Programmatic Ad Buying vs Financial Markets

Programmatic ad buying has seen an upward trend globally. In the US, more than four in five digital display ads are being placed through programmatic transactions. Explosive growth is being experienced even in India, where 65% of all digital ad-spend is done via programmatic. However, the adoption of programmatic in India is still slow, mostly due to the complexity in harnessing its capabilities.

I started my journey into Digital Advertising very recently and was immediately propelled into understanding and dissecting all the various pieces of this puzzle. While the universe of Adtech is fast and ever-evolving, the sheer number of players is enough to make any newbie dizzy. Add to that the changing roles of each player and all the different ways of selling ads and its multiple formats; almost makes you feel like it’s rocket science – of the ad world at least.

What although helped me navigate the shark waters was a conversation over tea with my mentor and boss, Kavita Shenoy. She was keen on finding all the various ways this complicated world was inspired, albeit loosely, by the Financial Markets of the world.

That is when I set out to learn more and help fellow inquisitive souls who have searched “AdTech for Dummies” on Google. Let’s take our imagination for a spin to try and draw parallels between these two ginormous markets – Adtech and finance.

Indians have been savvy about financial market for long, especially the stock market. It’s only a matter of time before India will catch up with Programmatic too. So, without further ado, let us dive in.

There are multiple ways in which these ecosystems show similarity. We will examine these scenarios one-by-one.

Ad Exchange as the Stock Exchange

Programmatic and the stock market do, in fact, have a lot in common:

  1. The algorithm is based on Machine Learning for decision making, similar to the stock markets.
  2. It makes buying effective by streamlining transactions and using simple economic theory.
  3. The price is a direct function of scarcity, supply and demand. Lower the inventory, higher its value and higher the price, much like the share prices.

Let’s say the advertiser has zeroed in on a certain target market and has multiple channels to reach its target audience. He feeds his demand on the ad exchange with a price he is ready to pay for desired inventory. Ad exchange has multiple such advertisers. Now, a page loads at the publisher side, and a request is passed on to the ad exchange with a floor price “x”. The Real-Time Bidding algorithm is pinged and one of the advertisers wins the bid and their ad is displayed.

This is a lot like the stock market where a company (publisher) puts its shares (inventory) for sale at the stock exchange (ad exchange) and all investors (advertisers) bid for these shares at a desirable price.
Here we are taking the liberty of comparing shares and inventory, barring the glaring difference of shares existing over time while the inventory, once used, gets exhausted.

Direct Ad Sales vs Investing in Private Equity

The advertiser approaches the ad publisher directly, wanting to buy his inventory, much like an investor investing in the company.

Ad Buying vs Hedge Fund

An advertiser can alternatively approach an ad agency to plan their advertising campaign. One way to go about it is Programmatic Guaranteed wherein the advertiser fixes a certain budget to spend overtime for the exact targeting they are looking at, from the publisher. This is much like investing in hedge funds where you block a certain amount of money that the hedge fund manager (ad agency) spends on your behalf to achieve the exact results you are looking for.

The ad agency will do this by betting on market influencing trends that will corral audiences in certain parts of the publisher landscape.

Ad Exchange is your Investment Banker…and the Bank

Ad exchange essentially, through its machine learning capabilities, acts as the advertiser’s investment banker, by guiding him to the exact inventory that would meet the criteria.

Also, the Ad Ex is where all the transactions happen and it keeps track of all the money flowing through the system, which is why its functions are very similar to that of a bank in our financial world.

While the adtech universe is complicated and vast and ever-evolving, here’s hoping that my take on the landscape makes navigating it a little easier. I would love to hear what you have to say about these comparisons and open the room for discussing how the parallels could be made more accurate.