When Is A Market Really A Market?

We have heard that the “online advertising market” will be a $12.3bn business this year.

But is “online advertising” really a “market” in the truest sense of the word?

When I think of a market, I think of wall street and the trading of stocks and bonds.

That’s a market in the truest sense of the word.

You’ve got massive liquidity.

You’ve got true price transparency.

You’ve got open exchanges where anyone can trade with anyone.

And the result is the confidence to trade to your heart’s content.

Now let’s look at online advertising.

When compared to offline advertising, online sure looks like a market.

You now have significant liquidity.  You even have substantial arbitrage which is always a sign that there is a healthy market at work.

Prices and performance are certainly a lot more transparent in the online ad market than the offline ad market.  Overture did us all a huge favor by creating the paid search market where ad buyers could come and bid for ad placement and pay per click (ie pay for performance).

So, yes online advertising is a marketplace and its working great.  That $12.3bn number was around $9bn last year.  Any market that is that big and growing at 30% per year is super healthy.

But there are some things that aren’t yet right about this market.

For one, there really isn’t true price transparency.  And there isn’t true performance transparency.  It’s not like anyone in the world can look at the xbox 360 ad campaign that Microsoft is running, chart it, see how it is performing, understand how it is being priced in the marketplace, and step up and say “I’ll take some of that”.  I can do that with MSFT, the stock.  But I can’t do that with Microsoft the advertiser.

And as I alluded to in the previous paragraph, it is not yet possible for any publisher to run any ad as long as the price and terms are acceptable to both parties.  There are a few places where this happens in the online advertising market, like affiliate networks and paid search (sort of).  But there are many more places where the advertisers and publishers are contained in walled gardens.
So, I believe that right now, we have a marketplace, but it’s a nascent marketplace.

The thing that gets me so excited, though, is that is so clear where all of this is headed.

Toward massive liquidity

Toward total price and performance transparency

And toward a completely open marketplace where anyone can run anyone’s ad campaign.

And in the process, we will build something that is easily a factor of 10 and maybe a factor of 100 of where we are today.

So, let’s make it happen.