The Evolution of ‘Programmatic Buying’ Into ‘Programmatic Premium’

“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 Ran Cohen, president and co-founder of Legolas Media.

Programmatic Buying: The reduction (but not elimination) of human decision-making in the serving of digital ads. It promises to solve many of the inefficiencies in planning and buying digital media that has resulted in ever-shrinking margins for agencies and in questionable results for marketers.

Programmatic buying started with search. Tools helped manage bids on keywords. Instead of checking every other minute on the lowest bid that could win a certain keyword, programmatic systems did it automatically.  Since then, search buying has become even more elaborate and sophisticated.

Then came digital display ad exchanges — decoupling media from data for the first time.  Buyers could use their own data to define desired audiences, and then bid to reach them through each exchange’s participating publishers and ad networks. This environment has fostered the growth of Demand Side Platforms (DSPs) that leverage buyer data to define target audiences, and manage bids across multiple exchanges. Most ad exchanges have evolved to a Real Time Bidding (RTB) environment — allowing multiple buyers to bid for ads to reach specific users just before the ads are actually served.

But RTB only deals with cheap remnant inventory that publishers and networks could not otherwise sell.  This undoubtedly has helped buyers and agencies reduce their costs – and publishers to get quick extra income from their remnant inventory.  But the publishers have suffered as well. They’ve seen endemic advertisers use exchanges to buy ads at a fraction of the normal price, which reduces their revenues. Also, since sellers on exchanges don’t know who is buying or at what price, they’ve lost visibility with the buying community and valuable one-on-one relationships with advertisers.

As a result, some publishers have pulled their inventory from the exchanges, others have provided their inventory in a masked manner, and almost all are now giving the exchanges only the lowest class of remnant inventory — such as placements below-the-fold and those adjacent to less attractive content.

Buyers, meanwhile, have seen highly reduced quality from their programmatic buying.  And the process has largely been taken over by direct response advertisers who value quality less than price and scale.

For publishers, this results in lower ad revenues because direct response companies have much lower ad budgets than major brands — which still account for the lion’s share of top tier advertising dollars.

A solution to this dilemma is at hand.  A new process called Programmatic Premium allows content-conscious brand marketers to leverage programmatic buying.

Programmatic Premium: Premium buyers define their desired audiences and the system then helps them find premium publishers to reach those audiences.  Buyers and sellers negotiate through the platform, which suggests an optimal media plan to the buyers. Buys are then executed like a direct buy, with delivery monitored against the desired audience in the desired frequency.

But if it is programmatic, how can it also be premium?

Isn’t that an oxymoron like, let’s say, a gourmet fast-food restaurant chain?  But wait.  At least one such chain does provide instant quality right near my office – Pret a Manger. Pret focuses on a few gourmet elements like fresh organic ingredients, clean and appealing environment, a kitchen in every location, and minimal frying, but otherwise is like other fast-food restaurants.

What can Pret teach the online ad industry? Foremost, to serve premium advertising, you need to consider both sides – sellers and buyers.

For buyers, premium must include:

1. Accurate planning concerning audience size, where can it be found, and in what frequency
2. High-quality, brand-safe placements on premium publishers
3. Guaranteed delivery, since there is no room to leave budgets on the table — and no brand marketer wants to be outspent by the competition
4. Creative freedom to include any type of ad, including video, Rising Stars, rich media and standard formats
5. Accurate delivery in audience, frequency and exposure.

In return for these elements, buyers must be willing to commit upfront, share names of marketers and agencies, set budgets upfront and pre-negotiate prices.

For sellers, premium must include:

1. High-quality, named agencies and marketers
2. The option to refuse the business
3. The option to name prices
4. Maintenance of a direct relationship with the buyer
5. Guaranteed spend.

In return, sellers must provide buyers with more premium placements and higher priority.

The beauty of programmatic premium is that it mimics the traditional way of buying premium without the inefficiencies. It is a system that provides accurate balance between machine-based decisions and human intervention.

But don’t be confused. If McDonald’s offers a green salad, it doesn’t mean it’s now a gourmet restaurant.  And if a DSP offers some direct access for private exchange, it doesn’t mean it can now support the need of brand advertisers.

Follow Legolas Media (@legolas_media), Ran Cohen (@ran_cohen) and AdExchanger.com (@adexchanger) on Twitter.