Mumbo Jumbo: Programmatic advertising

Nic HodgesProgrammatic. There are few buzzwords that have been thrown around with as much enthusiasm over the past few years. And there’s a good reason – programmatic advertising has arguably changed the face of digital media buying more than any other technology. But how exactly does programmatic work, what impact is it really having, and is a programmatic robot going to steal your job? Nic Hodges explains.

A new layer between supply and demand 

Programmatic media buying has created a whole new layer of technology in-between media buyers and publishers. In the olden days (sometime around 2011), a publisher would deal directly with a media buyer in order sell a specific number of ad impressions on behalf of a specific advertiser.

Programmatic platforms dis-intermediate this relationship, allowing the supply of inventory from publishers and the buying of impressions by agencies to be separated.

In the programmatic world, a publisher sees a new user arriving on their site, and sends a request for an ad (along with any data they may have on that user) to one or more programmatic platforms. The programmatic platform then sends back an ad based a set of rules including price and audience suitability. The most common type of programmatic – Real Time Bidding (RTB) – includes an auction for the space amongst multiple potential advertisers. Along the way, more detailed data provided by the advertiser, agency, or a third-party data broker may be used to improve targeting and effectiveness.

Between a user landing on a web page and an ad being displayed, around half a dozen separate technology and data providers are used to decide which ad to use, a process which takes less than 200 milliseconds.

Is programmatic just about decreasing costs? 

programmatic-trading-3Compared to media channels such as TV, radio and OOH, traditional digital display advertising is resource-intensive for publishers to sell, and for agencies to plan and buy. Reducing this inefficiency is one of the reasons programmatic was created.

Programmatic promises advertisers more efficient planning and buying of digital media – executed in the blink of an eye, rather than with a boozy lunch and a faxed insertion order. Programmatic arrived on the scene with the promise of creating cost savings for advertisers, and better margins for publishers, all by allowing algorithms to make the decisions instead of humans.

As programmatic trading has become more advanced and better understood, the benefits have moved beyond simply creating more efficient media planning and buying. The targeting capabilities of programmatic have become just one of the drawcards for advertisers – a recent eMarketer survey found advertisers are using programmatic to improve targeting, react in real time, to personalise ads, get to market faster, and to more effectively track the success of campaigns.

How big is programmatic going to be? 

All of these benefits have resulted in programmatic experiencing unprecedented growth in the advertising world. The US has been at the forefront of this growth, allocating an estimated $10bn of digital spend this year to programmatic alone. That figure is predicted to double to $20bn by 2016.

Locally, Magna Global estimates that Australia will see 52 per cent of all display advertising being traded programmatically by 2017, while Mi9 reports up to 20 per cent of its inventory is now programmatic. Not a bad effort given Google’s Doubleclick AdExchange – the first major programmatic display platform – only launched in 2010.

Whenever such growth occurs, there’s almost always a loser, and in this case it’s paid search. IAB data suggest that much of the incremental investment in programmatic display comes at the cost of traditional paid search advertising.

What’s the downside? 

Epic growth aside, programmatic is not without its challenges. The promised cost savings haven’t necessarily appeared for advertisers, causing many to question the lack of transparency from the major agency groups – who all run their own programmatic DSP solutions for clients.

Quality of inventory is also a key challenge for advertisers who can no longer be assured that their ads will only be seen on the large publisher sites they traditionally bought. Combined with the growing issue of viewability and ad fraud, large brands are justifiably cautious of going all-in on programmatic.

The final challenge is actually managing and understanding the complexity and data involved in running effective programmatic campaigns. Recognising both the importance and complexity of programmatic has led many large advertisers such as American Express and P&G to look at shifting programmatic duties away from agencies, instead creating in-house teams to ensure learnings are kept within the business.

Are robots about to steal my job? 

While programmatic does have its challenges, it’s certainly not going away any time soon. While the growth in digital display will no doubt continue, the most exciting developments over the next year will be in programmatic platforms being applied to new channels such as radio, OOH, and TV.

Digital video is likely to be the next big growth area; predictions suggest around 40 per cent of digital video will be traded programmatically within two years. As is the general trend of the digital landscape today, much of that growth will be focused on mobile.

The good news is that robots aren’t about to take all the jobs. Agencies are already beginning to shift from ‘dumb programmatic’ (simple set-and-forget, rule-based campaigns) and are looking at more intelligent and human-led ways to use programmatic, learning from results and optimising on the fly with new strategies and techniques.

These new strategies, additional channels such as OOH and TV, and the potential for programmatic to be applied to creative as well as media, all present big opportunities.

Beyond advertisers, programmatic is wide open for agencies and individuals who can learn and embrace what will undoubtedly be a term we’ll continue to hear more and more over the next few years.

Nic Hodges is the founder of creative technology consultancy Blonde3


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