"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 John Lee, executive vice president and chief strategy officer at Merkle.
The rise of programmatic over the past five years has moved the media industry forward in a big way. The benefits of real-time automation, algorithmic targeting at an individual level and robust tracking and optimization have yielded significant efficiency gains.
These capabilities ushered performance media dollars firmly into the world of display. I think of the past five years as “Programmatic 1.0.” The tracks of automation and analytics laid down by Programmatic 1.0 represent the foundation for the future of the industry.
As the industry approaches maturity on this path, settling into the technology and honing the capabilities that are enabled by it, we will enter a new era focused on ad quality and transparency. Programmatic 1.0 has been fundamentally built on trading remnant inventory at the lowest price possible in an effort to justify and sustain a complex, costly data and technology supply chain.
This is what many publishers have referred to as the programmatic “race to the bottom.” The underlying premise has been an acute focus on efficiency through automation. The unspoken premise was to be able to trade really cheap ad units that people ignore, deliver them in places where they are unlikely to be seen and optimize them to maximize lower-funnel clicks. The practice has only survived due to dependency on last-click attribution in the lower funnel and the fundamental lack of measurement in the upper funnel.
For today’s increasingly knowledgeable advertiser, it is difficult to get visibility into the impact of programmatic dollars spent. The advertiser isn’t really clear on who actually saw the ad, where it was seen and who had to be paid along the way. There are many factors that contribute to this, including the poor quality of available inventory, open exchanges, fraud, nonviewable impressions and an opaque daisy chain of technology.
As if this weren’t enough frustration, the advertiser has no guarantee of reaching the intended audience. Instead, the buy consists of anonymous cookies and impressions, rather than high-quality experiences delivered to known people who represent their desired audiences.
We are starting to see the natural maturation of a marketplace that fully embraces the benefits of data and technology but understands the potential of digital advertising – and is beginning to demand more from it. In a sense, it’s a market that has hit bottom and is now on its way to recovery. That recovery starts with consumers who have moved to mobile, social and video. The issues of ad blocking, fraud and viewability are strong signals that buying static banner ads in low-quality, nonviewable places just isn’t going to work anymore, no matter how cheap it is.
Advertisers are starting to understand that context and quality of ad units matter now more than ever. They are also starting to think of the audience as the currency rather than simply counting impressions. The head of digital for a major wireless carrier recently stated, “There are only 5 million people in this country who I can get to switch mobile carriers, so why am I marketing to 275 million?”
The rising popularity of private marketplaces represents a step forward for advertisers who are now able to transact directly with publishers to secure higher-quality inventory, particularly in mobile and video. While this is a step toward higher quality, it still leaves open the question of audience. The advent of people-based marketing from players such as Facebook and now Google has done much to address the audience targeting piece. But for the advertiser, the issue of the walled data gardens and the fact that these companies are self-reporting on their own effectiveness have not addressed the transparency issue – not to mention the issue of choice.
In the next three years, “Programmatic 2.0” will crystallize, demonstrating that these forces are reaching a tipping point. The market will shift toward advertisers re-establishing direct publisher buying on premium inventory that is bought on an audience, not impression, guarantee. So, while CPMs will rise, the buy will be 100% transparent.
The scenario then becomes about quality, so that every dollar spent on programmatic delivers a high-quality experience to known consumers in a brand-safe environment and can be proven. For us to get there, a significant disruption to the current mindset and supply chain will have to occur.
Advertisers must get comfortable with the idea of demanding quality and accountability from their advertising. And they will have to be willing to pay for it. The ad tech and agency ecosystem will have to strip down the complexity of access and lose the black boxes that sustained an air of mystery. Both ends of this paradigm shift will take time to unfold, but in the end we will have an industry that is settled into a state of being that is both healthy and sustainable.