Why Does Google Want AdMeld So Badly? High Frequency Trading for Online Ads

The luxurious accommodations at Google's Carrier Hotel

When Google plunked down a $400 million offer for New York’s AdMeld, a lot of local venture folks were surprised at the price.

“They’ve got some good growth, but nothing that would justify this kind of premium,” was how an ad-tech investor put it Betabeat. To date AdMeld had raised just $30 million.

But a chat yesterday shed some light on the situation. “We are getting a ton of pitches from former Wall Street quants looking to start companies that apply the principles of high frequency trading to the emerging market for real-time bidding across online ads,” said Bryan Birsic, a senior associate at Village Ventures. 

Birsic says that while a few companies have claimed to have real time bidding, AdMeld, Rubicon and a few others are actually just beginning to create a efficient, liquid market for this publishers online advertising inventory. “Folks who have reached their limit on Wall Street, or who are looking to make the jump to tech, see a big opportunity here for high level algorithmic arbitrage.”

Google is the perfect company to jump into that market. They are an engineering heavy culture with a ton of resources to throw behind what boils down to a computational arms race. The $2 billion they plunked down for New York’s premier Carrier Hotel at 111 Eighth Avenue means that Google is sitting on some of the fastest fiber in the media capital of the world.

The challenge for Google right now is to convince the anti-trust folks down in D.C. that the acquisition of AdMeld doesn’t give them to much power in the online advertising market. It’s unlikely that the Feds have even thought about the implications of the high frequency trading model making its way into the ad market. But if the deal is approved, look for Google to bring serious firepower to this fast developing business.

According to Forrester Research, the real-time bidding market will hit over $820 million this year, up from over $350 million in 2010 and more or less non-existent in 2009. And while that report was actually commissioned by AdMeld, its clear a lot of firms are looking to bring the lessons of high frequency trading to bear on the booming RBT market.

As Jay Sears, General Manager of the CONTEXTWEB Ad Exchange, put it on his blog, “Pundits will say Google bought publisher relationships and Admeld’s yield optimization service for large publishers. Now Michael and Ben and their team at Admeld have done an excellent job of pulling in top, large publishers such as CBS, IDG Tech Network, NBC, Quadrant One and Weather.com, but this misses the point entirely. Google bought QPS volume, period. [QPS is queries per second, a measure of liquidity or volume of display ads being offered via real time bidding.]”

Why Does Google Want AdMeld So Badly? High Frequency Trading for Online Ads