Why The Transactional RFP Business Is Dying

Chris-O-HaraData-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 Chris O’Hara, co-founder and chief revenue officer of Bionic Advertising Systems.

Direct mail is an amazing thing.

It costs roughly $750 CPM to put a glossy catalogue in the mail, but somehow direct marketers make those numbers work. Mailing lists are constantly optimized to make sure they hit the right households, fresh lists acquired to create new demand, and nonperforming lists ruthlessly culled if they don’t meet certain KPIs. Direct marketers actually can usually tell just how much money a mailing will produce in sales.

Contrast that with a banner campaign, where “good” performance means a 0.05% click-through rate, 40% nonviewable inventory and fairly dim transparency. Some of the best companies in the space, newly public with hundreds of millions of dollars in run rates, are still challenged to justify spending to their marketing clients.

Thankfully, last-click attribution hasn’t gone anywhere. I recently overheard a marketer at a conference saying that 70% of clicks on her last campaign with a big, popular “platform” came from Yahoo Mail subdomains. It doesn’t take a genius to figure out that the marketer’s email program was creating sales, but the fancy platform’s banners made sure they were “last viewed” before the purchase.

So, how do we get display advertising more like direct mail?

It must start with procurement. Marketers should be able to tell how much the media costs, who will view it and from whom to buy it. Unfortunately, unlike almost every other form of media on the planet, that doesn’t exist today for the digital marketer. Marketers can name their price in the programmatic RTB channel, but if they want access to directly sold inventory, which makes up as much of 70% of all digital media spending today, they need to purchase via the “transactional RFP” process.

I don’t know whose fault it was, but publishers didn’t help themselves when they decided to hide pricing information from agencies. With an endless supply of inventory – some 5 trillion impressions per month, according to Eric Picard – banner sales have always been more of an art than science. Buy 1 million homepage impressions at $20 CPM, I’ll throw in 5 million “ROS” impressions and presto! You get a reasonable eCPM of just over $3. Everybody’s happy, except for publishers. In the long run, such practices devalue their inventory.

Media prices are still opaque in the transactional RFP channel, and agencies like it that way. In order to get basic pricing and availability information, they send out “requests for proposals,” which send publisher sales teams scrambling.

Publishers spend an average of 1,600 man-hours a month on RFPs and 18% of their revenue churning through RFPs that have an 25% average “stick rate,” or campaigns that will deliver the contracted amount, according to recent research by Digiday and Adslot. Ouch. A lot can happen in 1,600 hours. Additionally, according to Doug Weaver of the Upstream Group, “80% of the publishers getting an RFP don’t even stand a chance.”

“Agencies take the information they receive in RFPs to get a view of the market,” explained Peter Naylor, the IAB’s publisher in residence, when speaking to publishers at a recent conference. In other words, agencies get access to all the pricing information, leaving publishers to wonder whom they are competing with — and at what price.

Despite this, agencies would also like to see this procurement methodology perish. They want to buy impressions at scale, control the price they pay and “out-clause” on demand. Programmatic RTB offers all of the above, but only on lower classes of inventory.

New programmatic direct technologies seem to be the answer to the problem of transactional RFPs. Whether they leverage existing RTB pipes (private deals) or are API-driven solutions connected to the publisher’s ad server, more and more higher-class inventory is starting to find its way to programmatic channels. That’s a good thing. Sure, there will still be RFPs for sponsorships, but sooner or later, all commoditized banner inventory, including mobile and video, will likely be purchased programmatically.

The question for publishers is whether or not they will take part in deciding what the next stage of digital media procurement looks like. Will it still be driven by the demand side, or can publishers take a bigger seat at the table and help build the process by which they expose and sell their “premium” inventory?

The RFP is dying, and publishers may applaud the last breaths of an overly complex and inefficient process. But they should be careful of what may take its place.

Follow Chris O’Hara (@chrisohara) and AdExchanger (@adexchanger) on Twitter.

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  1. ” all commoditized banner inventory, including mobile and video, will likely be purchased programmatically”

    That couldn’t me more false….The traditional RFP won’t die in your lifetime. The reason why is the same reason we don’t have 100% electric/solar/alternative fuel cars or a cure-all ‘God’ drug: There is too big of a money driven machine behind it (the ad agencies themselves)

    Do you really think ad agencies would want to remove the ‘human/personalization factor’ behind planning/purchasing media (even standard display)? RTB systems don’t allow you to build relationships (for examples: specialty topic are still heavily traditional display and marketers like to build and nurture personal relationships with them to get all kinds of add-ons). It makes the client feel good when they know that an agency has gone the extra mile with their media outlets (yes even with normal display inventory). Also….many publishers hide their rates because they want a call — to better understand a campaign’s goals which may allow them to do a better job versus being a ‘number’ of blind performance via an RTB system….sharing a plan and goals with a publisher via personalized conversation can be extremely helpful.

    An RTB system cant invite an influential mom blogger to Disney World or a tech blogger to a tech show. An RTB system can’t determine if that mom blogger really loves your brand and will bend over back-wards with freebies and added value even for your standard display campaign. RTB systems while effective will always be a piece of the negotiation puzzle but never the primary buying method due to its cold non-human type of transaction that really devalues the human part of the marketing process.

    My 2c (article had good things but contains self serving propaganda as well)

  2. This is apropos and timely. I still think the agencies need to be let in on this little secret, however. It will take a while to transform departmental structure from Media Planners managing the buying process, to a few Account Managers that know the strengths of each programmatic type & entity. Programmatic buying will require a shift in knowledge and personnel to make it an effective and efficient way of buying. And unless brands demand it, agencies will be intractable.

  3. Thanks for the comments, “R-W.” Of course I agree that the RFP will not die completely, and I say that in the article. Sponsorships and certain types of buying need a human touch, and are almost impossible to automate.

    You seem overly focused on programmatic RTB. When I said “programmatically,” I was talking about not just RTB, but also process automation, and what people are starting to call “programmatic direct.” I very much believe that large chunks of workflow (such as ad tags) will be done by computer, rather than young media planners. Why should anyone ever manually build an enter an ad tag?

    As for self-serving? Absolutely. It’s no secret that I am a big proponent of programmatic technology. I think it’s going to help marketers save money, and free agencies to do more intersting and impactful work. Yes, agencies are fighting the battle to keep billable hours in media planning (cost-plus pricing is wonderful for the bottom line). But remember that clients get the biggest vote in this game. They LOVE how efficient programmatic RTB and social media plaform buying is! They are pushing their agencies to find more efficiency in digital media procurement.

    My whole point is that publishers have been hurt by an RFP process that gives the demand side an inordinate anount of control over procurement. Now happens to be THE time for them to influnce the way they can handle the premium channel, and I hope we see them embrace “programmatic direct” technology to do so, which I view as their best alternative.

    Happy New Year!