Caspar Schlickum, managing director EMEA, Xaxis, argues that it’s not yet curtains for agencies as we move increasingly towards marketplace automation due to advancements in ad buying technologies.
For many people in the industry, real-time bidding (RTB) heralds the start of a new era, an era in which buyers and sellers come together in a perfect marketplace and each ad impression is assigned a value based on the needs of both sides at the time that impression is served; a utopian world where agencies are marginalised or redundant, and technology does all the grunt work.
This steady march into automation seems irrefutable, at first glance. Non-storable assets (of which digital impressions is one) are best valued on a real-time auction basis. Electricity has worked like this for years. In the middle of the night, when demand is low, electricity is virtually free. But you cannot store it, so of course the price of electricity during the day is very high as demand increases.
Electricity prices are therefore determined on a real-time basis by the coming together of demand and supply resulting in the price being set at exactly the right level given the prevailing needs of buyers and sellers.
But the application of such an approach to digital inventory holds flaws. For starters, electricity is all equal. There is no good or bad electricity. Electricity is not above or below the fold. Electricity does not come in different shapes, sizes and formats. Electricity is a completely commoditised, standard product, and therefore differs from digital ad impressions.
Secondly, in the electricity market, the buyer does not care who the seller is. I challenge anyone to identify exactly which power station the electricity in their lights comes from. I haven’t got a clue, and I wager nor do you. But with advertising, I have yet to meet a buyer who genuinely has no care in the world about where his ads go. In fact, even in this brave new real-time world of ours, the buyer still cares deeply about who the seller is.
Finally, and this is also a very important point that is often overlooked: in electricity, the seller does not particularly care who the buyer is. Power stations sell into a grid. Period. They don’t care where it goes. Very few publishers (and certainly none that our advertisers are interested in advertising with) have no interest in who they are selling to. Most care very much, and want to attract premium advertisers as much as those advertisers want to be in a premium environment.
Let’s look at another parallel market that is often referenced when talking about the move to RTB: the financial services industry. There, automation is at an extreme, with machines eking out every small arbitrage opportunity, moving money around the world in seconds. But even here, it is very rare that everything happens purely on a spot-traded basis. If a trader wants to buy or sell a quantity of a specific asset they can also conduct that trade outside the main exchange in a broker-negotiated deal. Apart from anything else, this ensures that the spot market is not distorted by large trades. But it also ensures that the buyers get what they want, as do the sellers. And despite the automation, this remains a relationship-driven part of the market.
So what does this mean for the future of RTB? Well certainly there is a future for a fully open market in which buyers and sellers come together to trade. But like electricity and the financial services industry, the reality will be that the existing structures and relationships that are in place to ensure that the buyers and sellers get what they want, will and should continue to prevail.
The reality is that it is not actually a good thing for anyone to have all media traded on a spot basis on a public exchange. More likely, we will move to a combination of the two, with private marketplaces or direct deals executed through programmatic channels complementing more tactical buys needed from time to time.
In other words, it’s an exciting time in our industry because many more ways to engage are being created, not because we are moving away from one world to another. RTB creates huge opportunities for a more efficient and effective way of buying. Insertion orders were never the answer in digital advertising. But this is not the end of the agency, and nor is it the start of an era where we all just plug a number into a screen. It’s the start of an era where technology has created many new ways for agencies and their clients to engage with publishers and their audiences.
This article was first published in The Drum's Ad Technology supplement on 26 April.