Traditionally, marketers have targeted consumers though publishers, whose content attracted a given audience.  Today, we’re increasingly seeing a “disintermediation” in which marketers are reducing their emphasis on publishers and content and relying on data to assure that they are reaching their target audience.

History Repeats Itself

This practice of buying/selling advertising by audience alone is awfully reminiscent of securitization in finance.  The extreme to which it’s being pushed is akin to the subprime mortgage crisis, where low-quality mortgages were packaged as premium assets to unsuspecting investors.  This led to the 2008-09 economic meltdown.

According to Wikipedia, “securitization is the financial practice of pooling various types of contractual debt such as residential mortgages to various investors.  In turn, a mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through securitization.  The subprime mortgage crisis arose from ‘bundling’ subprime mortgages and passing them off as premium assets.”

For the record, I am not against selling by audience, or securitization in general. And while we’re at it, I’m not some kind of socialist Luddite who yearns for the days of typewriters and horse buggies, but if had to spend a billion dollars of advertising, I would spend very little of it online and spend the vast majority on television — because despite the Web’s promise of transparency, tracking and targeting, there’s fairly little of it.  Yes, television has its flaws and online advertising is “the future,” but right now, we’re basically peddling spam and passing it off as filet mignon.

Greed is Good…but Greed Shouldn’t Be Everything

In a recent article, I argued that despite the altruism rooted in the founding of the Web, today investors and markets reward greed and bad behavior.

Similarly, it’s clear that marketers and sellers are making advertising less transparent, and the market is rewarding bad behavior.

Content or Audience shouldn’t be a binary decision to make

You go to conferences, read articles and sit in on meetings where everyone focuses on the “content” or “audience” debate without actually discussing the irony that all of this focus on “buying by targeting audience” is awfully akin to how banks’ efforts to securitize low-quality mortgages by aggregating them into so-called AAA assets when they were anything but.  In hindsight, it’s clear that those assets were toxic.

How Advertising Should Add Value

Historically, consumers associate brands with programming and content.  As a content producer, without a doubt I may be biased — but at this juncture, I’m not arguing against audience-buying in its entirety, I just think there ought to be a balance.

Marketing builds brands, brands build goodwill, goodwill creates value for companies.  But with the focus on audience at content’s expense, we’re never going to win over the kind of budgets that the online medium deserves.

Roots of Audience Buying

Today, ad agencies, networks and exchanges control advertising.

Many of the ad exchanges developed from ad servers that got a back-door pass by publishers to help them serve ads.  But once it was clear that there would not be enough volume to scale revenues through ad serving alone, then the ad servers evolved into exchanges.  To quote a fellow executive, this feels like “I’m being sold a suit I’m wearing” — and he’s right.  I don’t knock the ad exchanges. They saw an opportunity and jumped on it.

The problem is that this is not limited to ad exchanges.  Ad agencies are now setting up their own trading desks to eat away at the money that ad networks have raked in until now.

So in the past year, the ad agencies, ad networks and ad exchanges have increasingly bundled “audiences” and sold them as premium ad inventory.

You can debate the merit of my argument if you want, but I challenge you to tell me how it’s different from bundling crappy mortgages and passing them off as AAA assets?  In finance, diversification doesn’t work when you randomly invest in any 15 or 30 companies, it happens when you invest in the right mix of companies.  That didn’t happen with mortgage-backed securities — and it’s certainly not happening with online video.