SERIES 

The automation of ad sales: Setting the Scene

Programmatic trading of advertising is growing rapidly, yet remains little understood. In the first of a three part series, Jo Bowman sets out to explain the concepts and to highlight some of the key trends.

By Jo Bowman

It’s a term that not so very long ago was yet to be coined. Now, ‘programmatic trading’ is being widely heralded as the future of advertising sales – and a future that’s rapidly advancing. Already, programmatic trading departments have been established within newspaper and magazine publishing groups around the world, though exactly what the shift means for the growing number of players in the advertising value chain remains unclear – as does an undisputed definition of the term ‘programmatic’.

Programmatic trading is often used interchangeably with ‘Real Time Bidding’, in which advertisers determine ahead of time what they’re prepared to pay to put a specific ad in front of a specific individual web user on a given site, bid for that impression and – if they win the bid – serve the ad, all in the time it takes for a page to load on the target consumer’s computer. But programmatic trading goes beyond RTB, to encompass all automated buying and selling, with software rather than people doing the heavy lifting when it comes to matching advertiser needs with publishers’ inventory, target consumers, and getting a match at the right price for them.

Demand from ad buyers

While there remains some industry wariness about the rise of programmatic trading and its effects on publishers, what’s clear is that there’s a strong appetite among ad buyers for this increasingly automated way of working. A recent eMarketer report on growth in programmatic ad buying says that in the US, real-time bidding alone will have been worth $3.37bn in 2013, representing a 75.3% increase on 2012. That is forecast to keep rising, to $9.03bn by 2017, as advertisers and media buyers seek out ever more efficient and more highly targeted buys, and as publishers warm to automated trading and make more, higher-quality inventory available for trading in this way.

Emarketers predicts that 20 per cent of total advertising will be traded programmatically by 2017. David McMurtrie, Google’s head of publishers – UK partner business solutions, expects that figure to be reached even sooner. “Programmatic is everywhere,” he told a recent conference of the Association of Online Publishers in London. “It’s not something that publishers should be afraid of, but should embrace, because the more efficient you are, the better your businesses are going to be. Over the next few years, we’ll see growth but also different ways to trade in the programmatic space.”

The latest annual survey of AOP members, who between them represent more than £1 billion in ad revenue, shows opinion on programmatic trading in the UK is strongly divided. While 42 per cent of publishers see programmatic as a major opportunity, 39 per cent think it will be only a small part of their business in the future. Three quarters of publishers expected to engage more in real-time bidding over the coming twelve months, while less than half agreed with the same sentiment in last year’s Census.

The complexity of the trade in online inventory is one that has spawned a huge number of new players, many of them related to each other, all now occupying the space between publisher and advertiser. A visual display of how they interlink is a little like a Tube map spattered with multi-coloured logos; compared to a handshake over lunch and spreadsheets, this is vastly more complicated, yet, potentially, vastly more efficient and effective.

Essentially, supply side platforms (SSPs) represent publishers and demand side platforms (DSPs) represents the advertiser – but marketers don’t have to deal with two extra sets of people to buy space programmatically. In fact, many DSPs deal with several SSPs at once on behalf of the same clients, and many can combine real-time bidding with regular inventory buying. Media agencies can buy using their own trading desks, or can go via SSPs. Some major advertisers also work directly with SSPs.

Threat to yields

Fear of putting their sales teams out of jobs and of eroding decent CPMs for space were for some time holding up many publishers’ movement into programmatic trading. Concern that there’d be a race to the bottom for rates was not without foundation, Google’s McMurtrie said, but insisted it didn’t need to be that way. “There’s no question that in the programmatic era, that’s a valid concern. The big challenge is differentiating your inventory.”

To date, programmatic had been used for shifting remnant inventory so had produced low yields, especially when compared to the high-value custom sales done by publishers’ sales teams. But between the top end and remnant, there was a vast and largely unexplored middle ground that was currently being sold off cheaply in run-of-site deals that programmatic – enabled by smart publishers – could make better yields on.

“We’re at a period of time where over the next three years, we’re going to see a lot more ad revenues move into the programmatic space,” McMurtrie said. “Now is the time for publishers to truly understand the marketplace.”

Publishers increasingly are understanding the marketplace. Tom Bowman, SVP sales operations and commercial production with BBC Worldwide said, “If you call it remnant, what are you saying about your product?”

Lara Izlan, head of programmatic trading and yield optimisation at The Telegraph, explained that in their case, concerns about cannibalisation and commoditisation of quality inventory had not been realised. In fact, since they began trading programmatically in January 2012, The Telegraph had seen a 10-15 per cent increase in yields, and often led to advertisers following up with bespoke campaigns later. Instead of programmatic being another low-cost sales channel, their focus was on bringing premium inventory to the programmatic market, at controlled rates.

“When this is motoring, you can improve your efficiency by 15 to 33 per cent,” MediaCom managing partner and head of media Stefan Bardega said. “That’s the opportunity.”

It allows you to [place ads] with individual pieces of media as well as individual pieces of data,” he says. “It makes advertising smarter. Holding companies are reorganising how they buy media because of automation.” Proponents of programmatic trading say it frees up physical sales teams to focus on customised sales that require the personal touch.

Smaller publishers are warming to programmatic more slowly, says Tim Cain, head of research and insight at the AOP. “One of the drivers of programmatic is about scale – agencies are trying to buy more reach more efficiently. When you’re a small publisher, you don’t necessarily have enough inventory to make the scale interesting.” Smaller publishers’ selling point is often not scale but the value of their small, engaged audiences; fear of seeing CPMs plunge is leading to “healthy scepticism” among B2B publishers about the viability of trading “premium programmatic” and whether higher yields will stand up. Some, Cain says, are creating private marketplaces, where they can impose price floors and deal only with invited agencies and brands to protect their inventory.

Standardised formats

One of the criticisms of programmatic buying has been that it requires everyone in the chain to work with standardised formats, putting pressure on creativity. But there are signs that new formats are becoming available for programmatic trading, and that programmatic buying of video is on the rise. SpotXchange, which focuses primarily on video sales, says programmatic video already comprises 25 per cent of all online video advertising spending, and that this sector is growing twice as fast as the overall video ad market.

Some of the current excitement about RTB relates not to what it provides now, but what it likely signals about the way media is traded beyond online display. The logical next step for RTB would be to trade mobile advertising in the same way and through the same platforms. After that would come the great leap into television, something that might still sound more like sci-fi than reality but, observers say, could well be reality within five years, serving different ads to different people’s TV sets, determined by their viewing habits and online browsing and buying history. Driving this will be the growth of internet over TV, so viewing online TV content in living-room comfort.

And it won’t be long before offline media are traded in the same way, media agencies suggest. Steve Hobbs, MD of AMNET UK, the Aegis trading desk, said the industry should be looking to embed programmatic across all media and the entire client base because it offered huge efficiency. “Really, it’s all about client value and trying to do things in a smarter way.” Manning Gottlieb OMD’s executive director and head of operations, Katie Eyton, said she could envisage all standard inventory being traded programmatically, which would free up media owners’ sales teams to focus on the bigger, tailored content partnerships “that at the moment a lot of people don’t have time to explore because they’re chasing their tails”.

The role of agencies in the programmatic media buying world is one that’s also evolving. A recent survey of 600 chief marketing officers reported by Advertising Age in New York found that many are planning to cut out the agency middle-man for programmatic buying; 46.2% said they were considering a direct relationship with a demand-side platform, and 15.4% were already working with one.

It’s clear that now the programmatic genie is out of the bottle, it won’t be going back in. Advertisers, certainly, are lapping it up. What they want is more of it. Katie Eyton said there was strong demand from advertisers and agencies for premium-quality inventory to be traded programmatically. There was too little available now and what there was remains poorly labelled, with much of the inventory available straight-forward run-of-site, which led buyers to be wary and question its value.

Glossary

Agency trading desk: a group within each agency holding company for the centralised buying of digital media on networks and exchanges.

Ad exchange: an auction-based system where advertisers bid for space on websites. Advertisers and agencies can buy inventory directly on most ad exchanges, which provides liquidity for publishers. DoubleClick is Google’s ad exchange. Right Media and Facebook Exchange are others.

SSP: this stands for sell-side or supply-side platform. It’s a technology platform engineered to help publishers sell their digital inventory both through direct sales and third-party demand sales channels such as ad networks, ad exchanges and private market places. Often they provide yield optimisation services and data management. Rubicon, PubMatic and Admeld are SSPs. SpotXchange is a supply-side platform focused on video ad sales.

DSP: demand side platform. DSPs help advertisers and agencies buy individual impressions on a publisher’s website, each aimed at a specific user or audience. Most DSPs have some form of optimisation to choose an appropriate response to each bid opportunity, using third-party data or their own audience data and sophisticated algorithms that are employed in real-time. DSPs include Invite Media and Turn.

Private marketplace / exchange: This is where publishers provide buyers – DSPs, agencies, trading desks and advertisers - restricted access to inventories and audiences, often with a price floor.

With thanks to the Rubicon Project for help compiling the glossary.