"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Andy Smith, head of programmatic at Vibrant Media.
Some of the predictions that programmatic direct channels will experience a sizeable growth surge in 2016 may be too ambitious. As yet, there’s limited use of the channel globally and relatively few trading desks around the world are demanding such access. I’m not the only one who believes that the programmatic direct channel faces strong headwinds.
Personally, I believe the issues are partly due to the first-mover advantage and the size of market that real-time bidding (RTB) systems currently represent. Mention “programmatic” and most will still think of campaigns bought through RTB, and for good reason: Of the estimated $14.2 billion spent via programmatic channels in 2015, RTB accounted for 81%, according to Magna Global.
One of the primary benefits of the programmatic direct marketplace is its utility when booking campaigns using nonstandard ad creative. In particular, the drive for more native ad formats – which often require customization and offline negotiation – has until now necessitated more direct relationships than most programmatic platforms permit.
Yet RTB systems are also introducing more unique and native formats, which challenge this benefit of the programmatic direct channel. If ad buyers are increasingly able to attain the scale of RTB platforms, albeit using nonstandard campaigns, that will be a significant limitation to the growth of the programmatic direct channel.
More importantly, RTB systems are already starting to emulate some of the programmatic direct channel’s campaign performance benefits by enabling new campaign controls and criteria within private marketplaces. Following “revelations” that most digital ads never have a chance to be seen, RTB systems have had to respond to the demands of huge ad buyers, such as GroupM and Unilever, which required specific viewability performance criteria for every single ad impression.
Some private RTB marketplaces are already testing selling ad inventory on a viewable cost per mille (VCPM) basis. Initial experience from these systems suggests that advertisers are often willing to compromise on the amount of impressions they buy, and even the media titles their ads appear on, in return for premium viewability. That’s a significant strategy shift from the most common RTB approach to ad buying, which prioritizes attaining the largest number of impressions for the available budget.
Many other key performance indicators, including optimum page positions, combinations of targeting data and ad-block whitelisted formats, are also becoming available to ad buyers through RTB systems. As these platforms are sharing data on specific ad inventory’s past performance across numerous criteria, buyers are beginning to change their perception of RTB marketplaces as merely a place for cheap impressions, and starting to distinguish certain formats as qualitatively more valuable than others.
That change in perception will soon be matched by a change in price, much to the appreciation of publishers that have experienced falling CPM rates since entering the programmatic marketplace. Ads that perform well will be priced higher, but the price of poorly performing ad formats will continue to decline. The inventory that is 100% viewable, displayed at precisely the right time to qualified users within relevant, brand-safe content that the consumer likes, trusts and enjoys will be prized and achieve an appropriate price.
Poorly performing inventory will remain unsold or priced so low that publishers are forced to finally admit that the amount they’re earning from certain industry standard ad formats is just not cutting it. That’s when they’ll remove them from their sites. And that’s the true opportunity for the programmatic direct channel.
Many tech vendors make a comparison between the automation of the programmatic ad industry and the financial industry’s stock exchanges. The RTB channels are equated with the financial industry’s spot market, and the programmatic direct channel with the futures market.
However, there’s a huge difference between the digital ad industry and the stock market. There are actual, tangible limits on the stock available in the stock market. There are only so many shares available in a company and only so much oil in barrels and so much gold. This means that pre-purchasing months and years in advance can actually be a necessity.
At present, the supply of digital ad space is pretty much infinite. Only when the publishing industry starts to remove poorly performing, uneconomic ad inventory from its media titles will the process of limiting the supply of ad inventory begin. That will give a far more relevant role to the programmatic direct channel.
The sell side will never be able to act like OPEC does with oil – US and EU competition law and anti-cartel measures will prevent that – but when it starts to naturally limit the availability of ad inventory because it’s uneconomic, there will be more desire for a futures approach to digital ad buying. That is unlikely to be accomplished in the near future, however.
None of this means there won’t be notable developments in the programmatic direct channels. Moves to integrate ad booking systems with automated platforms are just one development that could give the programmatic direct market a significant boost.
However, for now, the focus of players in the programmatic industry will continue to be on developing the capabilities of the RTB marketplace first, so that buyers can more easily identify and purchase the truly premium inventory that is being made available there.