< A marketplace cannot survive if there is no supply and the quite frankly the current system is unsustainable for premium publishers.>

Well, “if your build it – they will come”, no? And if you build it in such a way that you create a level playing field (for both the buy and sell side) then “buying clout” becomes irrelevent on an impression or, 'click by click' basis …Supply and demand becomes the focus and creates the rewards …The same kind of rewards that will almost ensure that most”Big End of Town” publishers will come to play in some shape or, form. I think it's all very much “early days” just yet.

http://seekingalpha.com/instablog/36191-looking...

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.

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

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.

No RTB system today allows bidders to see the other bids, in fact you only get to see your own clearing price after the fact. There is no inherent value to bidding in real time, except in that it allows a calculation of value down to the per-user level that is effectively impossible with cookie segmenting.

Today there is no economic incentive for publishers to upgrade their systems. If anything it will drive down prices of premium inventory as it will provide more efficiencies in buying targeted inventory as all the algorithms will self optimize toward the cheap long-tail inventory that most of the RTB systems are currently selling. Especially, since the RTB platform often allow buyers to resolve the URL string allowing you to cherry pick specific publishers.

A marketplace cannot survive if there is no supply and the quite frankly the current system is unsustainable for premium publishers. The difference between the NYSE and display exchanges is that each stock has an inherent value that is then effected by supply and demand. Even the commodity exchanges have different grades to exhibit the value of the asset.

RTB is a nice concept, but there are still many issues that need to be resolved before we all chase after the next shiny new toy.

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.