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(This article was first published on <strong><a href="http://flovv.github.com/Ad-Commodity/"> Florian Teschner</a></strong>, and kindly contributed to <a rel="nofollow" href="http://www.r-bloggers.com/">R-bloggers)</a> </div>
<p>I just started reading Alvin Roth’s book <a target="_blank" href="https://www.amazon.com/Who-Gets-What-Economics-Matchmaking-ebook/dp/B00LZ7GQJQ">“Who gets What – And why?”</a> and it already got me thinking.<br>
The book discusses the principles of markets and market design using various examples. One starting point is the transition of markets into being commodity markets.<br>
Simplified; in a commodity market all products sold are equal (think: stock markets), hence only the price is a relevant criteria for the buyer/seller.<br>
Alvin exemplifies the transition of products into being a commodity with the (Ethiopian) coffee beans market.</p>
<p>One way to cheaply harvest coffee beans is to harvest the whole hillside at once, even beans that are not ripe yet.<br>
Adding non-ripe beans to the batch reduces coffee quality which can only observed by the potential buyer by repeated, costly sampling (grinding, brewing and tasting).<br>
Before 2008, coffee beans were not a commodity as each buyer sampled from a potential seller to ensure quality (that the amount of non-ripe beans was limited).<br>
In order to reduce the time-consuming sampling, buyer relied on established seller relationships.<br>
In 2008, this changed with the introduction of the <a target="_blank" href="http://www.ecx.com.et/">Ethiopian Commodity Exchange</a> which employed blind-folded testing and rating of each batch of beans sold.<br>
With external verified quality ratings the market shifted from a buyer-seller relationship to a commodity market.</p>
<h2>Is Online AD Space Market a Commodity Market?</h2>
<p>There are at least two ways to look at it.<br>
First and most obvious the market already uses the technology and terminology of a commodity market.<br>
AD exchanges and real-time buying processes are all built on the assumption that the product (ad space or user attention) is standardized.<br>
And this is the case for certain properties like AD specification (like AD format and AD size).<br>
Potential seller can increase their revenue, by adding ADs with low visibility (e.g. banner at the bottom of a page) or by adding dubious web traffic.<br>
Both obviously reduces the AD space quality, just like adding non-ripe coffee beans to the batch.</p>
<p>Comparing the AD space market to the previous beans example, the AD industry is in a setting without a (Ethiopian) centralized clearing house.<br>
Why? There is no external, centralized control institution ensuring AD quality.<br>
This means that each buyer needs to employ several costly tech. providers to ensure visibility of ADs and protect against AD fraud.<br>
Each buyer needs to continuously sample what AD space they are actually getting.<br>
Hence, “AD exchanges” are providing just the matching of buyers and sellers. They do not take the responsibility to standardize the product.</p>
<p>In a nutshell, the AD industry moved to being a commodity market without ensuring the basics: the quality standardization of ad space (beans).<br>
I wonder what Alvin would say to such an approach.</p>
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<div>To <strong>leave a comment</strong> for the author, please follow the link and comment on their blog: <strong><a href="http://flovv.github.com/Ad-Commodity/"> Florian Teschner</a></strong>.</div>
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