When I managed a long-short fund and other products that traded in public securities, my conversations with analysts and other investors often revolved around market inefficiencies. Most investors believe that the stock market is highly efficient, meaning that expectations and associated public information are quickly discounted in stock prices. As such, investors tend to ignore obvious information and instead focus on insights and data that are not already widely known by others. It is joked that a trader on the New York Stock Exchange would not stop to pick up a $20 bill if he were to stumble across it on the floor of the exchange. He would reason that the $20 bill could not be real, because a real $20 bill would have been snapped up already by other traders.
The online advertising market is pretty much the opposite of the stock market when it comes to market efficiency. Matching advertisements with reader interest and pricing advertisements are highly inefficient practices. Advertisers often spend far too much money placing advertisements in front of the wrong audience. Think of how many times each day you see a banner ad that is of no interest to you. Furthermore, both advertisers and online publishers use fairly imprecise techniques tools to determine appropriate advertisement prices.
The tremendous inefficiency in the online advertising market is a big reason why we are excited about our MediaMath investment. MediaMath is a demand platform that helps advertising agencies and their brand customers place online display advertisements in front of individuals who are more likely to be interested in those advertisements. In addition, MediaMath helps ad agencies price advertisements effectively, such that an advertiser can know when to pay up because a particular a reader is more likely to purchase an advertised product and when to pay less because a different reader is very unlikely to buy that same advertised product.
In recent years much of the attention around display advertising has centered on advertising exchanges and other market infrastructure. Google has purchased DoubleClick, Yahoo has acquired Right Media, and Microsoft has scooped up AdECN. But the advertising industry has lacked an ability to use these market mechanisms effectively. That’s where MediaMath comes in. It helps ad agencies make sense of display ad markets and bid through ad exchanges intelligently.
MediaMath is led by Joe Zawadzki, who is an extremely smart serial entrepreneur with deep expertise in this space. Joe has assembled an impressive team to not only deliver leading technology solutions but also provide exceptional customer service. We have been talking with Joe for more than a year. Along the way, we have been impressed with his tendency to make smart, mature decisions to manage the company’s rapid growth and position the firm for where the industry is heading.
I think of Joe and the rest of the MediaMath team somewhat like an extremely smart (and ethical) stock market trader that makes great trades and provides outstanding customer service. And what gets me even more excited is the fact that the online display advertising market in which the group operates is the type of inefficient market that stock market traders dream of.
Alan
