"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 Frost Prioleau, CEO and co-founder of Simpli.fi.
Many recent articles have portrayed programmatic advertising as being in the middle of a vicious cycle, where an onslaught of nonhuman traffic and unviewable inventory has the potential to scare away advertisers and quality publishers and thwart its growth.
However, the industry is responding quickly and turning a potentially vicious cycle into a virtuous one. Instead of just solving the problems and doing damage control, the move to human, viewable inventory is building the base for programmatic advertising’s next leg of growth, which should take the industry far beyond where it is today.
One of the holdbacks of display advertising in general, and programmatic in particular, has been the slowness of brand advertising dollars to migrate from other media forms, such as TV. Early RTB exchanges, like some predecessor exchanges, started out by attracting cheap, "remnant" inventory that many brand advertisers did not see as suitable media upon which to advertise. Along with this inexpensive inventory came a lot of traffic that was nonhuman or nonviewable.
If things had proceeded in this direction, without a course correction, RTB could have been relegated to a "niche market" serving primarily direct-response advertisers with what was seen as the least desirable inventory.
The good news is that there was an intervention. Analysts, journalists and industry leaders like IAB Chair Vivek Shah all played a part in jumpstarting the recovery process by calling out the industry loudly and often. The intervention worked. Instead of denial, the industry has turned its considerable talents towards solving the challenges that threatened its very existence.
Through a combination of improved bot detection, viewabilty scoring and site contextualization and screening, the industry is making great strides in eliminating nonhuman traffic and unviewed inventory. It is also effectively screening out risky inventory where brands would not want to display their ads.
In short, post-intervention, the quality of RTB traffic and inventory is improving quickly. And, as it does, we are starting to see the “green shoots” of a virtuous cycle, which will strengthen programmatic advertising’s position with the large budgets of brand marketers. The cycle works like this:
1. Ad spending is diverted from nonhuman, nonviewable inventory. Advertisers and platforms effectively screen out nonhuman traffic and nonviewable inventory. Some estimates put this type of traffic at 40%-50% of the total.
2. Spending is redirected to human-viewed inventory. The money spent on the nonhuman traffic and unviewable inventory diverts to publisher sites, which provide high percentages of inventory that is viewed by humans.
3. CPMs increase for high-quality sites. With more dollars and campaigns bidding on human-viewed traffic, CPMs increase for high-quality inventory. Facebook, for example, reported CPMs increased 2.9 times annually in the last quarter of 2013. I see similar CPM increases for other high-quality sites.
4. Higher CPMs attract additional high-quality inventory to programmatic. Due to higher CPMs, publishers bring more high-quality inventory online. I see an increase in inventory from a list of sites that reads like a who’s who of the comScore 500. If advertisers want to advertise on well-known sites, they can now do it with RTB without going through private exchanges. They just have to bid high enough to win the inventory.
5. More brand advertising dollars flow to programmatic. Attracted by inventory quality and positive results from targeting real people instead of bots, brand advertising budgets are increasingly directed to programmatic.
6. Increased budgets and CPMs entice publishers to continue bringing good inventory online.
And the cycle continues.
It is not only brand marketers who benefit from improved inventory quality. Direct-response advertisers often increase their ROI by paying more to serve on better-quality sites with higher viewability. This assumes that they measure ROI with an attribution system that is intelligent enough not to give all conversion credit to last-touch ads, regardless of whether they were viewable.
So while it seems that most of the press focuses on the problems relating to nonhuman traffic, the industry has busily focused on solutions. Without a doubt, there is much work left to do but the progress has been significant. Smart advertisers already see the benefits.