A New Kind of Bid: How to Turn Things Around with Reverse Auctions

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In his March 24th article, “Bid No More: Why an Open Network Outperforms Auction-Based Advertising”, Michael Katz brings up some valid concerns in his discussion of whether or not an auction marketplace can be effective for buying and selling advertising.

He astutely points out that for a solution to be effective for advertisers, they need to be able to spend their money where they will get the best return on investment. This requires an element of control and flexibility not found in traditional auction models.

Katz also observes that high-performing publishers often lose out on advertising dollars because traditional auction-based systems allow advertisers to place a universal bid across the entire network. And that network “attempts to hedge the high converting traffic with just enough low converting traffic” so that the advertisers maximize spend while hitting their metrics.

But the shortcomings recognized here cannot be blamed on auctions in general — but rather on the very specific, traditional auction approach. A simple flip in the equation produces an extremely effective solution: a reverse auction.

I openly acknowledge that a reverse auction model does not work for all media. But it has proven quite effective for a particular segment: remnant (last-minute, unsold) airtime. But my next caveat is this: the reverse auction model must be designed right. There are specific needs on both sides of the transaction that, if not met, will render the auction model ineffective for all participants.

I’ll use radio airtime as an example, since it’s what I know best. There is vast unrealized revenue potential — for advertisers and stations alike — in traditional radio advertising. Airtime that goes unsold obviously doesn’t bring in any money for the stations. And many advertisers miss out on radio’s potential because they can’t afford premium rates, don’t want long-term contracts or they don’t have the resources to negotiate with multiple stations at once.

The last-minute nature of remnant airtime makes it perfect for a reverse auction. All parties retain an unusual amount of flexibility throughout the entire process. Advertisers are able to adapt their spend from week to week, based on the success they’ve experienced in particular markets or with certain dayparts, etc. Likewise, radio stations can decide on the fly whether or not to put up any airtime for auction at all — they even have the ability to pull out of an auction at any time before its close.

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