As Programmatic Flies High, Watch Out For Its Crosshairs

stevegoldbergfixed“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 Steve Goldberg, senior adviser at EmpiricalMedia.

“What was the exact day programmatic went from mostly aspiration to complete validity?”

This is a serious question I posed last week to 10 senior executives from agencies, publishers, DMP vendors, SSPs and DSPs

The answers were surprisingly consistent. No one disputed it was in 2013. No one named a date before March 15th, 2013. In fact, seven pegged a date in the late second quarter, and the other three chose a date early in the third quarter.

Which is why, in the opinion of lots of folks, 2013 – specifically June 18 and onward – was all about programmatic. In fact, in the midst of a lot of overcaffeinated rhetoric on native advertising, viewable impressions, mobile and bots, the real vector of momentum in our industry today is in programmatic.

What happened? Well, basically the hype was overcome by real stuff. That hype included inflated numbers on the percent of display budgets being bought programmatically (vs. the reality: percent of impressions), the CPMs people were paying (vs. the reality: what publishers were getting) and the claims of every single programmatic ad dollar finding its best match (vs. some obvious problems with fraud).

The hype was ahead of the market and plagued by frothy VC-speak from around 2010 to June 18, 2013, or right around then when a critical mass of publications and buyers – we will never really know which came first – led to viable levels of liquidity of both dollars and inventory. This was classic “tipping point” stuff because rapid developments took place immediately.

First of all, agency momentum jumped dramatically. Programmatic went from opportunistic to a budget line item on accounts across the board. At the same time, that liquidity led to previously unforeseen interest in private marketplaces, sparked by an understanding – finally – that there was no real opportunity cost to putting inventory in a private market, or even in open RTB. This created the critical mass of transparent inventory that led – at last – to a market-dictated hierarchy of quality, and an empirical and quantitative co-linearity between price and, for example, high viewable impressions or low UGC, or both.

And that led to more budget line items, more proactive publishers and so it goes.

I think agencies’ momentum provided the spark because the programmatic players ramped up their direct-to-client staffing and activities; nothing motivates like fear. Even if you don’t believe this, the cycle really did happen and now we are set for a whole new era.

So does this mean that the cycle is over and 2014 will finally be the year of video, native advertising or even mobile? No, no and still no. It’s no coincidence that four weeks into 2014, Turn has raised $80 million, Rubicon has filed its S1 form to go public and Pubmatic took on an additional $13 million in funding. There will be more.

But even if you’re not an M&A or VC wonk, there will still be plenty going on because the newfound viability and liquidity frees product teams at major companies to launch or succeed with things that were not previously viable. Among these are rich-media marketplaces, self-service platforms and video marketplaces.

At the same time, whatever excuse a publisher might have used for avoiding programmatic is a little tiny speck in the rearview mirror. The results?

First, we will assuredly see the end of stand alone self-service platforms. These point solution companies, such as ShinyAds and iSocket, have never had enough demand to satisfy the supply side of the market and their technology is a simple subset of what the big SSPs do. Doing battle against the existing product road map of a giant with momentum is not a great business plan.

Second, it’s going to be a tough time for people-operated aggregators of unsold inventory. If you do not have a special sauce (a format people love, like at Undertone) or a unique value proposition (impossible-to-reach-on-an-exchange publishers, like at Martini), it is hard to understand how your margins and very business are not under attack. And if you a people-operated aggregator on both the buy and sell side of the market (sorry, Centro), you’ve got two bull’s-eyes on your back, not one.

Third, this momentum can and will add real juice to struggling online newspaper efforts. Private markets are a newspaper’s and a national programmatic buyer’s dream. Quality content, low UGC, high viewable percentages, superior scrolling behavior and loyal audiences are what newspapers are about.

And lastly, there’s the “big one.” Look out, media-buying agencies. Programmatic is creative destruction and disintermediation in action. It started by gobbling up ad networks and bulky sales teams, and you’re the next logical target. As they say on “Homeland,” they have “eyes on” you.

Private marketplaces enable direct-to-client relationships via incentives on the buy and sell side that you can’t match. On the sell side, publishers hate sitting in agency lobbies but they love referrals from Rubicon for a PMP that gets set up in 10 minutes. Publishers also hate 24-year-olds valuing their content based on mani-pedis, but they love algorithms that value it on quality.

On the buy side, clients are OK with media buyers – and they like the special stuff – but they will like the companies that lower their “agency” cost and provide them with industrywide benchmarked data much more. That’s not the agency model and that’s just over the horizon.

You can follow Steve Goldberg (@stevegol) and AdExchanger (@adexchanger) on Twitter.

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1 Comment

  1. Ben Trenda

    Appreciate your comments, but some of your information is out of date. I don’t normally mention my own company in articles or comments, but since you mentioned us specifically, I need to clarify a few points.

    1. isocket is not in the self-service business as you describe. Instead, we are in the business of automating the 70% of spend that continues to be spent via manual paper IO’s between agency/brand and publisher (80% if you talk to the holding companies). Self-service doesn’t fit into that equation.

    2. not sure you’re using the term “point solution” correctly. isocket is a fully extensible platform that creates interoperability between buy and sell side systems, all via API’s. We’re integrated into every publisher who is doing Programmatic Reserve today, and every buy side system offering Programmatic Reserve today is connected to our API, to bring isocket publishers and functionality into their environments, e.g. Mediaocean, MediaMath, and others.

    3. You write about the growth of RTB, which took 5 years to get to the tipping point you’re describing… Programmatic Reserve is also be in the midst of a growth cycle, and is just a couple years behind (since we invented it only 2.5 years ago). The world’s largest media companies and agency holding companies now use our platform. We’re in a high growth phase, similar to RTB circa 2009/2010.

    4. isocket is comprised of senior people who helped launch the RTB and Private Exchange platforms at AdMeld, Rubicon, Yahoo, Microsoft, Google, and others. We are here because we all know the inherent limitations of RTB-based technology (e.g. Deal ID/ Private Exchange) in bringing automation to the 70% of spend that continues to be spent via manual paper IO’s.

    5. No SSP has built anything yet to support the automated buying of reserved inventory. Could they? Sure, but they won’t anytime soon. The tech needed is very different, and the margins are much lower than their current RTB businesses. And their product roadmaps are full of features and functionality to support their existing businesses, which they can’t afford to see decay.

    6. Do you know how private exchanges and deal ID’s work? They’re great for what they are, namely a really safe way to buy and sell the premium layer of unsold inventory. But they’re not the way we’re going to automate the 70% of spend that remains untouched by technology. Ask a few publishers what priority tier they run their Deal ID’s at. And what percentage of impressions a buyer actually fills via a Deal ID. And ask a few big buyers how happy they are with the volumes they’re getting. You might be surprised. They only (sort of) work when you’re dealing with remnant inventory,

    Lastly, you’re right when you say, “Doing battle against the existing product road map of a giant with momentum is not a great business plan.”

    Never in the history of business has a small, nimble company innovated faster than a big, established company and created a new market that the big company missed. That would be unheard of, especially in technology.