Let’s Not Lose Sight Of The Real Power Of Programmatic

joannaoconnelrevised“Marketer’s Note” is a regular column informing marketers about the rapidly evolving, digital marketing technology ecosystem. It is written by Joanna O’Connell, Director of Research, AdExchanger Research.

Call me naïve but I believe in the open exchange model. I always have. Something about the battle of wits it promises always spoke to me: The buyer who actively seeks out data, and who knows how to make sense of it, will make the smartest real-time bidding decisions – whether it’s bid/no bid or a really smart pricing decision – that add up, impression by impression, to the most optimal media spend, beating out its competitors in the process. In this model you don’t have to be the biggest agency or marketer to succeed; you simply have to be really hands-on and smart. Whoever is smartest with data wins.

I’ve keenly watched, therefore, the evolution of direct programmatic deals over the last several years, with a tinge of sadness, I admit. Sadness, because these deals are not so much about intelligence driving competitive advantage as they are about buying clout ruling the day, i.e., the biggest buyers can bully sellers on price because they control big piles of money – programmatic, then, just serves as the transactional mechanism. In this model, the bigger you are, the “better” you’ll do.

I’d argue though that simply getting the best rates isn’t enough. That’s media buying circa 2002. We’re smarter than that now, and we should act that way. I don’t dispute that there are many, many large buyers who are also smart – they are bringing proprietary data (or data models) to bear on those direct deals to help them make the most intelligent decisions possible. But I would bet you there are plenty of big buyers who are still primarily focused on price – on banging programmatic sellers down on rate and calling it a win.

I hope – naively? – that this is simply a case of the pendulum swinging back (it’s all about exchanges!) and forth (it’s all about programmatic direct!) before eventually settling at a place somewhere in the middle: Intelligent real-time decisioning, as pioneered in the open exchange model, sitting on top of the operationally efficient infrastructure of a massive web of programmatic deals is considered standard operating procedure for any big buyer using programmatic*.

Television ecosystem, I hope you’re listening.

I’ll step down off my soapbox now and take your comments!


*Incidentally, there’s a very interesting conversation to be had about the future of the open exchanges. I see a place for them. But as GroupM’s Ari Bluman famously noted, open exchanges won’t be a part of their buying strategy in the long term. (Xaxis’ Brian Lesser, for his part, did not take that same stand in a recent discussion on the subject.) A topic for another day…

Follow Joanna O’Connell (@joannaoconnell ) and AdExchanger (@adexchanger) on Twitter. 

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  1. I’d submit that it’s not so much about price for buyers and sellers as it is revenue, and that element is pushing both sides to structure deals in programmatic in a particular way.

    Publishers, I think, are typically more than happy to provide incentives for buyers on price if they can get them to spend more absolute dollars and make a commitment to spend at a certain level. In many ways the open exchange model is a terrifying place relative to the status quo (in a way programmatic direct is not – full disclosure that I work for a company the provides programmatic direct solutions for publishers) for publishers simply because that world tends to come without any commitments on spend.

    So, while it’s strange to think that publishers in particular wouldn’t encourage an egalitarian marketplace among buyers from a yield perspective (why not let the buyers all bid themselves up?), I think it’s a rational point of view from the revenue perspective.

    One of the big questions marks in my mind is how the industry will reconcile the benefits of real-time decisioning (spending) for buyers with the risk of real-time selling (earning) for publishers. Perhaps publishers will just have to swallow that bitter pill in the long run, but you can’t expect them to embrace it at this point given the increased risk to their business model.

    • Joanna

      I hear you, Ben. I’m pushing for buyers to be smarter and step up their game, but I anticipate that won’t naturally appeal to sellers – why would it? It’s arguably a control question – who controls the decisioning? On what parameters? This is the perennial rub – the natural tension between the buy side and sell side that is inherent in the advertising business. Great points – thank you.

      • Hey guys

        Can’t you argue this is buyers being “smart”. They’re using their known leverage (volume & spend) in their favor.

        Joanna- they’re just not using it in the way you’d like.

      • Hey guys

        Can’t you argue this is buyers being “smart”. They’re using their known leverage (volume & spend) in their favor.

        Joanna- they’re just not using it in the way you’d like.

  2. Great piece Joanna.

    While I agree that the output of the programmatic revolution should not just be about lower rates, I don’t expect we’ll be living in an advertising democracy anytime soon either.

    To date, cost has been the single biggest value prop for buying through an Open Exchange. The dynamism of the market and the buyer’s ability to procure inventory in real-time via auction often nets a lower cost per impression, which is a benefit to any advertiser, big or small.

    But I don’t think we will ever see a huge shift toward RTB buying on Open Exchanges. In addition to all the reasons Joanna refers to (legacy rate cards, volume, relationships, and larger sponsorships), there is a bigger issue: advertisers’ need for assurance. This is something we see out in the field every day at Videology, where over 90% of our clients buy video ads in a reserved fashion. Brands want assurance about what they are getting – they want a guaranteed outcome. While a local car wash can take the risk that their ad will deliver below expectations, a major global retailer with carefully calculated investments and goals cannot.

    The TV Upfront is a great example of this. The reason such a high percentage of media is still bought in the Upfront is because buyers want guaranteed volume: fixed costs, flighting to match weekly GRP goals, and assurance that their ad will run when they want it to. Imagine Macy’s getting outbid by Kohl’s a week before Black Friday, or a movie launch failing to hit a reach goal before opening weekend because a sudden spike in demand ate up all the supply!

    Advertisers are willing to pay a premium for a sure thing, particularly if a brand’s communication plan is tied to a specific event. An advertiser cannot let market forces dictate whether or not a there will be the opportunity to communicate with consumers at a specific point in time.

    In the end, there is likely greatest value in a balanced approach: Upfront, Scatter and Opportunistic (RTB) all have their place in a media buying strategy. Relying solely on one method, such as Open Exchanges or any other, is a dangerous approach. The real value of Programmatic is not in creating democracy or changing the media infrastructures that have been in place for many decades; it’s about making these processes more efficient, more accessible, and more valuable through data and automation.

    • Carmine Lengua

      I disagree with one point in particular, Brian. The “single biggest value prop for buying through an Open Exchange” probably was lower CPMs at first… but today, the greatest benefit comes from targeting impressions based on data. Joanna framed it well in this article: the most data savvy buyers, those who use data effectively (and deferentially, I might add) to turn ads into a service and to allow themselves to be discovered in a consumer’s moment of need–those are the ones who will win.

      Full disclosure: I’m a former [x+1] guy now at Forrester (no overlap with Joanna). At Forrester, we’ve been talking for some time about the evolution of search marketing in particular into discovery marketing. This idea of making your brand discoverable (moving marketing moments from brand push to consumer pull) will pervade all digital advertising, especially as consumers themselves learn more about how their data are gathered, stored, and used, and they take more control over their digital identities.