Michael Lewis’s Flash Boys has been on the New York Times Best Sellers list for 3 plus months. Not surprising given Lewis’s track record for taking niche business and financial events, and finding the fascinating real-life characters to produce a narrative that is often breathtaking; filling the reader with a mix of outrage and excitement, and at the same time naivety for not seeing it coming.
With Flash Boys Lewis takes us into the highly opaque world of High-Frequency Trading (HFT), a relatively new type of investment firm that uses high speed computers and complex algorithms to create a matching engine to connect buyers and sellers. In the book, Lewis supposes the primary key to HFT is the speed of execution. Read the book for insight into what this means for the financial markets, HFTs, the big banks, and most importantly the average investor. For this post, I’d like to talk about the parallels to the digital marketing industry.
Several drivers of the equity trading industry struck me as interesting parallels, if not useful lessons for our industry:
What are the effects of Speed, Transparency, and Fragmentation on effectively and efficiently matching buyers (advertisers) and sellers (premium publishers) to deliver more meaningful offers, services, and experiences to customers?
In the complex and high-stakes world of equity trading speed has become critically important. But it’s only part of the equation. Leveraging a scalable data set and developing insights from that data allows for patterns and recognition that, along with speed, provide a significant advantage. This is true for digital media buying as well. There is a lot of talk about executing ad buys in real-time; it’s the future of our industry. If an advertiser can identify an in-market customer at the moment they want to make a purchase there is a huge benefit. To be most effective this requires the application of rigorous analytic modeling and customer recognition applied to the advertiser’s CRM data. As advertisers rush to move to real-time, they must demand the same rigor in matching their customer data they have required in the offline world, to the digital environment.
In Flash Boys Brad Katsuyama of the Royal Bank of Canada (RBC) and his motley crew are initially confounded by the Wall Street banks “dark pools,” where big trades are made with no transparency as to the how they operate because there is no information provided back to the buyers and sellers to assure both are simultaneously getting the best price. In digital advertising there can be parallels drawn to “dark pools” and the programmatic buying platforms that are increasingly moving away from open exchanges to private and guaranteed deals. With the rise in programmatic buying, advertisers are struggling with visibility into the data used to define their audience targeting as well as visibility into where these ads are placed. Without transparency on both fronts there is the risk of creating our own advertising “dark pools,” or if you like to use a more common industry term, “black box.” The need for transparency is becoming both more important and more challenging. This is an issue the entire digital marketing ecosystem must work together to address, as it benefits us all and consumers too. It’s not only the advertiser demanding greater transparency, the consumer is as well. In the age of the customer, they want transparency as to how their information is being used by advertisers to achieve more relevant and meaningful offers from them.
The development of HFT and the proliferation of electronic exchanges, alternative trading systems and “dark pools” have created fragmentation in the equity markets that have contributed to both their speed and opacity, often at the expense of the average investor. The digital advertising industry is experiencing fragmentation as well, but unlike the equities trading market, no one in marketing is positioned to benefit, including the consumer. With the proliferation of channels and devices we have more opportunity to reach customers, but risk alienating them by uncoordinated offers often bombarding them at every touch point. It’s imperative we reduce opacity by tearing down these channel and device silos to manage our customers and prospects in a unified environment, with the application of consistent data sets across every channel to determine where and when to deliver the most meaningful offers and services. When we can solve for this it will allow for speed and transparency with effective reach at scale.
Speed, Transparency, and Fragmentation
are challenges advertisers must address to turn them into competitive advantage to drive more effective targeting and meaningful customer engagement. But the digital marketing matching equation is not complete without it’s the foundational component: Accuracy. As I mentioned in a previous post too often advertisers focus on the partner’s match rate vs. asking a partner about their matching methodology (what are you matching the advertisers customer ID to?) to determine the accuracy of the match. Without accuracy, speed, transparency and fragmentation (tearing down silos) are meaningless.
Who will be digital marketing’s Brad Katsuyama?