Ideas
Ted Yang

The 5 Things Madison Avenue Needs to Learn from Wall Street

Burgess COMMENTARY

While this would make Madison Avenue more 'efficient', would it actually make it better. Wall Street is efficient at trading for profit, but is it efficient at allocating resources for optimum use in society and the economy? I think not.

Madison Avenue is funding all sorts of tech start-ups in order to make the selling of stuff more efficient ... cost effective for the manufacturers/distributors/sellers. The use of Big Data is quite impressive in this field. Sadly the wonderful technology is hardly being used at all to improve the performance of society and the economy. This is the change we really need.

Peter Burgess ... TrueValueMetrics
Multi Dimension Impact Accounting

The 5 Things Madison Avenue Needs to Learn from Wall Street

Programmatic media trading is becoming a highly sophisticated discipline within digital media. Programmatic offers an incredible way to buy targeted ads cost-effectively, but the process is far from optimal. Madison Avenue can take a lesson from Wall Street, which has been taking advantage of automated trading for years.

Here are five things that ad tech professionals can learn from finance professionals:

Transparency. Wall Street trading desks work because they are transparent. Buyers and sellers are required to disclose their trades to market participants. Clients are able to know the price of each buy and sell, as well as overall interest in the market. Therefore, both buyers and sellers know they are getting a fair price. In theory programmatic ad exchanges are second price auctions, but they do not provide meaningful trade data. Buyers don’t know what someone else paid and sellers don’t know all the possible buyers. DSPs exacerbate the problem by not giving timely, detailed reporting about trade execution. Trade desks take advantage of all this to provide even lower transparency to their clients as they pump up margins.

Efficiency. On Wall Street, if IBM reports an increase in revenues because they sold more computers in Brazil, their stock price usually goes up. Everyone in the market can see the price and buy or sell accordingly. The market efficiently digests the news in the form of a price increase. In online advertising, advertisers and publishers don’t get a big picture view, due to backroom deals and lack of transparency. This means that even as events happen, an advertiser could be bidding at the same price. Even worse, an advertiser could even be in a position where they are bidding against themselves!

Exchanges not marketplaces. In the ad tech marketplace, a buyer and seller meet and make a deal, but the onus is on these players to collaborate. Similar to eBay, if you have an issue, you are on your own to work it out with the person you are doing business with. Instead, the industry should adopt true exchanges, in which players are held accountable for their actions by the exchanges just as traders are on Wall Street.

Quantitative rigor. Every agency is required to say that they’ve got a bunch of guys in lab coats thinking up really cool quantitative ideas. However, they keep them in the back room and outsource the actual campaign work to 22 year-old new college grads. Agencies don’t put this talent front and center where they belong. Quants may not always rule on Wall Street, but they get their place at the table. These PhDs put the program in programmatic! Agencies should give a larger client-impacting role to them.

Think beyond point solutions. Ad tech companies build their entire company around one or two good (possibly novel) ideas -- think viewability or contextual analysis. Instead, Wall Street understands that good ideas have a finite lifetime. Well-run hedge funds are bigger than one or two ideas and therefore are focused on setting up a machine to constantly generate and execute good ideas. Is this because ad tech founders are focusing on getting acquired rather than on building well-rounded companies or providing real client solutions?

These five are just a start. There are many more ways Madison Avenue could learn from Wall Street. More transparency allows an efficient market to work and although advertisers may pay more, they will get more and know what they are paying for. Publishers will get more and thus offer more. Start by developing real solutions with quants in their proper place and trading through real exchanges. Madison Avenue, listen up.

Read more: http://insights.wired.com/profiles/blogs/the-5-things-madison-avenue-needs-to-learn-from-wall-street#ixzz2tiU8trVB

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