Ad Tech 101 - Supply, Demand, and Inventory

Introduction

For our inaugural post, we are starting very basic for absolute beginners.  The key terms to understand Ad Tech are actually general advertising terms.  We will review the following:

• Inventory
• Supply
• Demand

Ian Thomas writes the blog Lies, Damned Lies... which is a great resource to get some introductory background to advertising.  I actually learned a lot from his Online Advertising Business 101 posts when I started in this industry.  I will reference some of his materials but make some my own and present it differently.

Inventory

To start, it is important to understand what is being sold in the advertising industry.  What "product" is changing hands in advertising?  This "product" is typically referred to as inventory*.  Ian Thomas has a great definition for advertising inventory:

Advertising inventory is the supply of opportunities to display advertising in a particular medium.

Let's use a few examples to make this easy to understand:

• In television or radio, for each program, there is a limited set of time slots available for commercials.  That is inventory and different advertisers (say Coca-cola) will buy up that inventory.
• In newspapers and magazines, there are areas or pages which are set aside as space for ads.  This is again inventory for advertisers to buy to promote their products.
• You see inventory everywhere!  There is inventory on the side of buses, inside the subway train, on billboards on the road, on the bus benches, etc.

Ad inventory on the side of a bus

So what does inventory mean in Ad Tech?  Inventory is often referred to as an ad impression in the online advertising world.  Again from Ian Thomas:

An ad impression is a single viewing of a single ad by a single individual.

As he notes, there are complexities as ads have become increasingly complex with different ad types (e.g., partial viewing of video ads).  We will explore this more in detail later.  One simple example though in the Ad Tech world is on the CNN web site, there is inventory available on each page for ad impressions.

At this point, you should have foundational knowledge on Inventory and not be scared when you hear the term being used.  If you are confused about any of the above, leave a comment and we will try to clarify and improve the above.

Supply 

Another term you will hear a lot is Supply.  This term is used to explain who is providing/supplying the inventory for ads.  In general, this would be the Publishers who are sometimes referred to as the Suppliers.

In Ad Tech, Publishers are the companies that have web sites, web apps, have online video content, etc.  For example:

• New York Times has a web site which has a supply of inventory to sell to advertisers
• Angry Birds developer Rovio has an app with a supply of inventory to sell to advertisers to display ads within the app
• YouTube allows advertisers to buy an ad that plays before the video content you are watching

Angry Birds mobile app provides supply for ads in game (see arrow)

Note: the term ad space is commonly used for the area of the web site that Publishers set aside for ads.

When people use the term Supply Side, this refers to the Publisher side of the advertising ecosystem.  Note that it isn't that straightforward that Publishers sell directly to Advertisers always.  We'll dig into that in more detail in a later post.

Demand

On the other side of the advertising ecosystem is the Demand.  This term refers to who is demanding the inventory for ads.  In general, this would be the Advertisers.

An advertiser is anyone who wants to buy ads to sell their products, improve their brand image, etc.  Examples include Geico, Coca-Cola, Honda, etc.  

Obviously then, when people use the term Demand Side, this refers to the Advertiser side of the ecosystem.

Final Word

At this stage, hopefully you have a good understanding of the Inventory, Supply, and Demand.  Inventory is the opportunity to display an ad.  Publishers provide this Supply of inventory where as advertisers have a Demand for this inventory.  We'll go more into depth on how this simple ecosystem started in the early days and how it has evolved over the years.

Footnote:

* For the novice, to understand traditional inventory, think about your local clothing store.  The amount of inventory they have for a dress shirt is the number of dress shirts in the store.  More info here: http://en.wikipedia.org/wiki/Inventory