Scarcity: Programmatic’s Single Biggest Challenge And Opportunity

willdohertysellsiderThe Sell Sider” is a column written for the sell side of the digital media community.

Today’s column is written by Will Doherty, vice president of business development at Index Exchange.

The concept of scarcity tends to have a negative connotation, as anyone who has ever shopped for real estate in a hot market can attest. But scarcity is also at the root of value, as those same shoppers – and sellers – know intimately and intuitively.

Similarly, scarcity is the single biggest challenge and opportunity for publishers and marketers in today’s rapidly maturing programmatic ecosystem. It will change the way they work together, bring new pricing dynamics and creative opportunities to the market and pave the way for more alignment, closer partnerships and greater communication with customers.

From the dawn of RTB, powerful evolutionary forces have pushed the industry toward rapid growth. Like the dinosaurs, size equaled success. Scale dominated every conversation, from raising another round of finance to user acquisition to performance on the campaign level. Everyone wanted scale as quickly as possible, as cheaply as possible. Unfortunately, that growth race led to cutting corners on quality and openness, which in turn led to the sorry state of transparency and fraud we see in the industry today.

Eventually, however, the dinosaurs were outdone by smaller, more capable competitors – and a giant meteor. That’s where we find ourselves today.

As supply sources renew their focus on quality, demand sources require increasingly deep connections and technology that allows accurate pricing becomes commonplace, both buyers and sellers are coming to see that scale does not solve all problems and, in fact, introduces some.

Marketers are demanding better placements, greater impact, less competition for attention and more access to truly premium inventory. Scale growth has leveled off, and can no longer serve its historical role. There’s no longer unlimited quality supply at rock-bottom prices.

Quantity is dead. Welcome to quality. The decommodification of supply is here.

Until recently, there wasn’t a way for publishers to make their premium, high-quality inventory available because their existing ad server infrastructure reserved it all for high-quality campaigns. That meant that it got sold directly through insertion orders, which meant that marketers had to buy it from a separate, nonprogrammatic budget. And that meant that publishers couldn’t discover the true market value of their inventory.

Besides being hugely inefficient for both sides, for marketers data is lost, performance and frequency is hard to measure, campaign success difficult to judge. For publishers, it creates an artificial division between premium and nonpremium, which in practical terms means that nonpremium becomes much less valuable.

Enter the dinosaur-killing meteor. New technologies such as header bidding can be laid over existing infrastructure so that all inventory is visible and all parties can bid on it. Suddenly marketers can access scarce premium inventory, and publishers can unlock its true value through open-market pricing mechanisms. High-value, highly desirable units command their true price, but marketers save by only buying the impressions they truly need to make an impact.

Eventually, this model drives evolution of more effective units, and undesirable ones are evolved out of the ecosystem.

Wait, what? That sounds a bit speculative. But the proof is there already. High-scarcity units, such as various forms of video, are in great demand, and we see new types of units proliferating rapidly and disappearing equally rapidly as they are outcompeted. Viewable units are in enormous demand, and publishers are rushing to provide more solutions to provide them.

Scarcity is the basis of value in the physical world, as well as the digital one. Publishers and marketers must evolve to reflect that – or be outcompeted like the dinosaurs.

Follow Index Exchange (@indexexchange) and AdExchanger (@adexchanger) on Twitter.

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