Programmatic Efficiency Should Focus On Audience, Inventory and Working Media

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 Will Luttrell, founder and CEO at Amino Payments.

For years, programmatic was considered the efficient channel for media buying. And it is, depending on how you define “efficient.”

I would define the last decade of programmatic efficiency as the ability to buy as many impressions as possible at the lowest price available using automated technology.

But this industry definition includes two flawed metrics for measuring efficiency: low CPMs and massive scale, lovingly wrapped in a blanket of unregulated complexity. Without enough oversight, the CPMs became so low that campaigns invited fraud. And scale became so great that it started to include nonhuman traffic.

In other words, programmatic stopped being efficient.

Newly Defined Efficiency

The industry drove prices down and scale up in ways that went beyond the boundaries of reality. To get back on track, brands are trying to root out bots and fraud to find a better balance. But if they follow through, scale will shrink as the robots leave the target audience pool. Prices will increase as fake impressions disappear, leaving scarcer quality publisher inventory.

Brands should still care about being efficient, and they must redefine what the term means for digital-media buying.

I propose that our industry define efficiency as the lowest cost to reach the intended target audience on the intended inventory.

Imagine that a brand called Dave’s Drones has $1 million to spend. With the old version of efficiency, all Dave would care about is price and volume. He would target as many people as possible at the lowest CPM possible, inviting bots, fraud and long-tail complexity.

To determine if programmatic is efficient with the new definition, Dave needs to care about three things, which helpfully rein in negligent spending:

  • Audience quality
  • Inventory quality
  • Working media 

Audience Quality

There are many practical ways to improve audience quality, which will immediately reduce waste. If they haven’t already, brands like Dave must work with partners to filter out nonhuman traffic and scrutinize the audience data they or their agency is using. Creating A/B testing against different audience data sets helps brands see where they get the best response.

Ideally, brands should try to rely less on third-party data as they invest in their own first-party database, which would be the most engaged group and the most likely to fit the right profile with no bill due at the end of the campaign.

Finally, sticking to strict frequency caps can help brands ensure they are distributing their messaging across their target audience evenly.

Inventory Quality

Inventory accuracy is equally important. Supporting Ads.txt will help enormously to filter out spoofed inventory. But brands need to also take an active role in scrutinizing white lists and black lists to ensure they like where their ads are running. JPMorgan, for example, went a step further than using standard video filters and built its own detection system for YouTube.

Brands shouldn’t be bashful about developing relationships with everyone in the supply chain. Spoofing can be problematic even with Ads.txt, and quality violations can occur despite an army of verification vendors. Nothing beats a brand talking to supply-chain partners and publishers to verify the numbers and issues as they occur. Entirely delegating brand safety and the fiduciary duty to third parties leads to bad outcomes.

Embrace Working Media

Working media is not a new term, but I predict that it will become much more widely used this year as brands start focusing more on transparency and hopefully redefine what it means to be efficient. Often, media spend goes to kickbacks, fees, markups and many other things even in a well-managed campaign without fraud. Without focusing on working media, brands stay in the dark about these issues.

If Dave spends $1 million to reach real customers across good websites, that’s great, but not if he could have spent $500,000 to do the same thing. Focusing on working media can help him figure out where his $1 million is going beyond audience and inventory.

Creating A Virtuous Circle

For brands willing to redefine efficiency, their digital media performance can only improve. By focusing on real people and good inventory, they root out fraud. By focusing on working media, they can reduce unnecessary costs without hurting the reach and quality of their campaigns.

Sizmek, Adobe and AppNexus recently announced they would offer “total transparency” to brands. Brands should embrace these types of announcements heartily and push for more of the same.

With transparency, brands not only start to understand what inventory they are buying or what audience data they are using, they can calculate working media and get on the road to true media-buying efficiency.

Follow Will Luttrell (@will_luttrell), Amino Payments (@aminopay) and AdExchanger (@adexchanger) on Twitter.

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  1. Will – I love the focus on efficiency. For me efficiency has always been about aligning price and value. In the earlier days of programmatic, one lazy way to gain some efficiencies was to buy tonnage of media at a very low CPM. So the value didn’t need to be that high in order to justify the (low) price. As more money entered the channel, so did fraud – and those lazy marketers paid the price as the value of their media buys approached $0.

    As you indicated, there is some low hanging fruit in reducing media waster that has literally $0 value – minimizing fraud and shining a spotlight on non-transparent practices like kick backs are 2 important examples.

    Once you carve out the zero value spend, addressable media is a massive opportunity to align price and value for every single impression served. Imagine a media channel where you could price every single impression at the individual level according to who is being served and the context of the impression. Valuable prospects get a higher bid price and lower value prospects get a lower bid price. There are no “audience segments”, since every user is priced individually. That’s the promise 1:1 addressable media.

    Of course, pricing every single user and impression at the individual level requires a lot of data, computing power, and a programmatic platform for execution – all of which have come to fruition over the past several years.

    So if we really want to gain efficiencies in addressable, it’s a 1-2 punch:

    1) Get rid of the $0 value waste: fraud and non-working media dollars
    2) Price bids at the individual level to realize a more perfect alignment to value.

    David Dowhan
    CEO, TruSignal

    • David, I also loved the focus on efficiency. People rarely address the entire programmatic supply chain, especially in context of transparency and ‘working media budgets’.

      A lot has been demanded from the tech and publisher side, and not enough has been demanded from the service providers of media buying.

      I believe it’s time to demand (and supply) more transparency to the entire supply-chain.
      If we want brands to trust the programmatic echo-system, we need to build a better one, not to take advantage of its flaws.

  2. Good stuff here Will! These are the types of practical, actionable recommendations that the industry needs.

    I see 2018 being a big cleanup year for our industry. One dynamic that will be interesting to follow is how CPMs change. As ad quality improves, we’re bound to see significant CPM increases. We advise our clients on this and tell them to be prepared, but I hope that others are as well. Higher CPMs are not a cause for panic and are not a good reason to pull the plug and go elsewhere. There will be a recalibration period.

    In parallel, brands can improve working media and reduce layered costs, which will help build trust in the partners they ultimately choose, even if media costs go up.

    Essentially, it all comes down to transparency. That has to be the foundation of programmatic success. Once it’s been established, moving on to ad quality is the next big frontier.

    • Great comment Mike. I think you’re spot on when it comes to increasing CPMs.
      CPMs will get higher as we clean the echo system from fraud, and as more publishers adopt the first-bid-auctions.

      The buyers will definitely scare at first, as lots of them would lack to understand that the increasing price is a result of cleaning the garbage. It’s the same with any act of transparency; they all demand it, but can rarely deal with revealing the truth on their historical media buying practices.