How Nasdaq aims to reshape the future of media trading by bringing Wall Street to Madison Avenue
Earlier this month Nasdaq announced the planned launch of New York Interactive Advertising Exchange (NYIAX), a platform it claimed would reshape the future of how advertisers and media owners trade by taking 'Wall Street tech to Madison Avenue'.
With the service set to launch in beta later in the year, NYIAX claimed its offering would use blockchain technology to help bring greater transparency plus efficiency to the way all media is traded. The Drum caught up with Richard Bush, NYIAX's chief product and technology officer, to gauge its plans goals, strategy and tactics to bring about the proposed changes.
The Drum: How does NYIAX differ from existing media exchanges already on the market? Indeed, this quote was of interest: "Once the rest of the market is exposed, advertising as we knew it for the past twenty years will be ancient history.” Was this a specific reference to the blockchain technology?
Bush: NYIAX is a forward contract exchange. Current offerings differ as they focus on the delivery of the media at runtime, whereas NYIAX focuses on future inventory.
Blockchain has the potential to change many markets including advertising. With, that said, the automation of the advertising contract or people process is the initial innovation.
Industry challenges that we’ve fielded from buyers and sellers include:
- Forecasting: Publishers lack reliable forecasting capabilities in support of future guarantees
- Sell-through rates and unsold inventory: With limited direct sell-through, publishers must release inventory to indirect sellers at reduced CPM rates
- Platforms: There are no established platforms for the exchange of future inventory at scale
- Transparency and Discovery: Advertisers lack the ability to discover future inventory
- Additionally, advertisers are unable to verify ad placements
- Aftermarket: Advertisers are hesitant to enter into future contracts because they lack the ability to re-trade positions
- Fraud and under-delivery: Advertisers are often charged for impressions that are counted, but not actually viewed
The Drum: Can you explain a bit more about the "guaranteed digital media contract trading" promised in your initial release and how this will improve "efficiency and transparency"?
Bush: A trader can list interest, either buy or sell, as a standing order. The counter-party trader can generate a view of the market by setting up filters – ie, seeing sell or buy orders that match their criteria. That trader can either submit a standard order (Market, Limit) or select an existing order as a hit-and-take order. A trade occurs, and both parties now have a position. The buyer’s position can be resold.
We will automate the people process step-by-step increasing efficiency, the exchange will list both sides and make named counterparts transparent.
The Drum: For instance, does this mean that media sellers can sell options on media placements months in advance, and they can then be traded until the point of fruition similar to other commodities futures trading?
Bush: The distinction within NYIAX is that we are operating a forwards market, not an options market. NYIAX’s exchange will provide media buyers with a transparent and trusted market to secure premium future advertising inventory.
We are focused on a forwards marketplace for guaranteed media where re-trading is possible, months in advance. The difference between options, as you mention, and what we’re doing lies in the buyer and seller obligations. In our forwards market, once a trade is completed, participants are obligated to fulfill the contract: seller to deliver ad impressions; and the buyer to pay for media once ads are delivered. This allows both parties to properly forecast this revenue and ad spend at the time of trade.
The Drum: Additionally, what model do you foresee for media owners? For instance, if they do not find a buyer they can then default to selling via other means of automated trading (i.e. an open exchange, etc)?
Bush: Of course! We aim to enable publishers to sell more future inventory. However, if they choose to sell their inventory through other means, that’s their decision and our system doesn’t preclude it.
The Drum: Do you see this model opening up media inventory purchases to new sources of demand, such as institutional investors, or pension funds, etc? Indeed, do you potentially see this opening up new sources of demand. For instance, could a media owner based in South East Asia sell media futures options to investors based in New York or London, whenever they would not have previously even known about each other?
Bush: While that's not our focus today, it's certainly possible given we have the underlying Nasdaq financial framework.
The Drum: Also, when looking at these new demand sources to plug into, are you paying particular attention to "in-house brand trading desks", which are reportedly on the rise?
Bush: Demand will come in waves, and those who are innovative will come first. “In-house brand trading desks” are in a very good position to leverage NYIAX. This group typically exists because of valuable data assets, and we recognize that support for data is important to both buyers and sellers in our ecosystem.
The Drum: Additionally, does this (plus the involvement of Nasdaq) mean trades on this platform will subject to regulation by bodies such as the Financial Services Authority?
Bush: We do not anticipate that NYIAX will be the subject of regulatory oversight. The advertising industry is currently an unregulated market in regards to exchanged based activity. NYIAX is a forward contract exchange which has not been subject to regulation by any financial regulatory body at this point in time.
The Drum: As referenced about the release mentioned increased "transparency", yet some would say that this could be prone to arbitrage (a pet hate of brands, and one they are increasingly looking into). Clients often deem media buying agencies 'using their budget' to speculate on advertising inventory in a poor light. Can you explain a bit more about your transparency assurances?
Bush: Yes, that’s a common practice. We support that with transparency into trading and re-trading activities. While in the past, this hasn’t been exposed, buyers and sellers now have greater visibility. Further, publishers have the choice through upfront terms to allow or disallow this re-trading behavior.
The Drum: Most exchange-based media trading environments to date have relied on cookies for targeting, but as we know this is becoming increasingly moot as consumption moves to mobile devices. How does NYIAX propose to remedy this shortcoming?
Bush: You’re correct in that most exchange-based trading environments rely on cookies for targeting. That said, initially it’s important to clarify that we are not ourselves a delivery system - we partner with delivery systems. Remedying this industry issue on cookies or unique identifiers is not our focus at NYIAX. What’s important to our clients and to our business in our early stage is to enable a guarantee. To do this, we require both buy and sell parties to agree on a single set of numbers upfront. We also recognize this as a big industry shortcoming as well. This is why, at this time, we are focused on partnering with the best in class solution.
The Drum: Also is the model cost per trade rather than percentage of impressions (i.e. does NYIAX just charge a flat rate for every trade made)?
Bush: Correct, NYIAX pricing is based on transactional fees for trades. Additional future revenue streams may develop around market trends, intelligence and licensing of our custom technology.
The Drum: Can you explain a bit more about the planned roll out program (for instance are you seeing more eager demand from the buy- or sell-side of the business, or even elsewhere), as well as what variants NYIAX is road-testing during this beta phase?
We plan to gain early adopter participation, use that feedback to inform our growth and reiterate the product and interconnects within focused market segments. Additionally, we will focus on the top to mid-tier players of the market within each market segment based on the fact they have still maintain the highest proportion of direct and guaranteed business.
Our focus leading up to launch is a three stage plan. In Q1, we started with an internal Pilot program, designed to test the pipes and start engaging with early adopters. In the second quarter, we will extend the product based on pilot partner feedback and ongoing improvements to the interconnect with the advertising ecosystems. In Q3, we make the systems final production ready, while ramping demand and supply, readying for launch.
The Drum: Finally, you mentioned that once scale has been hit with applying this to digital media then it could be applied to other 'traditional analog' media, what has to happen for this to be realized?
Bush: We feel that digital advertising is the most complicated media use case for us to tackle in our platform. What we’re saying is that once we feel confident in our digital media solution, it will be easily extensible to our next target markets: television, radio and digital out-of-home.
As with any two-sided market, to achieve scale, we need to manage stable growth of both the buy and sell sides. That process is really starting in Q2, and we will be in a better position to provide details after we officially launch later this year.