OPINION: Online ad auctions offer sites more than bargains

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The online ad auction, one of the newer entrants in the Web advertising business, is a buying model that shows great potential but requires education.

In an online ad auction, media buyers or Web publishers bid on blocks of ad space on a particular site or in a particular category. Market dynamics determine price depending on available inventory and how many buyers bid on any given day. The business question is this: What prevents buyers and sellers from directly cutting their own deals and ignoring the online auction, which essentially serves as a broker?


The online auction works for publishers because it complements existing sales programs without creating channel conflict. Unlike other outlets that essentially replace the publisher's direct sales of advertising, the auction is similar to the inventory yield and management system that airlines use to sell off empty seats to brokers, travel agents and other companies. Ad availability and media are as perishable as an airplane reservation. The auction format helps efficiently sell advertising late in the sales cycle or, to complete the metaphor, just before the plane takes off.

Auction lot sizes usually range from 100,000 to 250,000 impressions, an amount smaller than many publishers prefer to sell directly.

This approach not only makes better use of available resources but also lowers the cost per sale, since direct sales can concentrate more on long-term, large ad deals.


An added benefit of the auction marketplace is the opportunity for publishers to audition their properties to a large audience of media buyers. For instance, small- to medium-size publishers may not have a sales force large enough to thoroughly penetrate the advertiser market. Likewise, large popular sites' direct sales often don't focus on the small, direct buyers that generally prefer to buy small ad lots.

The model, however, also benefits large publishers, which likely have other sales outlets, such as an ad network, that don't pose a channel conflict.

Even so, publishers should limit the amount of ads sold through auction to between 10% and 20% of their inventory. Also, it's wise to vary the type of ads sold each month: run-of-site vs. demographically or geographically targeted or sponsorships. This way sellers can create ``planned unpredictability'' for buyers.

Limiting inventory and varying the type of inventory prevents advertisers from bypassing direct sales and ignoring a publisher's rate card by waiting to purchase through the auction late in the cycle.


Buyers, meanwhile, should view the auction as a way to pick up regular ad impressions on top Web sites, aside from testing new sites.

Ad agencies and large direct buyers can lower overall campaign costs by as much as 20% to 30% without sacrificing site quality, target and reach.

Advertisers traditionally have created small, discretionary budgets for last-minute buys in print and broadcast. Why not apply the same strategy for online advertising?

David Wamsley is president-CEO and co-founder of Adauction.com, an online media marketplace based in San Francisco.

Copyright March 1999, Crain Communications Inc.

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