Why Trade Bonds When You Can Trade Ads?

Advertising is becoming more like Microsoft than Mad Men.

The 'creatives' are just as likely to be found designing algorithms to trade the available online ad space as they are to be setting up a photo shoot.

The reason is that advertising - and the revenue it represents in terms of purchased space on a variety of media - is just another fungible financial instrument. An intangible with a price tag and a shelf life, depending on who wants what for their portfolio.

An increasing percentage of the trading in ads is being done algorithmically, which is to say, by computers rather than by humans, as is also the case with segments of the financial markets. This is probably just as well. Most of the human race considers themselves experts on advertising so judgments about value are best left to machines whose emotions, biases, predispositions and propensity for error would almost certainly destroy both the investments in trading and the valuable airwaves which national governments lease to various media. JL

William Launder reports in the Wall Street Journal:

Web Ads, Sold on Computerized Exchanges, Bring Wall Streeters Into the Fray

For many on Wall Street, landing an executive-level job at an established hedge fund would be a crowning career move. Until, that is, they get a chance to go into advertising.

Take Ted Yang, who two years ago launched a startup in the fast growing world of digital ad trading, MediaCrossing Inc., after 15 years in the financial industry.

Based in the former offices of a hedge fund, MediaCrossing's primary business isn't all that different from his old Wall Street outfit. But instead of arranging trades of stocks and bonds, it handles sales of online ad space.

"We're talking about a market that shares a lot of the same characteristics as financial markets," said Mr. Yang, MediaCrossing co-founder and chief technology officer. The Stamford, Conn., firm's website declares that it is "looking to apply investment banking tools and philosophies to online advertising."

MediaCrossing buys and sells digital ads, ranging from display ads to social media, on behalf of marketers and online publishers, using proprietary computer systems and algorithms to find the best ad space at the best price on behalf of its clients. Like financial trading outfits, it makes money by assuming some of the risk of buying and selling ads for clients and profits by finding more attractive prices to trade the online ads. It also offers a service for online publishers, finding buyers for hard-to-sell ad space.

Mr. Yang is part of a growing migration of Wall Street talent to the trading floors of Madison Avenue, and the broader ad world, as it becomes increasingly home to the kinds of computerized trading systems long used in securities markets.

At GroupM, a media-buying firm owned by WPP PLC, around 30% of staff in the agency's fast-growing data and analytics division came from financial services, said Tim Cecere, chief talent officer for GroupM. Staff in the unit has tripled over the past three years to around 60 people and about 70% of the division's job applicants have a financial-industry background.

The increasingly tech-driven ad business has boosted demand for traders and technologists like Mr. Yang, who view advertising very differently than those interested in the creative aspect of advertising.

"In their minds, advertising is more like Google  GOOG in Your Value Your Change Short position than 'Mad Men,'" said Ilya Talman, a recruiter at Roy Talman & Associates Inc. who specializes in job placements for financial-technology professionals. He estimates he now places around 10% of his candidates with ad technology and marketing firms, compared with none just two years ago. While salaries for online ad executives with Wall Street backgrounds are rising, they still tend to be less than those at banks and financial exchanges, Mr. Talman says.

Until a few years ago, advertisers would phone Madison Avenue media buyers to place their ads on TV, newspapers and even the Internet. Nowadays, ad space, particularly for websites, is auctioned on computerized exchanges. Advertisers specify the demographic they aim to reach and the kind of websites where they want to appear.

Though in its infancy, such "programmatic buying" of ads is changing the industry. It already has pushed down online ad rates by exposing the vast inventory of available Internet ad space. The question is whether, long term, it will fully marginalize humans from the advertising business. While automation raises the possibility for greater online fraud, many technologists say it will make ads more useful by basing choices on coldly rational outcomes rather than favor-trading personal relationships.

Originally a currency trader at Lehman Bros., Mr. Yang, now 37 years old, switched to the technology side at hedge funds including Citadel LLC and Bridgewater Associates LP. With undergrad and graduate degrees in engineering from Massachusetts Institute of Technology, he specialized in solving complex technology problems in securities trading, such as figuring out how to make the computer servers that route electronic trades between financial institutions communicate with each another.

He plays a similar role at MediaCrossing, managing development of ad-trading technology and trading algorithms and the monitoring of trading activity to make sure the computer systems are working the way they are supposed to.

"A lot of the ad tech world was lifted from the trading world," including some of the programming languages, like "Scala," and algorithms that determine trading strategies, he says.

Mr. Yang spends much of his time managing the performance of the ads purchased by clients, such as a live-events company that gave MediaCrossing a list of locations and descriptions of its shows and their intended audiences. MediaCrossing then used its algorithms and data to help it purchase banner display, social media, online video and mobile ads, aimed at local people most likely to buy tickets. After the ads are placed, MediaCrossing checks metrics like total ad impressions, clicks and how much has been spent on a given ad campaign.

Mr. Yang said he has had ample opportunities to continue working in finance. The online ad business is more appealing, he says, because it remains far behind Wall Street in technological innovation. One of Mr. Yang's biggest gripes is what he considers inconsistent definitions of "real time" bidding across different trading platforms, meaning some trades advertised as instantaneous actually take many hours.

"It's really, really messy, but that's good because you can blaze your own trail," Mr. Yang said.

MediaCrossing's 27 employees range from veteran technologists to ad agency executives and salespeople. The two-year-old company doesn't disclose its revenue or how much volume it trades. Gerald Putnam, founder of electronic securities exchange Archipelago, which was merged with the New York Stock Exchange, is a board member and investor. Stephen Shuler, founder of securities market maker Getco, is a MediaCrossing investor.

Converts to online advertising include "quant traders," such as physicists recruited by Wall Street firms to develop mathematical trading models. Andreas Rhode, managing director of quantitative strategy at MediaCrossing, was previously a director of quantitative research and derivatives trading at Bank of America  BAC in Your Value Your Change Short position Merrill Lynch, and holds a Ph.D. degree in physics.

Aaron Smolick is a former hedge-fund trader who is now a sales director at Annalect, a division of Omnicom Media Group that specializes in data management and analysis for advertisers. He says colleagues include a former quant analysts and a commodities trader. While he prefers working in the world of marketing and advertising, Mr. Smolick says his finance background has helped him excel at a company that he describes as the "advertising version of Bloomberg L.P. meets Nasdaq. "