The CMO's Guide to Programmatic Buying

Nine Things Every Advertiser Should Know

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Credit: Illustrations by Alex Nabaum for Ad Age

"Programmatic buying is the gluten of advertising," Jimmy Kimmel quipped during ABC's upfront presentation last week. Like gluten, "programmatic" has become a buzzword that many people use but few really understand. They just know it's important. For some reason.

The term covers a wide range of technologies that have begun automating the buying, placement and optimization of advertising, replacing human-based methods like phone calls, faxes and, yes, three-martini lunches. Through programmatic technologies, advertisers can buy ads the way they pick up something on Amazon or bid on eBay.

For all the ink spilled, you'd think the entire world had gone programmatic, but it's still just a sliver of online-display advertising. Interpublic Group of Cos.' buying arm Magna Global projects that programmatic spending will reach $9.8 billion in the U.S. this year, or about 20% of the overall digital-ad market. To move brand dollars, programmatic technologies have to grow up and advance to other forms of media, like TV and radio.

But programmatic buying isn't as complicated as the jargon makes it sound. Here's a breakdown:

What exactly is programmatic?
Programmatic simply means automated. A lot of people confuse it with buying ads through computer-run auctions -- known as real-time bidding -- but that's just one way to buy ads programmatically. At its core, programmatic buying is any ad buy that gets processed through machines.

Why is everybody talking about it?
Remember when booking a hotel room meant calling a concierge or travel agent? Or when buying stocks required being on the New York Stock Exchange floor? Over the past decade, billions in investment dollars have been bet that the ad market would be next to undergo a similar transition. "What you're seeing is a fundamental shift in not just how media is bought, but how advertisers can engage with consumers more effectively," said Brian Lesser, global CEO of Xaxis, WPP's programmatic-buying arm.

Is it expensive?
Programmatic can actually save money. Through automation, the transactions become more efficient, cutting out complex ad-operation tasks. At the same time, it can involve myriad tech vendors that enable certain types of targeting or verification, and they all collect tolls along the way.
In an ideal world, automated technologies would take over data-heavy tasks and leave humans to what they do best. "This whole thing is about freeing up those resources for more actual human conversation and human creativity," said Todd Gordon, exec VP-head of U.S. investment at Interpublic's MagnaGlobal.

Will all ads be automated?
Probably not. "I don't know whether anyone would ever buy 100% of [their ads] programmatically because deep brand integrations, content plays and tentpole events wouldn't be done programmatically," said GroupM Interaction Chief Operating Officer John Montgomery. However, "looking into the future, a majority of buying will be done programmatically."

MagnaGlobal has pledged to automate 50% of its clients' media buying by 2016. "When we started on this [mission], the percent of our activity we could really call automated was less than 5%," Mr. Gordon said.

Earlier this month, Ad Age obtained a document American Express sent to potential ad-tech partners, stating a goal of spending 100% of its online display-ad budget programmatically. That seems to be more of an ambition than expectation. When asked about its 100% programmatic goal, American Express walked it back, calling it more of a "theoretical strategic thought."

If programmatic is so great, why is so little being spent there?
A lot of advertisers still don't understand programmatic. They hear real-time bidding and think bottom-dollar auctions. They see that a million people saw their ads but have no idea on which sites. They're told programmatic tools can extend their ads to any site but wonder if that goes for in-stream "native" ads as well.

This year the Association of National Advertisers surveyed 153 marketers and found that only 26% of respondents said they knew what programmatic buying is and have actually used it (see related story, P. 10). The other 74% ranged from either being completely oblivious, aware but unclear or in need of education. But even those who use programmatic tools to buy media may not have a firm grasp of what that means.

Programmatic's overarching problem is that too many people assume it's synonymous with loosely controlled auction-style buying, the difference between booking a hotel room by naming your price on Priceline or finding the cheapest fare via Kayak. "In many advertisers' minds, they equate programmatic buying with [real-time bidding]. The fact is, RTB is a first-generation of programmatic," Mr. Lesser said. But that's not the only thing holding programmatic back.

Are you talking about fraud?
Digital advertising has a fraud problem so big it got slapped with the "crisis" label by Interactive Advertising Bureau Board Chairman Vivek Shah. Conservative estimates place the level of fraud in the ballpark of 10%; others say it's much higher.

Credit: Illustrations by Alex Nabaum for Ad Age

Much of the fraud is occurring in the programmatic ecosystem, where an opaque marketplace is allowing insidious actors to list networks of shell websites, flood them with non-human traffic and cash in order to defraud advertisers.

The digital-ad industry says it's committed to solving the problem, but nearly every entity along the supply chain benefits in some way from the fraud, or at least has little incentive to stamp it out. Publishers make money from it, buyers' performance looks great, and technology companies get paid to help stop it. In most cases, brands end up holding the bag.

Are premium publishers going programmatic?
Yes, but slowly. The truth is that publishers have very good reasons to be wary. If media buyers embrace programmatic buying simply as a cheaper way to buy ads, media sellers have little incentive to play along.

Condé Nast has merged its programmatic and direct-digital sales teams, but sales chief Alanna Gombert concedes her company was "slow to market." Publishers including The New York Times, The Wall Street Journal and Time have set up private ad exchanges as a way to dip their toes into automation.

More recently, publishers have begun to automate their direct dealings with advertisers. Under these "programmatic direct" deals, a publisher's sales rep may negotiate an arrangement with an advertiser that includes top-tier inventory like home-page- takeover ads at a fixed price for a guaranteed number of impressions.

"Private deals represent the biggest opportunity to migrate brand dollars to programmatic platforms," said DigitasLBi VP-Programmatic Platforms Wade Rifkin.

Does going programmatic mean I have to run my campaigns through Google?
Google does have the dominant ad "stack" -- a series of technologies that manage the ad-buying process. But there are others: AOL, Yahoo and Adobe have their own technologies that manage the process end-to-end like all-in-one programmatic ad factories. You can cobble together your own set of solutions from hundreds of ad-tech vendors, ranging from demand-side platforms that process buys to data-targeting solutions to ad-verification services that make sure your ads were seen by real people. Anyone can piece together a combination that meets the unique needs of the brand.

Will TV go programmatic?
As more TV and movies are delivered over the web, programmatic technologies will take hold there, too. Hulu has experimented with auctioning off video ads through a private exchange. And during ABC's upfront presentation last week, the broadcast network announced that it would let some advertisers buy ads against ABC's digital content programmatically.

Even some traditional TV ads are getting automated. Cable carriers such as Comcast enable automated ad-targeting against on-demand videos. And satellite carriers DirecTV and Dish Network sell some TV inventory programmatically.

"What's driving programmatic is digital delivery and data. If you think about where digital display and digital video are, it's easier to apply programmatic in those spaces. I have very little doubt that digital out-of-home, digital television and radio will follow, " said Mr. Montgomery.

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