Arbitrage is making its way into the advertising industry. According to Dictionary.com, arbitrage can be defined as the simultaneous purchase and sale of the same securities, commodities, or foreign exchange in different markets to profit from unequal prices.
Making headlines a few weeks ago was Wenda Harris Millard’s speech about trading media like pork bellies. She states that… “We must educate one and all about the value our digital offerings provide marketers and not trade our advertising space like pork bellies.”
Today, I uncovered an article in Advertising Age about MindShare’s restructuring into four groups, one of the groups entitled The Exchange is accountable for arbitragueing inventory.
An important aspect of the Exchange is that MindShare will be getting into arbitrage — meaning it will be both buying and selling media. Arbitrage is an important play of MindShare’s parent company, Group M, which has invested in Invidi, a company developing addressable TV ad technology. Though specific plans are still unclear, Group M will likely use the technology to buy chunks of TV inventory, make it addressable and resell it to marketers. MindShare will seek out similar opportunities where it actually owns media space it can sell to marketers.
For the past year, I’ve seen a few “exchange” based startups emerging into the advertising world. My friends at MediaMath are one of those folks. For those who aren’t familiar with exchanges, please reference this reference guide. The ADSDAQ trading desk was launched just weeks ago and they already have 6 agencies using it. It sounds like agencies are starting to move beyond just buying media…
This is where my issue lies. [to reiterate, these are my thoughts, not those of my employer] How are agencies structured today to handle a trading desk? Now that Bear Sterns is being absorbed, does this mean I have to go and recruit traders? Does the media buyer become a trader (buy and sell)? How does the current agency model account for this? That’s what I’m trying to figure out. Also, are agencies buying and selling media utilizing their clients money? How does that work? If I know that ClientX gives me $5,000,000 to buy digital media, and I happen to arbitrage some media and turn a $1,000,000 profit, does that belong to ClientX or my agency? Just a few questions that I’m really interested in figuring out… who wants to help?