Is Efficient Market Pricing Possible?

“The Sell Sider” is a column written by the sell side of the digital media community.

Today’s column is written by Matt Minoff, senior vice president and chief digital officer at Meredith Corp.

In an efficient market, pricing incorporates and reflects all relevant information. Advertisers should pay the least amount necessary to generate the greatest return on ad spend, and publishers should generate the highest yield possible for the performance they can deliver.

In the digital advertising industry, however, artificial supply and demand has made pricing efficiency nearly impossible. Nonhuman inventory, spoofed inventory, nonviewable inventory – the list goes on, but it’s all code for “artificial supply.” Forrester estimates that as much as 56% of all display ad dollars were lost to fraud or unviewable inventory in 2016 alone.

The gap between perceived supply and real supply isn’t healthy for the industry. It fuels a sense of mistrust and casts doubt on the ecosystem. Advertisers have become hooked on programmatic as a vehicle for “cheap reach,” but they often pay artificially low prices because unviewable inventory and nonhuman traffic is baked into the average cost of an impression.

There’s also artificial demand. We publishers routinely see strange behaviors, such as the same advertiser bidding different prices for the same impression on different systems. That makes no logical sense. They’re bidding against themselves – and they likely don’t know it. The move from second-price to first-price auctions better aligns performance with price, although not every exchange has embraced that shift yet.

But here’s the good news. We can make the market more efficient – and make the consumer experience better in the process.

Buyers have already started this push by requesting greater viewability and accountability for brand safety. P&G cut 90% of the websites it purchased programmatically in 2017, and Unilever similarly slimmed down its media partnerships this year. When brands say they seek transparency and well-lit environments, they mean they’re no longer willing to buy artificial inventory.

But challenging publishers to meet lofty standards isn’t enough. Advertisers and agencies must retrain themselves on what it means to reach a real consumer. They must tie pricing to actual media performance, such as increased awareness or sales lift, instead of focusing on CTR, viewability and other proxy metrics, which encourage bad actors to game the system. Brands must also work with their buying platforms to ensure they communicate with one another – and be able to identify a unique impression across all systems.

Brands should also insist on having more direct conversations with media sources and stop allowing inventory relationships to be handled by middlemen. Consolidation of exchanges has already begun. Our industry doesn’t need so many duplicative sources of inventory, and their presence adds unnecessary complexity for buyers and sellers.

The challenge of closing the supply gap doesn’t sit with buyers alone. Publishers must also tighten the reins. Many are proactively removing units that aren’t seen and starting to dock placements on mobile inventory so they are persistently viewable to users.

Publishers are shifting to “lazy load” models where ads are only shown as they are likely come into view. After all, if it can’t be seen, it can’t deliver performance for an advertiser. Behind the scenes, Ads.txt is making transparent which inventory resellers are authorized and, perhaps more importantly, which are not.

Coalitions like TrustX, which now boasts 35 premium content publishers in its exchange, are a great example of how publishers can band together to create an efficient market. TrustX has the potential to create the industry’s first supply source that comprises 100% viewable, verified human inventory. When people trade on human, viewable inventory, they know the price they pay aligns with the performance they receive.

If you’re a premium publisher, be premium. “Premium” doesn’t just refer to the quality of your content environment – it also refers to the quality of your ad experiences.

In the end, we’re all making a bet that we can trade lower volume for higher prices. We’re betting that buyers will pay a higher price for actual inventory and better performance, and that a cleaner consumer experience will lead to greater consumer attention and engagement – which is ultimately what a media business is all about.

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This post was syndicated from Ad Exchanger.