Understanding the new programmatic playground
There is a paradigm shift happening in programmatic buying, and all its players – whether publishers, ad exchanges, demand-side-platforms (DSPs) or advertisers – must abide by the new playbook if they want to stay ahead of the game.
Alex Reinhold
In the early days of programmatic, full automation of media buying was considered the backbone of the channel. In other words, simplicity induced enormous initial growth: the highest bidder in an open auction would win. It was as easy as that. Moreover, everyone with access to bidding technology could participate. Yet as much as this unrestricted accessibility to publisher inventory launched short-term adoption of programmatic, it had also, to a certain extent, inhibited long-term growth.
Let’s say you’re about to host a birthday party and you’d like to invite guests via Facebook. One option is to create an open event, allowing everyone to join the party. Alternatively, you could create a private event, carefully curating the invitees. Needless to say, if you’re keen on keeping your flat free from as much damage as reasonably possible, the latter is probably a more sensible option, right? That’s exactly how publishers thought about their inventory when they were crying out for private rather than open auctions. Ad exchanges soon followed their wishes and enabled them to host their “private parties” – and so “programmatic direct” was born.
Eventually, everyone in the ecosystem will benefit from programmatic direct. Publishers gain full control over who is accessing their inventory. In turn, advertisers can programmatically place ads on particular inventory blocks for pre-negotiated CPM floor prices. DSPs, on behalf of advertisers, are able to optimise media-buying by sealing ROI-focussed deals with publishers. Finally, ad exchanges create more transparency in programmatic media trading, and therefore become more trusted partners for both sellers and buyers.
This trend not only motivated all players to scale up their programmatic budgets, but also, and perhaps more importantly, it instigated the most aggressive acceleration of programmatic buying to date – and that’s where ad server structures come into play. Publishers can assign priorities to different channels of inventory selling through their ad servers. To use a rather outdated example, think of one impression that cascades down in a waterfall model from, say, direct ad server deals (with a fixed CPM and fixed spend commitment), down to programmatic auctions, then on to house ad or affiliate placements. Whichever channel triggers wins the impression. Historically, given the drawbacks of the open auction, publishers tended to prioritise fixed direct ad server deals over dynamic programmatic buying. However, with the rise of programmatic direct, this is changing dramatically.
It’s safe to say that the direct deal has been made obsolete by programmatic direct because publishers have started doing the math. If a $5 non-programmatic direct ad server deal with a single buyer is placed in the ad server chain with highest priority, will it really create the highest yield?
No, it certainly won’t.
That’s why more publishers have started to assign the same priority to programmatic direct. Google’s Enhanced Dynamic Allocation and the widely promoted header bidding (OpenX, Rubicon, Appnexus and Adform are all strong advocates) are aiming at pulling programmatic auctions on top or out of the waterfall ad server chain. In fact, a more horizontal rather than vertical way of having different channels compete against each other is where we’re inevitably heading. That shouldn’t come as a surprise as a CPM floor price of $5 with an underlying auction will always make a publisher more money than a single-buyer direct deal worth the same CPM. It’s a very simple calculation.
In addition to increasing trust in programmatic buying and making direct ad server deals economically obsolete, programmatic direct also helps tackle one of the industry’s biggest problems – quality. Ad fraud, viewability, intransparent auctions and a range of other issues – most related to the black-box nature of some ad exchanges – prevent the industry from growing as fast as it could be. Ad fraud, in particular, prevails in the depths of the open auction. Meanwhile, programmatic direct deals between buyers and sellers help prevent contamination and assure quality in the long term. However, in order to make that happen, programmatic direct alone will not suffice. It takes ad exchanges, DSPs, publishers and advertisers working together to enforce certain standards and unifying efforts to combat bad apples and fraudsters.
Alex Reinhold is head of global supply at Sociomantic Labs