• by Susan Kuchinskas , June 20, 2006

There's got to be a better way. Call it 'Adsdaq'

Kathleen Luzzi is a media revolutionary. The U.S. brand manager for Blavod Extreme Spirits does all her own media buying  online. Using an electronic marketplace called Mediabids, Luzzi puts her print advertising budget up for auction.

"We already had the experience of going to a media buyer who said, 'You can only get this much for your dollar.' I have very entrepreneurial brands, so I was looking for a more cost-effective way to do media planning," she says.

Mediabids brokers print advertising space in U.S. newspapers and magazines. Since April 2003, it's operated an online reverse auction, in which advertisers post electronic requests for proposals (RFPs) and media owners propose schedules to meet them.

Mediabids president Jedd Gould says his system lets publishers tap into new markets and increase revenue, while advertisers can save on costs. Luzzi says it stretches her advertising dollars and increases her return on investment.

"The real benefit to my company is that we've been able to spread out and buy advertising as a much bigger entity with the same dollars," she says.

Media Revolution

Blavod is far from the only company frustrated by today's system for buying media. A group of the nation's largest advertisers is pushing for an industry-run electronic exchange to replace the television upfronts and much of the day-to-day trafficking, as well.

This group is led by Julie Roehm, senior vice president of marketing communications for Wal-Mart. She's working with heavy hitters, including media executives Steve Grubbs, CEO of PhD USA; Ray Warren, president of Carat Group Americas; David Grubb, global media director for Microsoft; and Ann Bybee, Lexus' corporate manager for advertising, brand, and product strategy.

The exchange would be modeled on the Nasdaq stock exchange, according to Bybee. "It's one of the most advanced markets in the world. It's based on anonymity, liquidity, transparency, and arbitrage. It creates efficiency and fairness for both parties," she said at an Association of National Advertisers (ANA) conference recently.

Media History Repeats Itself

The media auctions concept was hot in the late 1990s, when the Internet brought the "e" to business. Adauction, Flycast, and MediaPost in its early days brought ad buyers and sellers together online; McCann Erickson Worldwide attempted to form Media Market Makers, and even Enron made inroads to advance the idea.

These early attempts were hobbled by several factors besides the dot-com flameout. Buyers and sellers balked at having to learn an electronic system, so the marketplaces never reached critical mass. Bandwidth was limited and buggy. And the costs of hardware and of hiring the engineers to build and operate the auction systems were sky-high.

Today, with ubiquitous e-mail, plummeting hardware costs, and sophisticated engineering principles, plus a general acceptance of online auctions of all kinds, the time may be ripe to revamp a media-buying system that bears more resemblance to the cattle exchange than to eBay.

An Antiquated System

The media system may not be exactly broken, but it's tired. Broadcast buyers are the most beleaguered of all, and what really gets them is the timing of the upfront, according to Bill Duggan, executive vice president of the ANA.

"There continue to be undercurrents of dissatisfaction with the upfronts," Duggan says. "The key is the timing; May and June is not in line with the budget planning cycles for clients for the following calendar year."

When the ANA polled the audience at its TV Forum in March, 33 percent were very or somewhat dissatisfied with the upfronts, while 56 percent were somewhat to extremely dissatisfied. A full 83 percent said they'd prefer moving the upfronts to align with the calendar year.

Another thing bugging advertisers is make-goods, Bybee says. "More make-goods, due to fewer hit shows, distorts the scatter market," she told the ANA. "If a show you bought didn't make it, it shows you had a bad deal in the upfront, and these days more shows don't make it."

The new "Adsdaq" model would let networks buy back spots and resell them for a higher price, while advertisers could trade make-goods and other buys as their needs or the shows changed. Those pesky upfronts may be doomed anyway, as television converges with the Internet and broadcasters experiment with abbreviated series, off-season programming, and video-on-demand.

The Adsdaq Approach

The Adsdaq coalition asked ANA members to kick in a total of $50 million to test an auction system built by eBay. It's designed to see what works and what doesn't. All parts of it  the inventory, the participants, the model, the interface  will be up for criticism and change.

Walt Cheruk, senior vice president of global media services for Modem Media, thinks an easy interface will be a critical element to the success of an Adsdaq, and it likely will evolve with use, in the same way that electronic RFP systems for online advertising did. He says, "Once they start to use it, people will say, 'You know what we're missing?'"

Howard Rosenberg, eBay's director of trading platforms, says the system can handle both auctions and reverse auctions. The TV upfront is, in essence, a blind auction: Advertisers bid up the prices on a finite number of spots. He thinks a reverse auction, in which advertisers state their budgets and media owners compete to give them more airtime for their money, might be more likely to lure broadcasters.

He says, "If an advertiser says, 'Here's $10 million up for grabs, and all you have to do is come to this marketplace,' I think they're fairly likely to say, 'Hey, I want a piece of that $10 million.'"

The Upside

Forrester analyst Peter Kim points out that Internet-enabled price transparency has fueled commerce and innovation. "It's expanded the number of opportunities available," he says, "and it's driven innovation in the way people market and sell. It can't be anything but a good thing to introduce more transparency to the model."

Kim says an Adsdaq could help extend advertising models across channels, paving the way for integrated pricing models and bundles including spots and interactive placements.

While media owners may fear commoditizing their inventory, an electronic exchange could increase their revenue. San Francisco's Quake Radio has used Bid4Spots.com to sell remnants for eight months.

"We realized we had unused inventory that was spoiling, gone to waste, and there had to be a way to efficiently find a customer to take those commercials at literally the eleventh hour," says Quake senior account executive Larry Eschenbacher. "You'll find yourself pleasantly surprised in what you can get out of a last-minute commercial avail."

Who Will Make the Market?

The Adsdaq group wants an industry-operated exchange designed to preserve its relationships with the networks. But there's a new generation of startups that hope to become independent ad auctioneers.

They include the three-year-old Mediabids for print; the year-old Bid4Spots for radio remnants; Scatter.TV, launched in December 2004 to automate the scatter market; and Media Matchmaker, an Internet service connecting advertisers with product placements and sponsorship opportunities; and Google.

Google is the wild card. After using the pay-per-click model developed by Yahoo-owned Overture to revolutionize online advertising, it's now got its eye on the $199.7 billion U.S. traditional ad market in 2005, according to PQ Media estimates.

"If you look at how Google works with publishers in the AdSense network, it would be interesting if we could apply those same models to the traditional world as well, offering pure yield management and delivery of real-time inventory for them as needed," says Patrick Keane, Google's head of advertising sales strategy.

Google acquired dMarc, a reseller of radio remnants advertising, and Keane said the goal is to connect dMarc's technology to Google's AdWords platform, so that advertisers could use it to buy radio spots as well as search ads. It also held two print auctions in which it purchased pages in magazines and auctioned them. Demand was reportedly low, as were prices. But industry watchers say it's too early to count Google out. And executives at the search Goliath have made it clear they're going after all forms of advertising.

Heaven or Hell for Buyers?

PhD's Grubbs, who was skeptical of the Adsdaq idea at first, thinks automation could free media agencies from the drudgery of processing insertion orders and allow them to be more strategic.

"It changes our focus  but it's already changing anyway," he says. "The sweet spot becomes research, metrics, and a focus on accountability and not just negotiating price."

"Technology isn't there to make life miserable; it's there to improve life," says Ellen Siminoff, CEO of Efficient Frontier, a service for managing and optimizing online advertising. "It won't take the place of smart people. But tasks that require automation, and things such as media buying that require analytical rigor, need to be done with the right kind of technology."

Still, it's possible that adding yet another system to the mix would create more complexity and the need for a new layer of agency specialists like those who handle search marketing.

Blavod's Luzzi didn't start getting proposals from the right kinds of magazines until she worked with Mediabids' customer service rep to fine-tune her RFPs. At first, she says, "It's like going on Google and not narrowing your search."

And Mediabids' Newmark admits, "Some stations are having a challenge because of the work it takes to bid in all these auctions." His company is developing a Power Bidder tool to handle bid management and computerized optimization.

Modem Media's Cheruk sees an online exchange complicating everyone's job. "It will mean extra work for advertisers, broadcasters, and the publishers themselves," he says. "They'll need someone to manage the auctions, see what goes into the system, monitor bids and price structures. [Broadcasters] will need to learn how to articulate the value of programs in this different environment."

Broadcaster Resistance

The biggest barrier to Adsdaq is broadcasters, says Forrester's Kim. Advertisers could build their glossy, transparent marketplace and find that no one comes. The networks could simply stay home, initiating a game of high-stakes chicken and forcing advertisers to declare they'll only buy through the exchange. But those advertisers would have to be some big guns indeed.

"You have to have a pretty significant and committed advertiser [refusing to buy broadcast ads any other way] in order for the networks to jump in," he says. "If you have a group of small advertisers holding out, who cares?"

Roehm's crew is aware of that danger, but they're planning evolution, not revolution. They aim to eat the upfront elephant chunk by chunk.

First, there will be the $50 million test, which may be underway by press time. The first ads exchanged will likely be remnants: true commodity inventory.

In her pitch to the ANA in May, Roehm said, "We don't think the big networks will come knocking on the door, but cable, the spot market, scatter, digital... those pieces of the market may be interested in working with us."

But it's unlikely that an Adsdaq would ever eliminate the upfronts, nor would it totally replace picking up the phone.

"There are certain clients who want to buy branded entertainment, integrated programs, multimedia platforms. Those folks will continue to do business as they did," says Louis Schultz, CEO of LMS-Unlimited and former CEO of Lintas Worldwide. "There will be some people interested in doing business as usual in the upfront marketplace."

Eric Valk Peterson, vice president and media director for Agency.com, sees an exchange freeing media buyers from handling the lowest common denominator of ads. "You won't be able to bid on custom sponsorship opportunities," he points out. "Marketplaces won't drive innovation in the way that media and creative come together to reach the consumer. I'm a firm believer in the human touch."