There is a non-stop buzz amongst agency media buyers and digital media sellers to espouse the term programmatic as the inevitable and enviable future of all media buying. AdExchanger does a nice job of bringing together what digital industry leaders consider to be the right definitions of programmatic, but even those who sell based on this concept do not agree. The buy side loves it when it lowers prices. The sell side likes it when it is an efficient way to maximize yield. The press loves it because it is a new, confusing, and controversial topic.
To the CMOs and non-media folks in marketing that I speak to, that buzz is more noise than music. The concept is confusing, as it is alternatively the best game in town for managing ad prices, but also the direct route to ads appearing in controversial locations. So let’s turn down the volume for a moment, separate the noise from the melody, and play back the simpler notes that resonate with marketing minds.
A Primer on Programmatic Components
First, there is a spectrum of programmatic attributes that marketers need to understand:
- Pricing. Programmatic pricing, like stock market trading on which the term is based, is typically determined by real-time supply/demand economics. A high value placement at the top of a well-trafficked home page or linked to a popular New York Times video on a Sunday morning should get a high price, and a low value placement like a below-the-fold banner on a personal blog at 3am should get priced low.
- Inventory. To oversimplify, ad placements are divided between premium and non-premium. Media owners prefer to keep control of premium placements, for sale and packaging by their direct sales teams. As they have begun to understand exchanges and programmatic platforms, more non-premium and some premium digital placements have found their way into the inventory that can be bought through programmatic marketplaces, primarily display ads. Programmatic video is rising quickly, and is expected to account for over 25% of all web video ad buys by 2014. But premium publishers in TV are nervous about programmatic, and until ABC.com and XfinityTV.com made their recent announcements to support programmatic for digital video, the TV industry had kept this automation at arms length.
- Insertion. Since pricing in a truly programmatic environment is done on the fly, it follows that placement of the order, meaning the purchase and delivery of that ad spot, is also programmatic. In search, display and in-banner video, that is a no-brainer. In pre-roll video and especially in linear TV, it is difficult to insert an ad programmatically due to the current inventory management and ad insertion platforms.
- Data. To determine the value of an ad placement, a number of factors must come together in milliseconds. Those include the metadata about the specific ad, the audience characteristics, day part and content associated with the ad slot, matched against the demand, i.e. which ad buyer is willing to pay the most for that insertion. These very disparate bits of data have to be assessed and drive a decision nearly instantaneously.
History Foretells The Programmatic Future
Why is programmatic a hot topic today? Digital media has, from the start, had programmatic elements at its core. Each decade has seen an escalation of programmed buying and selling of media:
- 1990s: Search arrives as a natively programmatic platform. The origins of programmatic ad buying started with the advent of search engine marketing. AdWords and Overture were, from day one, programmatic, as it was an auction-based system where you bid on keywords in the hopes that your ad would rise to the top of the right column when someone did a search. Prices rose for the most valuable terms.
- 2000s: Display came down with programmatic fever with the rise of ad exchanges and massive supply of inventory. Display folks recognized that a network built on a single, dynamic ad server could also include real time bidding features, and AdX and AdECN joined Right Media to accelerate the pace of trading on display advertising. Prices dropped off a cliff for most ad placements, since inventory well-outstripped demand.
- 2010s: Large bets have been made to bring programmatic selling to web-based video. Digital video buyers and sellers are talking the loudest about programming currently, but in two contexts public exchanges and private marketplaces. Public marketplaces are simply display-like ad exchanges, but private marketplaces primarily automate the process of ad buying and placement, but most focus on guaranteed CPMs or minimum CPMs, to protect the value of quality content.
- 2020s? TV advertising will move slowly to a programmatic future. While the debate here is starting to simmer, it is far from a full boil. This debate at Adweek is emblematic of the discourse about programmatic’s impact on web video and TV. There is not yet a dynamic ad server that would take programmatic buying to its natural conclusion – pricing, data, automated insertion and yield optimization using a fully automated system. Most likely, programmatic in TV will first appear as an automation of sell-side inventory management, coupled with better audience data management. This will get wrapped around the more manual insertion and delivery systems that TV companies are not anxious to replace (see my prior post on the television industry for that discussion).
The Marketer’s Guide to Programmatic’s Value
As a marketer, the best way for you to think about programmatic is along three lines of benefit both to you as a buyer and the value that gets delivered to the sellers:
- Price/value relationship. Do you want to optimize the price you pay for media? Or do you want to make media decisions based on the exact location of every placement in advance? According to research done by the ANA with Forrester Research, marketers are very concerned about the lack of transparency that programmatic buying provides in pricing and value.
- Automated processes. Does improvement to the workflow of media transactions save you money and increase flexibility? Or does it raise the concern that machine-to-machine transactions are unpredictable and therefore unreliable for brand-safe campaign execution?
- Buy-side tools. Do you need full reporting on every ad placement, or are you comfortable focusing on business results? Programmatic will give you more of the latter than the former. The tools need to become part of the marketing process in order to drive benefit into the marketing organization. That requires change management with the agency and purchasing teams, already in progress with trading desks being implemented at Kellogg, Unilever, P&G and Kimberly-Clark.
The maturity of each of these varies all three elements are firmly established in search, they are largely there in display, nascent but growing quickly in video and primarily in development stage in TV. The market will continue to move quickly – programmatic buying is a very natural and necessary part of the digital media business. But it will take time to see programmatic become the de facto buying process across all media types.
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