The current real-time bidding process is simply the spot market for the impression, and is nothing more than the warm-up act for something far more predictive and sophisticated, explains Tom Barnett, co-founder, Switch Concepts.
Imagine for a minute that you’ve swapped your current job to become chief egg buyer for a fast-food chain that serves breakfast to hundreds of millions of people a day, and you need to procure at least a billion eggs a year.
The good news is you’ve got the world’s biggest egg supplier in your office. The bad news is, he begins to show you his wares one by one.
“What do you think of this one? How about this?”
You realise this could be a very long day. In fact, selecting a billion eggs individually would take around 32 years, and that’s if you selected every one you saw – do the maths!
Luckily, you’re smart enough to realise that it doesn’t have to be this laborious. Once you’ve let the egg seller show you several more and pulled out the ones you feel are the best, and tasted them, you say: “OK, you can stop there. These are the kind I want. As long as all the other eggs look like this, taste like this, and aren’t rotten, I will take a billion of them, thanks.”
Job done.
This process of selection is called buying forward, and has been happening with commodities on the stock market since the technique was introduced at the Chicago Mercantile Exchange at the turn of the 20th century.
What’s it got to do with the digital advertising ecosystem? Well, like the stock market – or even the egg market – we’re in commodities. However, in our case, there’s just a spot market, no forward buying or trading against a future.
Real Time Bidding (RTB) is the spot market for our commodity, the impression. It is the exact moment when a human eye engages with an image or moving screen. The big bang in advertising occurred out of the need for automation and efficiency. This created an evolving and pervasive spot market. But the concept of automating communication between an advertiser and an individual is unlikely to stop here. It will move forward and buyers will want to speculate on the future. So it will be imperative to understand the future, not just the present.
Forward trades require grades and standards around the commodity, a terminal contract, symmetrical data, a transparent market and the necessity of the buyer and seller to achieve a state of perfect information. They need market participants to act a certain way and require proper understanding of price elasticity, scarcity, certainty, risk, and opportunity cost.
As with everything in advertising, we are gambling. Every campaign is an investment strategy on behalf of an investor – the buyer or advertiser – who is trying to move a market by betting on chances to communicate their message. It is an effort to influence the behaviour of a consumer. The outcome of our wager between the investment and the consumers results in a return.
On the publishing side, we see a production line – the manufacturer of this commodity. Their business is to produce an opportunity for an advertiser to place a bet and try to affect the future.
So, it’s inevitable that before long there will be a real forward market emerging within this impression-based commodity market. The impending tide shift is going to make the emergence of RTB – the spot market – look like a warm-up act, and it is one hell of an opportunity for all of us. Those who prepare now for the future will be ready to make the most of it; those who don’t will be left behind.
Originally posted ExchangeWire 23 Nov 2016