High-Frequency Traders Turn to the Online Ad Market

In a red brick building in New York’s Chinatown filled with startups, a company uses custom computer programs to scout for opportunities, making millions of trades each day that generate tens of thousands of dollars in revenue. This company is not buying and selling stocks, bonds, or commodities: Its specialty is online ads.

High-frequency traders have found a new market to exploit. A growing percentage of the billions of display ads that pop up on computer screens are sold to the highest bidder at online marketplaces such as AppNexus, Microsoft Ad Exchange, PubMatic, Rubicon Project, and Yahoo! Ad Exchange. Before the ads appear, they change hands in a complex volley of electronic trades among websites, ad space aggregators, exchanges, data analysts, and ad agencies. Real-time bidding “tends to be fabulously complicated,” says Ben Edelman, an associate professor at Harvard Business School who studies online advertising. “The number of intermediaries in a single ad placement can be just extreme.”