While discussing the importance of indirect, bid-based sales to publishers, Dave Zinnman from Yahoo pumped on the brakes, saying that if you believe exchange-based inventory will become dominant in a “career-relevant timeframe”, you need to “step back from the punch bowl.” For me, “career-relevant timeframe” is the most important phrase I’ve heard today.

No matter what your business, its important to have a realistic understanding of how fast your market is changing. Just today, VMM founder Darren Herman retweeted his 2008 post comparing the rate of innovation with the rate of adoption, and reminding entrepreneurs to build for today’s market. That’s the relevant timeframe for a venture backed startup between rounds.

Here in Chicago, the question of the day is: what is the relevant timeframe for advertising-related companies evaluating the momentous shift toward automation?

Up until now, I think media decisionmakers have been very confident in their ability to influence the rate and direction of change. At the 2009 24/7 Real Media Summit, I was struck by GroupM CEO Irwin Gotlieb’s remark that he felt it was, in some part, his responsibility to manage change in this new media landscape on behalf of various stakeholders. Consolidated media buying firms exist for the sake of exerting this type of influence and the comment made me think a lot about how and when the industry would change.

Now that Google has turned its focus to display, they will radically shorten the relevant timeframe for considering change. Google has more clout than any single company and they have built their business on automation and bid-based buying. Whether or not you believe that audience is more important than content in valuing an impression, it is impossible to deny that a lot of client money is lost to the transaction costs of directly buying standardized display inventory. I began my career as a media planner and, like every planner, I spent plenty of time “guesstimating” and doing menial tasks in the current advertising operating system: phone, fax, Excel, email.

Its not necessary for agencies and publishers to surrender to Google — in fact, I think that’s a terrible idea. But it is necessary for agencies and publishers to recognize the economic imperatives that drive Google’s strategy. Without Google, media companies might have been able to defy gravity for a career-relevant timeframe, but that’s no longer the case.

[Thanks to @adexchanger for publishing the original of this post, which I'm now reblogging.]

As our industry continues to rationalize the way brands buy advertising, we’ve seen plenty of new companies and products pop up. Some provide solutions to old advertising problems, like universal frequency capping. Others deal with fresh challenges, like how to handle tens of thousands of real time bidding requests per second.

Despite the rapid pace of innovation, I think its possible to identify 10 larger trends that will continue to operate for years. Taken together they represent not just a bunch of complementary technologies and organizational challenges, but rather a new school of thought — a new way to to think about, plan, and execute marketing campaigns.

We’re all used to getting volume discounts. When I supersize my meal at McDonald’s, buy toilet paper at Costco, or buy two bars of soap to get one free at CVS, I’m decreasing my unit cost by buying more. Retailers include volume discounts in their pricing structures when they can increase profits by selling more units, despite the lower unit price.

Volume discounts are prevalent in media buying. Publishers often lower the CPM, or unit price, below the “rate card” for big agencies that spend a lot. Big agencies turbocharge this volume discount. They leverage the collective spend of their entire client base in upfront publisher negotiations, achieving lower rates which are then passed on to the individual clients. Big brands, in turn, leverage their own scale in fee negotiations with agencies. Everywhere you go in the traditional media world, bigger spend equals cheaper rates. So it seems totally backwards to pay higher CPMs when buying more media. What kind of incentive is that after all?

Here’s the important point revealed by my client conversation: A huge, underrecognized shift occurs when advertisers and agencies begin buying media from markets, such as ad exchanges, as opposed to media retailers, i.e. publishers. In a market, prices are determined by the intersection of supply and demand and, all else being equal, price goes up as you buy more. Those familiar volume discounts go away.

These pricing dynamics are familiar to search buyers, since search prices are determined by market mechanisms. Google designs the market for selling their search listings, but they don’t set the CPC price themselves. Nonetheless for anyone used to buying media from publishers instead of markets, paying a higher rate when buying more still feels kind of weird.

I’d like to make two high level observations on how media markets change the agency business:

1) The shift to media markets and away from media retailers is a democratizing force for the buy side. If the big guy doesn’t get a price break, it makes it easier for the little guy to beat the big guy at serving advertisers. When the market paradigm is dominant, like in search, talent and technology will win every time regardless of who is the biggest.

2) The media market paradigm advances the client-agency conversation from a discussion about media to a discussion about the client’s true business goals. When the media agency stops talking about delivering good media prices ( “Through volume discounts, our agency delivered $20mm in cost savings to your business this year.”) they have more time to talk about delivering customers to the client (”Through smart targeting and bidding on the $100mm of media we bought, we delivered new customers representing an estimated $400mm in lifetime value to your business). Once this more strategic conversation becomes the norm, and advertising is discussed as a business driver instead of a cost center, agencies and clients will both be better off.