Back to all news

3 Signs Your Currency is Broken

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

Bad metrics create bad incentives and bad outcomes.

In 2015, I wrote this cringey article chastising people for using “currency” when they meant metrics used to denominate contracts. As a semi-reformed pedant, I get that people use it as shorthand for the important metrics in transactions. For example, the currencies of gas are gallons and octane (or barrels and grades), and for equities, class, and shares of a company.

Buyers expect currency to reflect the quality and quantity of the goods they are buying. And for markets to function properly, this reflection needs to be fairly precise.

When currencies don’t proxy quality, trust between buyers and sellers breaks down creating inefficiencies, and eventually, a lemon market. Here are three signs the currency in your market needs an upgrade:

1 - Fixation With Take Rates

When quality is opaque, buyers start to fixate on how much profit sellers are taking. Depending on how much leverage buyers have, they may demand cost-plus pricing and force vendors to compete on take rates.

The irony is the very opacity in quality that drives fixation on take rates allows sellers and agents to pad margins with diluted goods. In the end, energy spent examining take rates in a supply chain is probably better spent understanding the quality of goods.

2 - Limited Forward or Futures Market

The starkest indication that a market is using untrustworthy metrics is a lack of forward contracts. If buyers don’t trust the metrics used as currency, they will revert to buying units individually in a spot market.

Imagine if every bushel of wheat contained a different amount of wheat. No one would agree to buy them in advance, and commodities markets would grind to a halt.

3 - Endless Supply

Buyer disinterest in futures is exacerbated by endless supply. If goods have inelastic supply—meaning the amount available is unresponsive to price—the metric which defines them is busted or has been gamed by the sell side (probably both).

When there is no limit to the available supply in the spot market, and even more so if supply elasticity is low, there’s no reason for a buyer to invest in advance.

Why This All Feels So Familiar

The reason why this might feel like a “what’s wrong with digital media” list is because our currencies—the metrics we use to denominate media transactions— are broken, and easily gamed by disingenuous sellers. While clicks, viewable impressions, and video completes are 100% accredited, they have very little bearing on actual business outcomes. And when relying on these metrics alone, media buyers are tasked with the impossible: accurately determining what constitutes high- vs. low-quality media, and at what price.

The silver lining is a growing movement around evidence-based metrics, built on the foundation of a proven correlation to quality and outcomes. While evidence-based metrics offer transparency, and the ability to help marketers deliver more efficient brand outcomes, they also have the potential to unlock something much greater: a solution to the currency crisis holding back the digital media market.

Previous Blog Post

You’re reading the latest blog post.

Next Blog Post

You’re reading the most ancient post.