The Future of Advertising: Markets in Attention?

Interesting idea.

While the majority of Internet advertising is paid for on a CPM or CPC basis, the real driver of spending is advertisers' willingness to pay based on a pure Cost Per Lead (CPL). Remember the hand-wringing in 1999, for example, as to the efficacy of online advertising? Strange isn't it how we don't hear much about that anymore. The emergence of pay-for-performance advertising online has effectively transferred the risk away from the medium. With PPC, Internet media no longer has to convince advertisers to trust its ability to perform as effectively as other media (Cable, TV, Radio, Print…). The quality of the commercial transaction is self-evident to the online advertiser, who now inherits all the risk from the publishers.

Just to be clear, the fact that the risk now resides with the advertiser and not the publisher does not a pure market make. Advertisers are companies in the business of selling things to consumers and other companies. Their business is not buying advertising space. And so this remains the final obstacle to a liquid, efficient Media Futures market; namely that advertisers and their agencies continue to look for customers online when in fact they have no pure business doing so.

So if advertisers don't advertise online, how will the market survive, much less prosper? In the same way that the mortgage security market transferred credit risk away from the balance sheet of operators and into the portfolios of professional investors, a media futures market will enable non-advertisers (aka speculators) to take on the risk from the balance sheets of publishers. Publishers will be happy to hedge out their inventory, limit earnings volatility, and focus entirely on creating value-added programming; rather than spending their time speculating whether CPMs are going up or down.

Similarly, companies (ie the buy-side) can concentrate entirely on developing better products and service. Their marketing groups can focus on creating and communicating their brand images, while their sales organizations can simply specify the kinds of customers they are looking for and the prices they are willing to pay; the Media Futures market will take care of the rest.

Within these new markets enabled by Internet arbitrageurs, there are billions of micro markets where a query or a unique user path comes into contact with one of more targeted advertisements. A constructive tension emerges between the user who intends to find or do something and the sponsor of the link who is trying to lure her into the sponsor's particular commercial environment. Each one of these tiny interactions feature a buyer (advertiser), seller (publisher) and asset (consumer attention) financed by an arbitrageur (investor).

Our goal at /ROOT Markets is to maintain liquidity across all of these tiny markets. This is no small task, especially against the backdrops of apathy. Consumers are generally apathetic about the value of their attention data. Advertisers and publishers are apathetic about the cost of taking consumer attention. Investors are apathetic about consumer attention as a tradeable commodity. By educating the market about the value of attention, and enabling it to be traded (in the form of leads), we can continually feed back better and better information in terms of price, quality and yield on attention. While this may not create new attention, it may indeed help reduce our significant attention deficit.

One final observation: the Internet business path is about to split. One direction leads to an open approach to data, governed by the principles of transparency and publicity. The other direction leads to a closed approach to data, focused on privacy and opacity: the black box. Both directions have legitimate and consistent end-user benefits and economic rationales. The danger is getting stuck in the middle: (1) looking to increase your edge but not locking up the information it is based on; or (2) promoting your open-ness but not sharing data back to the system.

That's just the last part of a pretty long post. Go check out the entire thing.