Programmatic may be the future, but we live in the present

Programmatic has the potential to take an audience of one million and make it one million audiences of one. However, while this is great in theory, we're still not quite there yet, as Path 51 MD Simon Larcey explains.

The world of programmatic excites me. The ability to automate the media buying process is the future of our industry. However, ‘future’ is the operative word here – if you honestly believe a business that tells you they can offer a fully automated system today, then I’ve got a bridge overlooking Sydney Harbour to sell you.

I recently read an article that said programmatic takes an audience of one million and gives you the ability to make it one million audiences of one. This is exactly where we want to get to. Hit one million people individually, with a message relevant to them, in an environment they will respond to.

Programmatic: the ability to make it one million audiences of one

Just awesome, but, based on the current technology available, completely unrealistic.

As an industry observer, I cannot claim to know the exact methodology of how each demand-side platform (DSP) works. However, over the past couple of years I have become obsessed with this space.

Most DSPs are moving towards a self-service platform while still offering some sort of managed service. The managed service means the DSP uses its team to provide assistance across programmatic campaigns. The team of humans analyses how each campaign is performing and optimises it as best they can.

However, how can a team of five, 10, 20 people effectively take an audience of one million, ingest all that information and then create a scenario where they have one million audiences of one? I’d love to think this was realistic, but the amount of data they would need to consume in the time they have to deliver would be impossible.

So in reality what we have is a bunch of companies offering a technology platform that allows an automated buy. Agencies pay a fee to use these platforms, which are generally a percentage of the media spend.

But the thing is, it’s not a performance fee, it’s just a standard tech fee. Some agencies pay as much as 30% of the media spend just to use a platform. Then of course the agency puts its own fee on the media buy, and before you know it the media budget is eaten away by tech and agency fees.

This leaves the advertiser confused about what they are paying for and what they are getting in return. Are these fee structures by tech platforms and agencies realistic if all they are doing is providing an automated buying platform and administrating the order?

This isn’t just anecdotal either.

A recent study headed up by the Association of National Advertisers (ANA) in the US processed over 16 billion programmatic transactions and reached the conclusion that transparency and complexity continue to be the main problems with sales channels.

“Programmatic is becoming the most dominant approach to buying digital media because it offers targeting precision, scalability, cost efficiency, real time optimization and unprecedented leverage of big data for advertisers,” said ANA CEO Bob Liodice.

“However, programmatic remains complex and often non-transparent. Our study revealed that this lack of transparency makes it difficult for advertisers to manage, measure and audit programmatic media investments with the same rigor as traditional media investments.”

Let’s look at it by comparing it to another service that charges a flat tech fee.

As someone that runs a small business I use Xero, an accounting platform that means I do not need a bookkeeper. This awesome platform has the most amazing technology and charges around $50 per month.

Xero wouldn’t dream of taking 30%

How do you think Xero would fare if they started taking as much as 30% of my turnover? It would be called out as highway robbery and they would be out of business in no time. So how can a DSP justify taking a big chunk of spend if all they are doing is providing a system to process a buy?

Those that offer a managed service are justified in charging more, because they are helping advertisers optimise their performance. So why are advertisers paying agencies programmatic fees when the job is often – though not always of course – being done by the programmatic experts who provide the platform?

The leading DSPs have begun to adopt machine learning and will be able to consume data in a way no human ever could. These are the companies that advertisers need to form direct partnerships with. In fact, numerous advertisers in the US and UK (and slowly in Australia) are taking their programmatic spend away from agencies and dealing directly with the technology providers.

This really excites me. The agency model has not changed for decades, it’s just great at repackaging itself – essentially adding layers of complexity and jargon to justify taking a bigger piece of the pie. If an agency truly cares about their client and how its media performs, they should risk their own bottom line to demonstrate a better way. I’m not sure I can see that happening any time soon.

In conclusion, a bit of food for thought – look at the financial markets.

Twenty years ago, if you wanted to get rich, one way was to become a stockbroker. Fast forward to 2017 and due to technology, the industry is drying up. Anyone can now sit at home, access a trading platform, research and buy best-performing stocks.

Leading financial institutions lost out in the early days to these new trading platforms, which offered investors a more transparent, better way to buy and sell stocks.

The media industry is set to follow suit and unless the big, swinging dicks in this market change, they won’t have a business in another twenty years.

Simon Larcey is managing director at Path 51.


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