Not such a wild and crazy idea: An online market for ad buying

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With the industrial world dizzying itself over the prospects of electronic business-to-business marketplaces, one is prompted to ask a question with profound implications for the media and marketing industries: Why not a B2B market for advertising time?

In field after field, manufacturers have been shifting their suppliers onto secure digital networks. The reasoning is elemental: Globally linked market spaces enable manufacturers to assure competitive pricing, control quality and schedule just-in-time deliveries of necessary components, which in turn helps them customize and deliver higher-margin finished products to their own customers.

In recent months, Ford Motor Co. and General Motors Corp. have teamed with Oracle Corp. and other technology companies to create such supply networks.

As an Ad Age editorial posited two weeks ago, advertising would seem a likely candidate for a restructuring of its value chain--a process called, in the parlance of the New Economy, "reintermediation." This can and probably will happen because advertising, like windshields or circuit boards, is a component in a client company's goods or services.

Boiled down to its essence, advertising really consists of nothing but time: the time sentient men, women and children spend paying attention to marketing messages. Thus described, time is a pure commodity. It is finite, disappearing with each passing moment, and its worth to those who might use it varies according to the value added to it by those who mine, broker and shape it.

The "miners" include communications companies, which enter choice lodes of time and gather it into different media, print to out-of-home to electronic, that demographically appeal to marketers.

Because of their increasing command over larger and more varied chunks of time, media companies such as News Corp. and the future AOL Time Warner are not much different than the commodity commandos of a century ago, the robber barons that controlled the oil and rail industries. Today's "time barons" work with international media buying firms and ad agencies to organize, develop and insert messages into the time they control, which is then delivered to the end consumer.

This clear "value chain" seems to have a significant inefficiency built into it, with the sale of this time component currently requiring tens of thousands of people to log hundreds of thousands of miles to sell millions of hours of consumers' attention on behalf of thousands of media venues. Thus analyzed, advertising seems a clear candidate for reintermediation.

Currently, advertising is sold in a marketplace of varying degrees of transparency and efficiency--from network TV's upfront market (which strikes me as relatively open, if frenzied) to the hand-selling of magazine space (which seems opaque and wasteful).

Electronic marketplaces would level the playing field for all media, forcing them to compete using the same efficacy standards and pricing schemes. They would fully open the magazine industry to real competition, which would compel publications to prove their value beyond the suspect "research" that today peppers their media kits. TV, too, would have to adjust to a market that clears instantaneously, all day and every day. Gone the tumult of an abbreviated upfront that artificially boosts prices despite plunging ratings.

The most obvious argument against this system is that the value-add of most media is the "specialness" of the environment. Usually, this translates into something like, "But you can only get what Vogue offers in Vogue!" Maybe. But the TV marketplace has shown for decades you can build in event premiums and still sell the bulk of time on a commodity basis.

A single giant advertiser could start the move to electronic advertising markets on its own, simply by requiring all media hoping for its ads to submit continuously pricing, availability, demographic and efficiency information to a proprietary digital space. Large media companies might have resisted that demand in the past, when, for example, broadcast TV was oligop- olistically controlled. But just imagine CBS trying to say no to Procter & Gamble Co. today. Once one company establishes the market and the technology, others can be invited in; if I'm not mistaken, American Airlines started Sabre on a not dissimilar basis.

Alternatively, an outsider can come in and try to reintermediate the advertising business. That's harder to do, and there likely will be bodies strewn on the path to success. But trust me, B2B is as real as ABC.

Copyright April 2000, Crain Communications Inc.

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