Andrew Walmsley on digital: Google auctions require fresh skill set

this, it is still a business that runs on relationships.

It is not surprising then, that people are struggling with the bare
logic of the Google auction. Google challenged the industry because it
requires a fundamentally different approach - a real-time process that
needs continuous input rather than the 'set it and forget it' approach
of traditional media. Pricing is governed not by leveraging scale, but
by skill at managing the auction and the quality of technical input
through search engine optimisation. And the outcome is measured in terms
of sales, not discounts.

But, if some investors are right, these skills are not going to remain
the province of search - they are coming to media itself, as media
auctions start to gain traction.

Google's acquisition of DoubleClick last year was driven partly by the
belief that it could implement its auction model in display advertising,
a belief that lay behind its earlier deals to buy radio trading platform
dMarc, and to sell newspaper advertising.

It is not alone. Last year, Yahoo! took control of RightMedia, paying
$680m for a business that is expanding across Europe.

But buying media at auction is not for the faint-hearted. Predicting
volume is unreliable, and there are no guarantees. The web interfaces of
some auction businesses are fiercely complex, revealing the level of
sophistication in targeting, but providing a training and skills
challenge for customers.

For auctions of online media, every impression is sold separately,
meaning that publishers can set rules within their own adservers to
prioritise customers based on yield - the system will serve a high
yielding direct-sold ad if one is available, followed by a lower-yield
run of site ad, a network ad and finally an ad from the auction if none
of the above is available or the auction yields a better return for that
ad impression.

Adding behavioural targeting to the mix makes auctions more effective
still for online media, improving yields for publishers and performance
for advertisers.

The auction is an efficient way of trading remaindered inventory -
sellers get what the market will bear for their surplus ads, buyers get
cheap media with no guarantees, and market liquidity improves for
both.

The system is attractive, but it won't take over the world.

Auctions work best when it is difficult to establish the value of a
commodity, and while this is true of remaindered inventory, the majority
of value will continue to be traded where planners want to specify the
location, timing and delivery of ads.

Far from reducing transaction costs, auctions are likely to increase
agency overheads, as greater monitoring, complexity and additional
skills are required. These were the very factors that held many agencies
back from investing in online media in the first place, and are
significant obstacles for success here too.

To thrive, advertisers and agencies will need to fuse competencies from
search (auction markets), data (behavioural targeting and predictive
modelling) and financial markets (real-time dealing). Auctions are going
to make media more complex but could be a revitalising force for the
sector.

- Andrew Walmsley is co-founder of i-level

30 SECONDS ON ... GOOGLE'S ACQUISITIONS

- In March 2007, Google acquired leading online display advertising
company DoubleClick for $3.1bn (£1.6bn). US anti-trust
regulators approved the deal after a year-long investigation into
concerns that it may marginalise competition.

- When the search company acquired radio advertising firm dMarc for
$102m (£51m) in January last year, it announced plans to
introduce its own radio ad distribution channel by incorporating dMarc's
automatic ad scheduling system into its AdWords service.

- Google bought YouTube for $1.65bn (£758m) in stock in
October 2006. The terms of the deal, which preserved YouTube's distinct
identity and independent operations, included plans to use ads to
generate revenue from clips.

- Rumours abound that Google is poised to acquire Skype, following the
internet phone service's disappointing performance for owner eBay.