“Advertising is based on one thing: Happiness. And you know what happiness is? Happiness is the smell of a new car. It’s freedom from fear. It’s a billboard on the side of the road that screams with reassurance that whatever you’re doing … It’s okay. You are okay.”

Don Draper, “Mad Men,” Season 1, “Smoke Gets In Your Eyes”

I wonder what Don Draper would think today when the 23-year-old digital media buying whiz quips back, “Maybe, but let’s load it up into the system, along with 5,000 other versions of copy, and measure how many Facebook ‘Likes’ it drives within our target demo.”

I love the “Mad Men” version of the ad business. The storytelling. The simplicity. The glasses of scotch at 10 am. But these days in digital, it feels like the Math Men media buyers (with their terabytes of data) are taking over for the Mad Men creatives. It may not make for great TV drama, but they’ve got the performance data to prove that it’s their turn in the driver’s seat.

For years, digital ads were bought and sold by young media buyers from ad agencies and smooth salesmen from online publishers and networks, sealed over the modern version of the “three-martini lunch.” But with the steady advancement in online advertising technology over the last ten years, the geeks — I mean the Math Men — have gained the upper hand in determining how to spend these digital marketing dollars. Today, ad buying and selling is automated across nearly every digital channel, driven by complex algorithms crunching terabytes of data, all employed to meet rigorous ROI objectives — typically measured by new customer acquisition, profit margin, or revenues.

It all started in search, where Overture introduced (and Google perfected) a keyword ad marketplace for search pages. We take that marketer proposition for granted now, but it was heretical at the time — only pay us when a user clicks on your ad (versus every time we show your ad), and you decide how much to pay for that click (versus the same price for every advertiser). And sophisticated marketers took full advantage by leveraging technology platforms from Math Men companies like Efficient Frontier to maximize the efficiency of their search ad spend across millions of keywords, bids and text ad copy.

Since then, several major advances in advertising technology have further enabled the Math Men:

• Six years ago, Right Media introduced the first ad exchange for display ads, enabling the Math Men and their algorithms to buy and sell banner ads and skyscrapers across the Web. Google subsequently perfected the display exchange via their DoubleClick acquisition as well.
• Three years ago, Blue Kai introduced the first ad targeting-data marketplace, enabling the Math Men to leverage anonymous audience targeting data to further enhance marketers’ campaign performance.
• A year ago, Facebook launched its own ad platform API to enable Math Men and their algorithms to bid for Facebook ads based on user attributes. It seems likely that Facebook will eventually extend its monetization platform to third-party publishers, similar to what Google did with AdSense, as Facebook already has a strong distribution foothold via Facebook Connect.

It feels like we are witnessing the tipping point in digital media buying. Measured by dollars or by impressions, greater than 50 percent of online advertising is bought via APIs today (granted, most of this is still search). In a few years, I believe that 90 percent of all digital ad impressions, and more than 75 percent of digital ad dollars, will be bought and sold programmatically.

As we witnessed with search marketing, once a) marketers get a taste of the increased spend efficiency offered by these emerging platforms, and b) these platforms (and the associated marketer tools) become sufficiently easy to use, the dollars will flow, and quickly. The Math Men at Efficient Frontier are leveraging these display, data and social platforms to deliver superior ad spend performance for marketers across all digital channels today. It’s no longer just about search.

And the Mad Men are taking note. In the last few years, the ad agency holding companies have rolled out their own technology-driven digital ad “trading desks” to help their clients take advantage of these ad trading platforms. I wonder if they’ve replaced the scotch in the mini bars with the Math Men’s drink of choice, Red Bull.

Chris Moore is a partner with Redpoint Ventures and has been enabling the digital Math Men with investments in Efficient Frontier, Right Media, Blue Kai, Auditude, Inadco, Extole, Intent Media and eBureau. Follow him on Twitter @Redpointvc and @Moorski.

Vurve (formerly called Palaran) is almost all automated (customers have to put in about 15 minutes per week, the company says), and to start it is focused on e-commerce businesses. The company figures out what combination of search, display, remarketing, social and shopping engine advertising will be most effective on a dynamic basis.

A partnership with Shopify gives Vurve access to more than 10,000 stores, and it is also available through an integration with Yahoo. Customers spend a minimum of $200 per month. Vurve has also scored preferred access to Google and Facebook’s APIs so it can create its ads more easily. As you can see in the image above, the company does a neat job of illustrating where every sale actually comes from.

Vurve founder and CEO Amit Kumar said that though he doesn’t see much direct competition now, he expects there to be a demand-side platform-style gold rush for optimization and data mining. “Anyone can do this; it’s not voodoo science,” he said. Vurve has had a year in stealth to get its product ready and also has a strong team. Kumar previously worked on Yahoo SearchMonkey, and was also at Dapper, which was acquired by Yahoo last month. Vurve recently hired Kent Brewster, formerly a well-known Yahoo engineer, who apparently “singlehandedly” built the Netflix iPhone app.

Vurve raised $1.2 million from True Ventures and is based in Sunnyvale, Calif.

In lawsuits filed last week, Xerox (XRX) alleges that Google’s AdSense and AdWords and Yahoo’s Search Marketing, Publishing Network and Y!Q Contextual Search software all violate its 2001 patent for a “System for automatically generating queries.”

Xerox further claims that Google Maps, Google Video, YouTube, and Yahoo Shopping infringe on its 2004 patent, “Method and Apparatus for the Integration of Information and Knowledge.”

Xerox is seeking treble damages for the alleged infringements, which it claims are willful. Evidently, it attempted to negotiate licensing deals with the search companies that would have precluded legal action, but was rebuffed.

“We’ve been in dialogue with Google and Yahoo for some time without coming to a resolution,” company spokesperson Bill McKee told Bloomberg. “We believe we have no option but to file suit to properly protect our intellectual property.”

Google (GOOG) and Yahoo (YHOO), for their parts, dispute Xerox’s allegations. “These claims are entirely without merit, and we’ll vigorously defend ourselves against them,” Catherine Lacavera, Google’s senior litigation counsel, said in an emailed statement. A Yahoo representative offered a similar comment: “Yahoo does not believe we infringe and plans to fight this case.”

In a survey set to be released this week, the Search Engine Marketing Professional Organization, known as SEMPO, says North American search marketing spending will increase only nine percent to $14.7 billion in 2009 from $13.5 billion a year ago. Its previous estimates, made in early 2008, called for the industry to grow at more than twice that rate this year, from $15.7 billion in 2008 to $18.8 billion in 2009. The new forecasts call for the industry to reach $19.8 billion in 2011, down from a previous estimate of $25.2 billion for that year.

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How is that possible? Because advertisers are putting their new advertising dollars with Google (GOOG) and pulling some of their old ones away from the company’s rivals. Yahoo (YHOO) lost $0.09 of every new search dollar in the second quarter. Microsoft (MSFT) lost $0.01.

A dismal state of affairs if you’re Yahoo or Microsoft. That said, allocation of search marketing dollars hasn’t really changed all that much. Google maintained its 77.4 percent share of U.S. search marketing dollars, while Yahoo captured 17.8 percent of spending and Microsoft Live Search maintained its 4.8-percent share.