Flash Nerds.

by Doug Weaver on May 7, 2014 at 9:56AM

Flash NerdsMichael Lewis’s new book “Flash Boys: A Wall Street Revolt” tells the true (and, unfortunately, legal) story of Wall Street technology companies who discovered ways to see demand milliseconds before others and successfully job the system.  These companies would pay for physical access and proximity to the powerful financial exchanges where they would await incoming orders, read them, buy ahead of the unwitting customer and resell the shares at a profit.  The exchanges, the banks, the brokers and everyone else in the system either didn’t know what was happening or willfully turned a blind eye:  after all, the system was working and making everyone a lot of money.  The only losers were those who couldn’t be seen; the consumers and pension funds whose portfolios were less valuable because of this hidden tax.

As Mark Twain said, “History doesn’t repeat itself.  But it does rhyme.”

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The online advertising business is going through its own version of the same saga.  For every display ad that can’t be seen, every video that auto-plays when it wasn’t supposed to, every fraudulent ad call that leaks into the system from the hackers den in Eastern Europe or the houseboat anchored off Boca, our credibility and forward progress take a hit.  And don’t think these issues are confined to the pages of insider industry websites and the stages and breakout rooms of ad tech conferences.  Just last Saturday The New York Times published “The Great Unwatched,” which served up the issue with healthy doses of outrage and shock.

“Flash Boys” features both villains and an underdog band of heroes who expose the problem and create a new era of transparency and an emerging standard for how trading is supposed to work.  So far, we seem content to chalk our “Flash Nerds” problems to a murky cabal of distant ne’er-do-wells.  In The New York Times article it was noted that TubeMogul “…reported that it had discovered three new botnets that were generating 30 million fake video views a day, earning as much as $10 million a month. TubeMogul said the culprits were well concealed and likely operating overseas.”  It’s convenient and a little exotic to once again blame it on Moscow, but it’s also disingenuous.

Edmund Burke once wrote, “All that is necessary for the triumph of evil is that good men do nothing.”  I’m not completely comfortable couching this issue in the language of good and evil, even though there is in fact a good deal of stealing going on.  But I do think there are far too many good men and women doing nothing.  A robust level of demand has brought on good times for an intricate, overlapping system of middlemen and technocrats; a ton of pressure is put on buyers and sellers to “just get the deals done.”  Yes, I know it’s all so much more technically complicated than this, but please don’t tell me that it’s so screwed up that a given company or CEO can’t say “We will always behave this way” or “We will never do that.”

Soon, I hope, there will be white hats and black hats passed out.  Whether you’re identified as a hero or a villain may be less about your overt actions and more about what you are willing to accept.

Reader Comments (4)

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  1. scot May 7, 2014 at 3:23 pm

    Thanks Doug, that NY times article is must reading (as is the Drift). We’re always in interesting times in this industry. Now I think we’re at another credibility crossroad. But this time it’s not to establish relevance it’s to reestablish credibility.

  2. Mark McLaughlin May 7, 2014 at 7:50 pm

    Doesn’t it seem like the mega-trading desks at the big holding company agencies would know exactly who should be wearing a white hat versus a black hat and that they would have no reason for not going public with the two lists?

    Either these mega digital buying resources are not nearly as sophisticated as they claim to be or else they are motivated by conflicts of interest to let the confusion reign.

    We readers of The Drift know that key relevant executives are reading this so it would be great if they would help us understand why their companies don’t just crush this problem now. After all, what is the point of clout if you don’t use it to help your clients and your industry?

  3. Matt Prohaska May 8, 2014 at 9:04 am

    Great stuff as always, Doug. As I’ve written a couple times recently:

    http://www.the-makegood.com/2014/03/27/being-jon-gruden-and-more-again-in-programmatic
    http://www.the-makegood.com/2013/10/28/the-new-mall-rats/

    it’s time for some visible metrics around where these fraudulent players are finding the most success with the exchanges that unoffically turn the other way. If the exchanges won’t do it, fortunately there are several relatively-new firms and plenty of old-school buyers, as you point out, that have this data and could share it publicly, or at least with their clients. Unfortunately, I’ve heard quite a few stories recently about agencies, DSPs and even clients who don’t want to know/share, because their current performance success is the only thing that matters to them today.

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