It's too soon to tell if a commodity market will reduce the value of advertising, but sellers would be wise to look into intelligent ad marketplaces.

In August, the IAB/Bain Digital Pricing study took many by surprise when it revealed publisher utilization of ad networks and markets jumped from 5 percent of sold inventory to 30 percent from 2006 to 2007. The data rekindled a smoldering debate that was first sparked by IAB Chairman Wenda Harris Millard back in February when she admonished the industry by saying, "Don't trade advertising space like pork bellies." 

Judging from the IAB numbers, publishers did not heed Millard's warning and it's no surprise that the topic of pork belly sales -- and whether they’re going to be the demise of the industry -- has flared up again. The debate comes down to this: do commodity markets reduce the value of advertising inventory, and in the long run will they be better or worse for the industry than traditional direct sales?

On the surface it's a great question, but it's not one the industry is going to be able to answer. The difficulty is not in determining when markets are more or less effective than direct sales. Rather, the problem is that the financial market analogy is fundamentally flawed, so all the arguments which have sprung up defending or attacking it are further clouding an issue that desperately needs more clarity, not less. 

Media is not a pork belly. Pork bellies are commodities, meaning they can only be sold as pork bellies, ever, to anyone. As far as buyers are concerned, all pork bellies are created equal. Media, on the other hand, is very different. Ad impressions change in value (or at least, the impressions should change in value) based on a number of attributes including: who is viewing the impression; what brand, creative or message the impression contains; and the specific page content where the impression is displayed.

So the insinuation that auctions diminish the individual value of goods sold is a very misleading analogy for goods with unique properties. In fact, quite the opposite is true. Marketplaces, when used properly, actually have incredible power for optimizing the value of non-commoditized goods. What's a good example everyone is already familiar with? eBay.
 
Like it or not, eBay's auction is a far more apt analogy than commodity trading for the way advertising inventory should be sold. The key is that the absolute value of the inventory -- whether or not it has any, really -- is impacted by choices made by the seller. Sound counter-intuitive? Let's take the analogy offline. Poke your head into your attic and no doubt you'll find something that you haven't used in a long time, like a box of old baseball cards. The question is, since they’re not being used right now, are they necessarily useless? You could decide they are and drop them off at the Salvation Army or even on the curb on garbage night. Or you could decide to sell them on eBay.

But it's your decision as the seller. You can decide if what you're selling is worth anything, merchandise it appropriately and put it in a marketplace designed to optimize value by finding the right buyer. You could choose to sell either a box of 1,000 old baseball cards, or list each one individually for sale and describe all of their attributes and conditions. The power of the auction is that even if you don’t personally know what the value of each baseball card is, eBay's liquid marketplace will help find it for you. Any commoditization would only occur because of how you decided to sell those dusty old cards, not by the decision to use a marketplace to conduct the sale.

The same is true for ad inventory. Every impression that doesn't generate a response is easy to categorize as having little value. But it’s not the fault of the impression. It's a shortcoming in the combination of impression, audience, advertiser and ad creative.

Today, many publishers continue to pursue a strategy of selling bulk, untargeted impressions to a limited number of advertisers. Sold for almost nothing, these impressions would yield significantly more value to both buyers and sellers if the buyers didn’t have to sift through hundreds of thousands of the wrong impressions to get the ones that have value to them. Each time they consume a "wrong" impression it means another advertiser lost the opportunity to find their target customer. Here's an example, showing how an automotive advertiser might grade the value of a single ad impression that could be targeted in a variety of different ways:

• Untargeted, run-of-network impression: F
• Impression on a finance website: D
• …and the page is an article about new SUVs:  C
• …and the consumer has a history of buying luxury goods and likes winter sports:  B
• …and the ad shown is for the advertiser's new luxury SUV (with ski rack) being driven through the snow in the mountains:  A+

Unlike commodity markets, intelligent advertising markets have the ability to find value in inventory, by optimizing and learning, for individual advertisers based on their unique goals at a specific moment in time. Ultimately every impression has value if it is matched to the right ad creative and advertiser. And that’s the beauty of using markets for advertising -- they actually increase the value of an impression for both the buyer and seller simultaneously.

Can a pork belly do that?

Philip Smolin is vice president of product and marketing for Turn Inc.