Serving’s the easy part

by greg on July 27, 2008

Interesting article in the NYT about creating more complex financial derivatives from advertising. This idea seems to attract a new pack of smart-as-hell people every year – my own year was three years back. It’s the perfect NYC concept, wedding the financial industry with advertising. However, the concept’s inherently flawed. If any sort of ad-backed derivative market takes off, I’ll be the guy buying the cheap out-of-the-money put options and waiting for the inevitable black swan. No point rewriting my old stuff about fungibility and/or volatility so just go search the archives – here’s an example.

That said, I’m actually blogging because this paragraph’s utter rubbish:

Of course, an exchange needs supply and demand to work, and the exchanges are not huge now. The largest exchange, Right Media, based in New York, says it handles about six billion transactions a day. This sounds large, but that six billion is the total number of transactions — that is, the number of interactions between the buyer and the seller — rather than the ad impressions it is serving, a much lower number. And MySpace alone showed an average of 1.7 billion ads a day just to United States viewers in April, according to comScore Ad Metrix.

So what if, after Right Media decides exactly what ad networks are going to serve ads where, it sticks another network’s ad tag in the page and lets the other ad network do the actual serving? Content serving is a commodity, and in this situation the participating ad networks (or rather, their CDNs) are just acting as dumb pipes. The hard, computationally-hefty part, where all the value is created, is in making those matches between buyers and sellers, six billion times a day. You do this for three-and-a-half MySpaces a day, and you’re huge.

I’d be very, very curious to know which party fed the reporter that spurious argument.

{ 2 comments… read them below or add one }

Darren Herman July 28, 2008 at 5:56 am

I do not think anyone is arguing if ad-serving is easy or hard. It’s a commodity, just look at DART or Atlas or any of the other ad-serving systems. What this article is rightly pointing out is that ad exchanges are emerging and some very SMART people are creating some interesting businesses.

greg July 28, 2008 at 12:32 pm

Well – it certainly sounded like the article was implying that six billion transactions a day wasn’t impressive, because Right Media wasn’t actually *serving* all of those impressions.

As you can also tell, I’m a little wary of securitization of advertising inventory – not everything can be bundled up like that, no matter how smart the people working on the problem are. The characteristics of the underlying assets make this model very unlikely to work.

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