Programmatic buying of digital media is the hottest trend in ad-tech right now. Here’s what we know: Most everyone is using it. Few really understand it well. It’s useful. It’s scary. It’s growing very fast. And it’s not going away.
In short: programmatic is awesome, and you are right to be a little afraid.
Since this is ad-tech we’re talking about, let’s start with the metrics:
The Interactive Advertising Bureau (IAB) reports that 98 percent of all U.S. publishers sell at least some of their ad inventory programmatically. Magna Global expects programmatic spend to double by 2017, growing to $16.9 billion in the U.S. and $32 billion globally. And, according to IDC data, programmatic will grow at a 59 percent compound annual growth rate over the next two years, which would make it the fastest growing digital advertising segment.
Why It’s Awesome: We Need It
Think about the Internet now as compared to the Internet 10 years ago. The magnitude of ad placement opportunities that exist in today’s marketplace is daunting. The ad-tech landscape has become a complex digital ecosystem. Layered on top of this, we have an amazing amount of data that can be useful for optimization (targeting and pricing) – but it’s more than any human can analyze or act on. We have user data, location data, and all sorts of performance tracking and attribution considerations.
Algorithmic, real-time buying is the only way to successfully make use of all this data. The algorithms do the heavy lifting for us.
Why It’s Scary: Fraud and Misinformation
According to a 2014 AdExchanger study, the number one challenge facing agencies is a lack of understanding of programmatic, followed by inventory quality concerns. On the other side, publishers cited complexity as their biggest challenge. Both the supply and demand side share similar fears: either they don’t understand what programmatic means in a particular instance or they believe that programmatic is a playground for bad actors.
Programmatic is scary for two reasons: 1) it is a label applied to several different use cases, which causes confusion, and 2) one of those use cases is to hide nefarious traffic or advertisers. These two fears are obviously closely related.
Nefarious activity is a real issue with programmatic, and this should surprise no one, as it follows a familiar pattern with new advertising technologies. Programmatic is new and evolving quickly. Whenever a new advertising technology comes along, the industry needs time to develop best practices. In the meantime, opportunists take advantage of the initial chaos. Right now, programmatic exchanges are the Wild West. Pioneers are innovating and the charlatans and bandits are, too. Some brands inevitably get burned. And then someone gives a high-profile speech trumpeting the parade of horribles. We’ve seen this movie before.
The fear and uncertainty surrounding programmatic is not unfounded, but it won’t last. In my decade-plus industry experience, whenever we see a major disruptive shift in our industry, there is typically an 18-month free-for-all before the dust settles and industry know-how overtakes the fraudsters. We are currently about a year into this transition, and programmatic’s bad actors have about six months left.
It’s important to remember that the relationship buying digital ad model that preceded programmatic also faced similar fraud problems. Even with a one-on-one human relationship, there was no guarantee that advertisers were getting quality traffic. So-called “relationship buys” sometimes had little to do with the client’s best interest. Programmatic’s benefits outweigh the risk because it improves upon an inefficient ad buying process by making it possible for a single advertiser to bid on ad space on an unlimited number of traffic sources.
Programmatic is one step in a long line of progress in the digital ad buying process. It’s an improvement, and it is improving. Of course, once we figure out how to best utilize programmatic’s full potential, something new will come along and we will go through this whole process again. That is the life we have chosen.
This is the first in a series of articles covering the present and future state of programmatic advertising. The next installment will explore some of the specific ways that the industry will address fraud, minimize risk, and best take advantage of programmatic’s benefits.
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