A beginner’s guide to programmatic buying

November 12th, 2014 | ACA Team,

By Stephan Argent, CEO, Argedia Group

Stephan Argent
Stephan Argent

With so much discussion, confusion misunderstanding and indeed – fear – around programmatic buying, I thought a beginner’s guide to programmatic buying would be both timely and helpful.
But before getting into the issues, pros and cons, and what the future looks like, let’s make sure we’re on the same page with respect to key terms used in Programmatic Buying. This is by no means an exhaustive list, but for the purposes of this guide, these should help:

Key Terminology

  • Programmatic Buying. The term used to define a media buy that has used data within an algorithm to automate and target specific audiences around various, predefined parameters.
  • Ad Exchange. A digital market place that enables advertisers and publishers to bid on or sell advertising inventory from multiple advertising networks, across thousands of web properties.
  • Data Management Platform (DMP). A centralized platform that stores customer data and behaviours, allowing marketers to accurately target campaigns to specific audiences.
  • Demand Side Platform (DSP). A buyer-side system (as distinct from an ad exchange) that allows advertisers to bid for advertising inventory across multiple exchanges and run real-time bidding through a single user-interface.
  • Media Arbitrage. The practice of buying media and immediately reselling it at a profit. As this happens throughout the programmatic buying ecosystem, marketer’s actual working dollars are eroded.
  • Media Rebates. Commissions or other non-monetary incentives typically provided to media agencies from media owners.
  • RTB (Real Time Bidding). Transactions that are bid on when they appear within an Ad Exchange. They are referred to as “real time” because computers execute these bids in milliseconds.
  • Trading desks. The term used to describe technical and media resources using centralized platforms that give them access to inventory within the advertising marketplace or demand side platforms.

So What’s The Fuss About?

While programmatic buying technically expedites targeting, buying and lowering costs associated with digital media buys, programmatic buying has a way to go before marketers really trust it and the ecosystem around it. Further, while programmatic buying has thus far been focused on digital media, it is now beginning to expand into mainstream media channels. And that has everyone asking a whole bunch of questions:

  • First, there are concerns over media quality – not only whether the media has actually run – but the quality of placement and whether it’s running on inappropriate sites.
  • Then there are concerns over the security of the data required to feed into the media algorithms and execute automated buys that have been supplied by marketers.
  • There’s a lack of transparency, disconnect and distance between the advertiser’s initial request and the final buy that has marketers asking both how, where (and whether) their money was spent.
  • And that spurs questions about who actually owns these trading desks, DSPs, ad exchanges and what commissions are paid to whom.

So with issues around transparency, media buying quality, data security and indeed the financial fog around media arbitrage, it may be tempting to think that programmatic buying should be called “problematic” buying.

Well, for some, perhaps. But there are pros and cons even in today’s programmatic infancy:

Pros

    Improved accuracy. When used correctly, programmatic buying can more accurately identify targets, providing marketers with the most up-to-date and relevant audiences for their requirements.

  • Improved cost. Again, when used correctly, marketers and their agencies should know the real value and quality of the impression before it’s bought, thereby achieving greater target accuracy – and potential ROI.
  • Saves money. As distinct from improving cost of the buy, the programmatic buying process has the potential to save money and the cost or number of resources required to plan and execute the buy.
  • Faster response times. With more accurate targeting executed by computer algorithms, marketers can now have access to their audiences faster than they ever have before.
  • Responsible experimentation. Marketers who adopt early and learn how to manage programmatic buying initiatives early, will be better positioned for how media will be bought and managed in the future. Responsible experimentation to work out what works for marketers on an individual basis is key.

Cons

  • Programmatic Infancy. Programmatic buying (today) is really just about the automation of insertion orders and constraining pricing parameters against certain demographic data. While that’s helpful when looking at thousands of web sites, traditional media buys are going to demand deeper checks, balances and transparency to give marketers comfort.
  • Input Accuracy. Technology can only be as good as the inputs it receives from a real person. And in turn, programmatic buying will only be as good the parameters that have defined it. Therefore both marketer data and the underlying algorithms need to be really accurate for programmatic buying to succeed.
  • Measurement Accuracy. Marketers are already questioning whether correct attribution methodologies are in place to accurately measure programmatic performance. Most are wary of questionable or even fraudulent reporting practices, which lead to inaccurate reports and results.
  • Data Ownership. Programmatic buying is entirely dependent on the customer data contained within DMPs. Maintaining a tight grip and ownership on that data so that it doesn’t fall into competitive hands in the process is a major question for marketers.
  • Transparency. Because of the hand-off between agencies, trading desks, DSPs and publishers, it’s almost impossible for advertisers to really understand where their money is going, how much is being paid in commissions and how much is really allocated towards working media dollars.

OK. So we’ve got some really strong pros and some worrying cons that – if solved – could really revolutionize the media business as we know it today. Which is why marketers with big budgets are already setting up and trialing their own in-house trading desks.

In House Trading Desks

Brands want to protect their data. They want to know where the money’s going. And they want proof. Brands like American Express, GlaxoSmithKline, Kellogg, Kimberly Clark, Mondelez, Procter & Gamble and Unilever are just some of the big names that are already protecting their data so they can manage parts – or all – of programmatic buys themselves.

But setting up in-house trading desks isn’t for everyone. Marketers will want to consider the implications and their appetite to commit to the process before going it alone – or at least taking on part of the programmatic buying process themselves:

  • View of the Future. While some marketers see the future in programmatic media buying across other media channels – others don’t. And depending on the size and mix of respective online / offline media buys, marketers must weigh up their appetite for additional media channels that will become predominantly programmatic.
  • Technical Capabilities. At their core, trading desks require technical resources and know-how to set them up, sustain and grow them, as well as the know-how to mine and integrate customer data that feeds them. That requires ongoing investment and support which means…
  • Organizational Support. Because in-house trading desks are fundamentally reshaping how organization buy media, marketers need broad, organizational support (and perhaps patience) for their trading desks to be funded and to be successful over the long-term.
  • Agency Impact. And what about agencies? How do marketers want to manage their agency relationships and specifically, what role do marketers want (and need their agencies to play? To me this needs to be a collaborative effort between marketers and their agencies – not go-it-alone strategies that are collapse because they’re badly implemented.

The Future

As of today, programmatic buying has only scratched the surface with digital. But programmatic buying is already expanding. And it’s now a dead cert it will move beyond digital media into mobile, television and other traditional media channels that will require many of the issues outlined here to be addressed by agencies, trading desks and DSPs. And if they don’t, marketers will find ways around the process to get the comfort and transparency they need.

While some marketers, media owners and agencies are already scrambling to reinvent their processes, approaches – even their businesses – to grow, protect or halt a decline in revenues, none can achieve their objectives on their own.

Marketers, media owners and agencies must work together to create a workable ecosystem that creates transparency, fairness and a reasonable profit for everyone.

Even with programmatic buying, if marketers, media owners and agencies don’t, can’t or won’t work together – beware the race to zero and that will translate to a collapse in media value for everyone.

This article was originally published on the Argedia Blog and has been reprinted with permission.


Stephan Argent
Stephan Argent is CEO of The Argedia Group, Canada’s premier agency search consultancy. Follow him on Twitter @ArgediaGroup.