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Accountability Matters August 28, 2006

Posted by Bill in Online Advertising.
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In my continuing discussion of the new e-Media Exchange–the auction-based ad-buying exchange driven by blue-chip advertisers with technology from e-Bay–I’d like to talk about why the push for auction-based advertising is, at its root, a push for accountability. I think it’s important for me to explain this point because I’ve used it as something of a presumption in my discussion of auction media up until now.

To explain the issue, let’s start at the real focal point of the accountability problem, and of the Exchange: the ad-buying process. Currently, traditional ad buys are the result of discussions between advertisers’ media buyers and network salespeople. Pricing, packages, and details are all hammered out on a case-by-case basis. That sounds OK, but it’s frustrating for advertisers, since every deal is both personalized and shielded from the view of similar deals in the marketplace. That combination means it’s hard for an advertiser to get a sense of a going rate for an ad unit–if you don’t know how much anyone else has paid for a similar unit, it’s hard to know if you’ve paid a reasonable price.

Yet another problem, in the words of Home Depot Senior Vice President of Marketing Roger Adams (in a Wall Street Journal interview last week), is growing advertiser concern over the trend of “increasing rates for media and decreasing audience delivery.” Translation: between eyeball dispersion away from TV and towards new media, on the one hand, and TiVo on the other, traditional ad viewership seems to be shrinking–but the networks are still charging more.

I would argue that these problems are related. Since networks ad buys don’t have standardized pricing, it’s hard to know how much you ought to be paying–and it’s even harder to know if you’re paying too much. If you don’t know if you’re paying too much–if there’s no clear sense of an ad’s precise value–then there’s less incentive for the networks to present a case as to why their pricing reflects what an ad is truly worth. That’s a serious lack of accountability.

The reverse is also true. Transparent, precise pricing means that everyone in the market knows what kind of deal they’re getting. If everyone knows exactly how much they’ll have to pay, networks are forced to explain how they came up with that price. That creates an incentive to provide better information to advertisers about network traffic in general, giving advertisers a better grip on the real value of their network buys. Since auctions create precise pricing that the whole market is aware of, auctions force the auctioneers to provide that kinds of broad information. In the case of auction-based advertising, the auctioneers are the networks.

Google and Yahoo’s free keyword-list development tools illustrate the point nicely, albeit somewhat anecdotally. Yahoo’s Keyword Selector Tool provides keyword suggestions for search marketers; it also serves as an index of how many searchers have queried thousands of unique terms each month. If you’re developing a keyword list, those numbers can be a powerful for your arsenal. Google’s Keyword Sandbox, on the other hand, also suggests useful terms–but it doesn’t offer precise numbers on monthly keyword queries.

This distinction is important because Yahoo operates through a nearly pure auction: the more you’re willing to pay, the higher your ad gets ranked (more or less). But Google strays from the pure auction model, determining ad rank by a black-box algorithm combining bid price with other factors, like click-through rate. And it’s the engine with the purer auction that provides better traffic data.

It’s also interesting to note that, as Yahoo plans to shifts towards a black-box hybrid auction similar to Google’s, its Keyword Selector Tool has suddenly became much harder to find. Try to locate it by typing inventory.overture.com into your browser–until recently, that URL would automatically redirect to the actual Keyword Selector URL,; now it gets rerouted to this Yahoo Search Marketing landing page. All of this might be coincidence, of course, but I do think it’s illustrative nonetheless.

Now, I’m not arguing that Yahoo and Google black boxes will set them up for advertiser rebellion–search is still the most accountable game in town. Plus, in contrast with TV ads, the eyeballs are moving toward the engines–not away from it. Instead, I’m arguing that auctions create an inherent incentive for networks to be accountable, that advertisers understand this point, and that it’s this very point that’s driving the new e-Media Exchange. It’s also the reason why, as advertising evolves, auction-based media will only become more entrenched.

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