huayin commented on Open source the ad exchange just now on an issue that has been top of my mind for a while. He says
We need to be cautious of the limitation of any analogy… In my 2c, Ad Exchange marketplace is an order of magnitude more complex than NYSE! The current ad buying/selling ecosystem already underscores this intrinsic complexity…
He’s right, of course. There’s a sort of intellectual shorthand (laziness?) in equating the financial marketplaces and the ad marketplaces. It’s not just me; my friend Roger Ehrenberg, who knows the financial markets inside and out, also makes this analogy. But it’s a useful tool in predicting and shaping the future.
Ads aren’t commodifiable in the sense that, say, soybeans are. I talked about one reason (among many) for this in Information and markets 2. Ads right now, especially with the BT, CT and other data layered on top, are way too varied to be traded on exchanges like commodities. But the ad marketplace is also not as bazaar-like as eBay. Nor is it as consumer or producer dominated as many commodity spot markets (live cattle, say, or soybeans) which are not on exchanges*.
The stock/commodity exchange ecosystems are large, high volume, complicated, economically significant and there are a lot of people who would spend a lot of money for the slightest edge. There is also a ton of public information on what works, how well it works, and its the economic effect. Try finding that for the live cattle market, which may in some respects be a better comparison. Centuries of central clearinghouses, risk sharing, information transparency, spot vs. future markets, intermediaries, analytics, etc. can teach us some useful lessons. Not to mention the reasons and limitations on the evolution of markets from haggling to fixed-price to auction to exchange to derivatives. This history deserves some thought as we try to build a coherent ad marketplace.
I think there’s a better way of doing things in the ad market. There has to be, it’s such a mess right now. So, despite the limitations of the analogy, it’s better than starting from scratch.
* I was talking to a ex-trader friend of mine this morning about this very subject. I asked him why the CBOT had spot markets in butter (note the trading hours: 11:05-11:15am, M-F) but not soybeans. He said it was for sentimental reasons. He also said that the betting among the traders about how many minutes the butter spot market would take to clear (7 minutes vs. 8, say) exceeded the dollar amount of the actual trades in butter.