising some advantage in terms of functionality or monetization. Careful A/B testing is hard to do without committing even more limited time/resources (hence it’s rarely done at all). Whatever advantage was expected may or (more likely) may not actually be delivered, but such decisions are infrequently revisited. As a practical matter, once the sale is made the arrangement has tremendous inertia, regardless of relative value add.
So Jerry’s “thin exchange standards” may well become necessary, but I think that would have much more to do with folks not thoughtfully using the tools that already exist rather than a “real” need.
“Private markets” are rarely the most efficient alternative. The more participants in the market the better, assuming careful thought is given to structure and business rules. I saw frequent examples of the private market dynamic in my time at Yahoo!. Some enterprising salesperson would convince a content group GM to dedicate a placement to a particular advertiser. Such arrangements almost always under-monetized relative to an open, competitive market for the same placement. There was just an article last week in the ‘Journal offering up some more evidence from Goldman’s experiment with private markets. Or coming at it from another angle, have you ever tried to sell anything locally on craigslist, failed, then posted on eBay? eBay’s national market with huge liquidity almost always closes the deal at a fair price.
The faster we collectively get up the learning curve, the faster things will consolidate so we can actually realize some of the efficiency gains we’ve all been chasing.