AdExchanger.com: How does programmatic buying become attractive to the brand marketer?
EP: I love this question. I personally believe that all of the interesting things that are happening in the online display advertising space relate to audience-based buys designed to reach specific audiences -which are basically premium brand buys.
Display advertising, while it can be used for performance, it can only really be used well for performance when the inventory is incredibly inexpensive. It's just a basic, simple fact that performance ad buys either have to drive very high conversion rates, or they have to be very cheap and you can see it in every media to some degree - and especially in online display.
Brand advertisers are willing to spend significant amounts of money to efficiently and effectively reach potential customers that fit the profile that they've developed around their target audience. The reality is we talk a lot in this industry about accountability, the ability to control the way that ads are displayed as if it's new and interesting.
The VP of Marketing
One of the great things about my experience working at Microsoft is that I received access to everybody. I was in many, many meetings with some of the top brands in the world, I'd be able to just ask them questions about their advertising, the way they made decisions, why they spent more on traditional than display proportionate to the time spent by audiences. I recall one fascinating conversation - I won't name the name of the company - but the brand marketing team are in the room and some online display media sales people came in. The sales team tells the usual story about accountability and the ability to control the way the brand’s budget is being spent at such granularity. The marketing VP became angry and frustrated.
He said something like, “I don't want to hear any more from you online media sales guys about how accountable you are. Do you think we're idiots? We spend billions of dollars a year on ads. And that the whole thing about half my ad spend is wasted and blah, blah, blah –well, I don’t want to hear anymore about that.”
And then he said, “First of all, I know exactly what my ROI is on every dollar I spend, down to multiple decimal points of percentage. There's no question about it. We spend a huge amount on research, and we spend a huge amount on validating our ROI. We're very, very confident in all of that stuff. So, please don't talk to me about how accountable you are. I actually have found that online media is not accountable at all.”
He added, “The biggest problem that we have with online media is inefficiency. Online media is between 10 and 15 times less efficient to buy and to manage than traditional media. That leaves me with this problem, how do I justify spending any money on online display when it's 10 to 15 times less efficient to buy and manage. That means that I need to find media that's either 10 to 15 times less expensive, or I need to find ways to get 10 to 15 times the ROI. But neither of these is true today.”
A lot of people don’t remember that when we started building ad platforms at the beginning of this industry, it was a very nascent industry. A lot of the business rules we put into ad platforms were designed around the needs of a nascent, small -very small -budget, highly manual industry. But then, we never went back and rebuilt those platforms.
The amount of human effort required to manage an ad campaign at a large agency for a large account - take a Proctor & Gamble, or a Johnson & Johnson, or any of the companies that spend huge amounts of money on ads across all media - they don't want to be worrying about per placement optimization. That's way beyond anything that they ever need to do in traditional media. What they want is to be able to specify an audience, to figure out what properties to buy it on and then very efficiently spend lots of money. Online is just so inefficient, it's so much more labor intensive for them to manage that it doesn’t make sense to them.
I think there's an opportunity for this industry to shift the large brands dollars online, for the first time, because it's about efficiency more than it is about anything else. I need to be able to efficiently reach my target audience, at scale, and buy at scale as a large advertiser, and I don't mean I want to reach a thousand people on this site, and a thousand on that site. I want the kind of scale that you can get from television or magazines, and do that without a lot of human intervention. If I can do that as a buyer, then we're going to see this market shift very fast.
The problem we keep running into is there's a lot of legacy mindset. People are still very focused on granular knobs and dials to manage and manipulate campaigns. It's fine if the systems are smart enough to do that automatically, but if people have to get involved and approve, or look at, and manage, and go through all of the rigmarole that they go through on a typical display campaign, there's just no way.It will be the death of this industry.
We won't ever get out of the hole that we've been in for the last 15 years. Which isn't to say there isn't real money spent here, but it isn't the kind of money that we could be getting access to, and it's very disappointing.
The Arrival Of Programmatic Buying
Programmatic buying systems are starting to be put into place today, but I think the bigger problem is the kind of inventory that's available for programmatic buying today. There's not enough of it. This is a really tricky point. I've had a lot of debate back and forth on this point so I'll just spend a minute on it. There's this belief in this industry that there is infinite amounts of display inventory in this space and the reality is there isn't infinite inventory, but there is a lot of it.
There is a lot of bad inventory, or weak inventory, or “not great” inventory which is exposed into these real time bidding environments and where the inventory is either sold completely blind -with whatever targeting attributes a demand side platform, for example, can bring to the table - or perhaps little bit of targeting coming from the publisher.
Part of the problem we've got is that publishers are so sensitive about the kind of change that could happen in this space that they're not even willing, in many cases, to experiment with putting the inventory out there in a way that is useful to the buying community. So, until we can get to that point, I think we're going to continue to have debates and a lot of issues.
And, I think the problem that we've got is the power that the individual sales forces have, the amount of say they have in strategic direction of the publishers, and the general concern that those sales forces have about their relevance as a sales person or a sales team in a role going forward and in a world where people can buy without negotiating.
But in reality the role of sales will be in many ways more important – it will be evangelical. It will be about convincing the buyer to put their site into the business rules of the buy such that they’re a must-buy. So even if the inventory isn’t negotiated or taken by sales – and even if the RFP isn’t answered by a sales person, they have a hugely important role to play going forward. But the role will become more strategic, evangelical and will drop all the tactical work like RFP response.
Removing The Risk
Also, the next phase of that is how do publishers make their inventory available programmatically without taking risk on revenue. I actually think what we'll find - and I've done some modeling on this - we'll find that a lot of inventory will be worth zero, which it almost is today anyway.
But, the most important inventory, the inventory that's desirable, that's attributable to desirable audiences, will have a lot of competition. The competition on those audiences will drive the price up. And the brand advertisers won’t mind paying a higher overall price as long as the buys become much more efficient to execute and manage. They don’t want the 'zero value' inventory anyway.
Publisher systems have been slow to add in some of the really important things that have to happen, like real time floor pricing on a per impression basis.
Instead of doing inventory prediction so they can sell far in advance, they should be doing inventory prediction that looks at what the likely range of prices is on available inventory over the course of the next 10 minutes, so that they can actually start predicting what the floor price on those impressions should be.
I think we're in a world where there's such asymmetry between the goals of the campaign, the value of the inventory, and the willingness of advertisers to pay, that second price auctions are going to cause a lot of problems, especially as we're growing.
And, where you have one advertiser that's willing to spend a $50 CPM to reach that impression, or the person behind that impression, and you've got another advertiser who's willing to spend $20 and another advertiser who's willing to spend $3 and one who's willing to spend 50 cents, and the gap between the highest priced bid and the second price is significant enough that we're going to have to figure a few things out.
So, if I were building a publisher-side system right now, I'd be thinking really carefully about that problem because it's a big problem. And, it's one that, once you get that solved, then a lot of your concerns go away because you basically are confident that you're going to be able to get the price that you need in order to move more and more of your inventory into those models.