I'm going to take your orchestration analogy and run with it.

Lots of people are proficient at reading charts and using instruments but of course a conductor is needed to make beautiful music. I think we will find the Leonard Bernstein of RTB eventually but remember – conductors are working with the music written by others. The real value is the music itself. That's what people come to listen to. In our world the publishers are the Mahlers & Sondheims and as long as they're living they will have the say who will conduct and orchestrate what they compose. I don't think anyone is ready for Carnegie Hall yet but it sure is fun having great seats for the rehearsals.

fair point. maybe the real issue is why are there so few Leonard Bernsteins.

Darren,
You make some great points here. From my perspective, RTB is a major infrastructure upgrade. What’s exciting to me is how many possibilities this unlocks.

We all exist in an Internet world where we don’t ask the question “can I get there from here”. Can you imagine if there were three or four private networks (AOL, Compuserve, Prodigy), each of which were closed to each other – you couldn’t even email somebody on a different network? 20 years ago, that was the state of the world. Think of all the innovation that we’ve seen on THE internet. RTB turns a bunch of disparate display networks (AOL again, MSN, Yahoo) into THE display network.

What will evolve is a mix of art and science (just like the web) but will end up looking very different than what we see today. You’re right – just handing somebody a plug into the Internet won’t let them do a whole lot, and nor will RTB magically create value. The tools, systems, and most importantly, the people who operate on top of the ecosystem are the fire creating your proverbial smoke. Our mission at AppNexus (thanks for the plug!) is the tools and the infrastructure, and we’re thrilled to power some of the smartest, most creative people in the business.

Brian

Happy to plug solid companies.

I think RTB is exciting because it opens up a new “type” of buying/selling that hasn’t been available previously.

Following your financial analogies (because I think they are a really good analog to the ad market), there will always be “Warren Buffets” who look to buy assets with a longer term perspective in mind. However, in recent years, the rise of technology in trading platforms has allowed places like Goldman Sachs to make lots of money with “high-frequency trading” where milliseconds and fractions of a cent make all the difference. Now I don’t think RTB will get to the high frequency trading levels right off the bat, but I do think you might see RTB create a day trader type attitude towards media buying/selling. (Note: I am not endorsing or critiquing the pros and cons of a day trader/high frequency approach vs. a value investing approach. You can make or lose lots of money with each. I’m just saying that I think its a good analogy to what is happening in the marketplace.)

For me, the bottom line is that RTB is a new way to buy/sell media that didn’t really exist before and will thus create opportunities that can be exploited by smart people.

I think RTB is exciting because it opens up a new “type” of buying/selling that hasn't been available previously.

Following your financial analogies (because I think they are a really good analog to the ad market), there will always be “Warren Buffets” who look to buy assets with a longer term perspective in mind. However, in recent years, the rise of technology in trading platforms has allowed places like Goldman Sachs to make lots of money with “high-frequency trading” where milliseconds and fractions of a cent make all the difference. Now I don't think RTB will get to the high frequency trading levels right off the bat, but I do think you might see RTB create a day trader type attitude towards media buying/selling. (Note: I am not endorsing or critiquing the pros and cons of a day trader/high frequency approach vs. a value investing approach. You can make or lose lots of money with each. I'm just saying that I think its a good analogy to what is happening in the marketplace.)

For me, the bottom line is that RTB is a new way to buy/sell media that didn't really exist before and will thus create opportunities that can be exploited by smart people.

Darren:

Interesting thoughts. You ask “If you do not buy in real time, can you exist in the future?” An interesting and related question to me has been whether, if you don’t sell your inventory in real time enabled fashion, you can exist in the future. As you point out, the demand side has quickly warmed to RTB and we’ve seen budgets move out of non-RTB buys and into real time. Nothing motivates a publisher sales force so quickly as when they see dollars move away from them.

Ironically for those sales forces, I believe RTB is the last nail in the coffin of inventory commoditization. Unlike Wenda, I’m not freaked out by commoditization – to me it simply means that price becomes discoverable, not that price declines to zero. Setting that aside, the power of the demand side means that there is pressure on the sell side to sell RTB. For many pubs, the first taste has been good: there’s pent up demand for RTB since not enough inventory is available in that format (“demand liquidity,” as you say). So yield is nice. However, there are elements of prisoner’s dilemma in the move to RTB. Publishers who move first may get good yield returns initially, but after the market moves, the pent up demand dries up. Once everything is RTB, all inventory becomes fungible at some price, and maybe overall yield is actually less than it was pre RTB.

All this worry about price, however, will be mooted if the incredible control and transparency of RTB enables offline marketing dollars to come online. That seems to me to be the ultimate in demand liquidity.

Darren:

Interesting thoughts. You ask “If you do not buy in real time, can you exist in the future?” An interesting and related question to me has been whether, if you don’t sell your inventory in real time enabled fashion, you can exist in the future. As you point out, the demand side has quickly warmed to RTB and we’ve seen budgets move out of non-RTB buys and into real time. Nothing motivates a publisher sales force so quickly as when they see dollars move away from them.

Ironically for those sales forces, I believe RTB is the last nail in the coffin of inventory commoditization. Unlike Wenda, I’m not freaked out by commoditization – to me it simply means that price becomes discoverable, not that price declines to zero. Setting that aside, the power of the demand side means that there is pressure on the sell side to sell RTB. For many pubs, the first taste has been good: there’s pent up demand for RTB since not enough inventory is available in that format (“demand liquidity,” as you say). So yield is nice. However, there are elements of prisoner’s dilemma in the move to RTB. Publishers who move first may get good yield returns initially, but after the market moves, the pent up demand dries up. Once everything is RTB, all inventory becomes fungible at some price, and maybe overall yield is actually less than it was pre RTB.

All this worry about price, however, will be mooted if the incredible control and transparency of RTB enables offline marketing dollars to come online. That seems to me to be the ultimate in demand liquidity.

The sell side (and previously on the demand side) has benefited from
rate card opaqueness. RTB removes this and to your point, could
surely put the final nail in the coffin for many pubs.

If we believe an efficient market can exist, then it's not if, but
when this happens.

I believe this analysis is a bit short sighted.

The economics simply don't play out on the publisher side and even the additional shift of media dollars does little to solve this problem.

For example a premium publisher with 100,000 impressions per month (to simplify) makes $15 CPM on his direct sales and $2 CPM on exchange based media, which also has more folks in the value chain so to be optimistic lets say on the exchanges the take home is a $1 CPM. Now say that the pub has a 40% fill rate so their total revenue is $600 through direct sales and $60 for all the rest.

Where is the economic incentive to switch?

You will never get the Forbes or NYTimes caliber publisher to switch over no matter how much pressure there is. They are better off decreasing their fill rate than selling on secondary markets that are RTB enabled, as RTB buying systems allow you to resolve URL as do verification services like AdSafe and DoubleVerify, which lead to heavy discounting of their impressions.

Also dont forget that as advertisers we NEED publishers, we can only bend them over so many times and as the offline components of these pubs decrease in revenue there is more and more pressure for the online components to bring home the bacon. We need to find a compromise.

In addition, this is all fine and dandy for DR/performance marketers, but when you look at the branding opportunity, which is the largest chunk of cash that could be shifted online the RTB solution does nothing to help the buyers and advertisers discern the environments that they are buying in from a brand impact perspective. Sure AdSafe can tell you there are no dead babies on the page, but they can't tell you what the inherent quality of the page it.

Finally, when you refer to making the price discoverable it is 100% based on supply and demand of a commodity, but we all know that not every impression is created equal and without some method of tiering the inventory based on valuation variables an efficient marketplace cannot exist. The power balance is so out of wack in the current ecosystem that I would hardly call this marketplace 'efficient'. Sure buyers are happy, but content providers are dying. The low price also hides much of the over hype of data targeting, which usually isn't worth the price of the data outside of highly intent driven verticals vs. brute force exchange bid management.

I'm sure this isn't a popular opinion, but all I'm saying is that we need to throw the supply side a bone and they will help the buyers move more branding cash online cause the agencies are the ones that benefit the most from shifting budgets as commission rates for digital planning/buying are an order of magnitude more than traditional.

Darren, Your POV is well taken. For now I tend to temper the full time use of RTB with non-RTB buying and direct site placements.
Love the last bit in your post “….long term winners in this category will not be the scientists, but rather the artists who know how to apply the processes, procedures, and strategies for their clients.”