Last month I wrote an article titled, "What the heck does 'programmatic' mean?" The response was pretty phenomenal, and it became apparent that there is much more to be said on this topic. In this article, I'll flesh out a few of the concepts from the original column and dig into new issues, including commonly believed myths, surrounding programmatic buying.
As in my last article, let me start out with a broad definition of "programmatic" buying and selling. I would define it as any method of buying or selling media that enables a buyer to complete a media buy and have it go live, all without human intervention from a seller.
Programmatic buying is a superset of exchange, real-time bidding, auction, and other types of automated media buying and selling that have mainly been proven out for remnant ad inventory clearing mechanisms up until today. So, while an auction might or might not be involved in programmatic buying and selling, the roots and infrastructure behind the new programmatic world is based on the same infrastructure that the ad exchanges, demand-side platforms, supply-side platforms, and ad servers have been plumbing and re-plumbing over the last five years.
Let's take a look at some of the most common and widely believed myths regarding programmatic buying and its current and future role in our industry.
Myth 1: Programmatic is for remnant inventory
Business innovation is an interesting phenomenon to explore. Invariably the innovation is brought about by a combination of people who are trying to either solve problems or make money -- or both. And when that entrepreneurial action gets applied against existing industries, it rarely goes smoothly or as planned.
In the case of those companies that first had notions of improving the efficiency of media buying and selling, they quickly found that publishers were extremely sensitive to the idea of opening up their premium inventory to another sales channel (i.e., creating channel conflict). But since they readily sold remnant media off to numerous other sales channels, they weren't sensitive to enabling new buying and selling mechanisms in that area. Thus, the first experiments done in programmatic buying were with regard to remnant inventory.
As the market has proven that there's some benefit to automating the buying and selling process (which took way longer than I predicted), we're now seeing rapid expansion into premium inventory channels. This new category is most often referred to as "programmatic premium."
Many people still think of programmatic media as remnant inventory sold using real-time bidding. But all kinds of inventory are being sold programmatically today -- including inventory that has been carefully "protected" until the last year or so. I'll go as far as making the bold prediction that eventually all advertising across all media will be bought and sold programmatically, perhaps in the next five to 10 years. And with online display, where this revolution started, we're likely to see that transition happen even faster -- perhaps in the next three years.
This shift toward premium means that programmatic buying will simply be much more valuable and impactful. The vast swath of remnant inventory makes up less than 20 percent of the entire revenue of online display. That means even a significant improvement in performance or rise in cost of inventory simply can't have a massive impact on overall revenue or overall performance of media. But even small impacts on the performance or yield of premium inventory can radically change the face of our industry. So migrate your thinking beyond remnant: The future of programmatic is premium inventory.
Myth 2: Programmatic means RTB
Several years ago, when programmatic media buying and selling via ad exchanges first began, none of the systems supported real-time bidding. But as RTB-based platforms began to be released and make their way into the market, they proved to be a far superior methodology. But a lot of the benefits that drove the success of RTB were not from the real-time nature of the auction at all. Rather, benefits were realized from the massive improvements in the way systems integrate with each other and the ability of outside systems to create technical innovations that were radical departures from the assumptions and designs of the core system developers.
Let me be very clear, though: Although I just said that much of the benefit of the RTB ecosystem was from other functionality it opened up, RTB has significant benefits for auction-based ad sales over other options. However, not every ad sale needs to happen in an auction, and not every operation needs to happen in real-time.
One of the greatest under-appreciated changes our industry has ever seen is the opening up of the DoubleClick ad platform via application programming interfaces (APIs). DoubleClick for Publishers (DFP) has vast market penetration, so when Google invested in re-architecting the platform and releasing modern APIs at extremely deep levels of the platform, it offered perhaps the biggest chance to change the ecosystem. Other platforms, such as Open AdStream from 24/7 Real Media, OpenX, Zedo, and FreeWheel, have open platforms with powerful APIs. But because so many of the largest publishers use DoubleClick, it has had the biggest impact.
A new breed of company is entering the market that is focused on programmatic media buying and selling that is agnostic to whether they make use of RTB or whether they plug directly into the ad server. These companies, including Adslot, isocket, Legolas, Yieldex, Rare Crowds, Maxifier, and others, all make use of integrations into the primary publisher ad server. They do a variety of things that enable programmatic premium media buying and selling -- some competing with each other, and some functioning uniquely in the market.
In online display media, which has been where most innovation in programmatic has taken place, nearly all media could (mechanically) be bought and sold programmatically today -- whether via RTB or not, whether it's guaranteed or not, and whether it's premium or not.
Myth 3: Programmatic replaces sales and media buying teams
Let me clearly state this: Human sales forces will not go away. There is now, and will always be, the need for people to sell media. But much of the sales process today is mechanical and repetitive order-taking work that clearly can be automated. Programmatic frees up resources for evangelical sales, gives teams time to focus on building better customer relationships, and lets them focus on educating buyers on the value that their publishers bring to the table that is unique or specifically valuable.
On the buying side, while programmatic methods will streamline the process and make it more efficient, media buying (and especially planning) doesn't go away. The role of the media agency becomes in many ways more critical -- and certainly more technical. Much like hedge funds and brokerages have begun to rely more on mathematics, the role of media buying will also become much more technical. Planning will become a bigger focus as well. After all, the execution will be faster, so there will be more emphasis on getting things right before the campaign runs. The inefficiency of the market today allows for a lot of wiggle room once a campaign goes live -- time to watch and tweak and adjust. That wiggle room might just go away with more efficiency.
Myth 4: Programmatic is a zero-sum game
There are some people who look at media as a zero-sum game. They believe that increasing efficiency is what programmatic is all about, and that we're not looking at a radical increase in revenue -- just cost savings.
Even if this were true, the massive inefficiencies we have in online media need to be fixed. Traditional media is 10 to 15 times more efficient to buy and sell. We have armies of people doing jobs that don't exist in traditional that quite simply are holding back our industry. CMOs and VPs of marketing at major corporations have told me (to my face) that they simply won't increase spend online until we get our buying efficiency aligned to traditional media.
While "just making things more efficient" would be more than enough to justify the move to programmatic buying and selling, there's a lot more value that comes with this evolution. There's an approximate 100 percent price drop from traditional media to digital media. The old adage of trading traditional media dollars for digital dimes is turning out to be closer to digital pennies. In order for traditional media to make the transition to digital media, we need to not only increase efficiency and lower the cost of sales, but we also need to radically increase the amount of revenue driven by digital ad impressions. This is the problem to which I've dedicated my professional career: massive value increase for digital media.
As we've grown more sophisticated over the last decade or so, our industry has begun to more deeply understand the economic levers of advertising and media. Under the surface of all the buying and selling that goes on, there are fundamental areas where the value of media can be drastically influenced. There are many levers to pull, but with all the investment and innovation happening in the space, the startups focused on massive value creation are beginning to see some success.
Since programmatic buying and selling happens more quickly -- and we track all aspects of the inventory, supply, demand, and transactions -- there are many more opportunities for massive change. Since we've seen such massive investments in big data and analytics systems, we can expect to see new technologies emerge over the next few years that will radically transform the economics of media. Ultimately, these technologies will make up some or all of the shortfall we see in the transition from traditional to digital media.
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