Fairfax Cone, the founder of Foote, Cone and Belding, once famously remarked that the problem with the agency business was that “the inventory goes down the elevator at night.” He was talking about the people themselves. For digital media agencies that rely on 23-year-old media planners to work long hours grinding on Excel spreadsheets and managing vendors, that might be a problem.
For all of the hype and investment behind real-time bidding (RTB), the fact is that “programmatically bought” media will only account for roughly $2 billion of the anticipated $15 billion in digital display spending this year, or a little over 13 percent depending on who you believe. Even if that number were to double, the lion’s share of digital display still happens the old-fashioned way: publishers hand-sell premium guaranteed inventory to agencies.
Kawaja map companies, founded to apply data and technology to the problem of audience buying, have gotten the most ink, most venture funding, and most share-of-voice over the past five years. The amount of innovation and real technology that has been brought to bear on audience targeting and optimization has been huge, and highly valuable. Today, platforms like The Rubicon Project process over a trillion ad bids and over 100 billion ad transactions every month. Companies like AppNexus have paid down technology pipes that bring the power of extensible platform technology to large and small digital advertising businesses alike. And inventory? There are over five trillion impressions a month ready to be purchased, most of which sit in exchanges powered by just such technology.
All of that being said, the market continues to put the majority of its money into premium guaranteed. They are, in effect, saying, “I know I can buy the ‘sports lovers’ segment through my DSP, and I will – but what I really want is to reach sports lovers where they love to go: ESPN.com.”
So, while RTB and related ad technologies will grow, they will not grow fast enough to support all of the many companies in the ecosystem that need a slice of 2013’s $2 billion RTB pie to survive. NextMark founder and CEO, Joseph Pych, whose company focuses on guaranteed reserved software, has been calling this the great “Sutton Pivot,” referring to the famous remark of criminal Willie Sutton, who robbed banks “because that’s where the money is.”
In order to better understand why this is happening, I have identified several problems with real-time bidding that are driving companies focused on RTB to need to pivot:
- There’s a natural cap on RTB growth. I think today’s RTB technology is the best place to buy remnant inventory. As long as there are low-value impressions to buy, and as long as publishers continue to festoon their pages with IAB-standard banners, there will need to be a technology solution to navigate through the sea of available inventory, and apply data (and algorithms) to choose the right combination of inventory and creative to reach defined performance goals. While the impressions may grow, the real cap on RTB growth will be the most important key performance indicator (KPI) of them all: share-of-time-spent. Marketers spend money where people spend their time, whether it’s on television, Twitter, radio, or Facebook. When people spend less time on the inventory represented within exchanges, then the growth trend will reverse itself. (Already we are seeing a significant shift in budget allocation from “traditional” exchanges to FBX.)
- The pool is still dirty. It goes without saying, but the biggest problem in terms of RTB growth is brand safety. The type of inventory available in exchanges that sells, on average, for less than a dollar is probably worth just that. When you buy an $850 suit from JoS. A. Bank, and receive two free suits, two shirts, and two ties, you feel good. But it doesn’t take much figuring to understand that you just bought three $200 suits, two $75 shirts, and two $50 ties. Can you get $15 CPM premium home page inventory for $3 CPM? No…and you never will be able to, but that type of inventory is just what the world’s largest marketers want. They would also like URL-level transparency into where their ads appeared, a limit on the number of ads on a page (share-of-voice), and some assurance that their ads are being seen (viewability). Inventory will continually grow, but good, premium inventory will grow more slowly.
- It’s not about private exchanges. Look, there’s nothing wrong with giving certain advertisers a “first look” at your premium inventory if you are a publisher. Auto sites have been pursuing this concept forever. Big auto sites guarantee Ford, for example, all of the banner inventory associated with searches for Ford-branded vehicles over the course of a year. This ensures the marketer gets to her prospect when deep in the consideration set. Big auto sites may create programmatic functionality around enabling this type of transaction, but private exchange functionality isn’t going to be the savior of RTB, just necessary functionality. Big marketers want control of share-of-voice, placement, and flexibility in rates and programs that extend beyond the functionality currently available in DSPs. As long as they are spending the money, they will get – and demand – service.
What does all of this mean? RTB-enabled ad technology is not going away, but some of the companies that require real-time bidding to grow at breakneck speed to survive are going to pivot toward the money, developing technologies that enable more efficient buying of premium guaranteed inventory – where the other 85 percent of media budgets happen. I predict that 2013 will be the year of “programmatic guaranteed,” which will be the label that people apply to any technology that enables agencies and marketers to access reserved inventory more efficiently. If we can apply some of the amazing technology we have built to making buying (and selling) great inventory easier, more efficient, and better performing, it will be an amazing year.