The programmatic era

In a time of diluted attention and ad blocking, programmatic advertising promises to provide greater return on investment

The Attention Return on Investment (ARoI) is at the core of actions by brands and marketers to efficiently connect with their consumers.

Digital channels are evolving and expanding exponentially, diluting the opportunities for brands to connect with the right consumer at the right time.

(Photo by Stefan Cosma on Unsplash)

Users defend themselves through ad blockers to preserve their online experience from mass and high frequency communication tactics. Behind the facade of smart advertising strategies, catchy messages and formats, media execution is a labour intensive process, abusing fax machines, telephones, email and pdf files to settle insertion orders. This manual execution, relying on fixed price lists and broad dropping of messages, is ineffective in capturing volatile consumer attention across digital channels and devices. Digital marketing requires automation, full stop. Programmatic advertising offers this.

In a nutshell

The evolution of digital advertising is sometimes difficult to follow due to the creative language and the many acronyms used. Let’s keep it simple.

‘Programmatic’ means automation and data utilisation. In the exchange of an ad impression, mainly two types of platforms come into play: the buyer platform – a demand side platform (DSP); and the seller platform – a sell side platform (SSP) and an ad server.

Exchange platforms perform three main functions:

A pipe function, that automatically connects a DSP to many SSPs or publisher inventories (impressions available), and vice versa (for SSPs to connect to as many demand sources as possible), and that delivers the ad.

A bidding function: Real time bidding that sets a price (i.e. cost per thousand impressions) in real time for an ad impression, following certain rules. The price settlement is performed in milliseconds.

An optimiser function, based on an algorithm. For a DSP, it aims to meet goals defined for an advertising campaign at a minimum cost per action, with the use of clients’ data (first party data) and sometimes third party data pools (i.e. demographic information, purchasing intention). It integrates execution parameters like the selection or exclusion of web pages or content (white and black listing), the adaptation of the creative for specific clients’ segment, the frequency and the time of contact. The campaign execution is repetitive and starts with sample budgets. The performance can be monitored in real time. The data is organised on a data management platform.

Programmatic platforms enable different types of transactions from programmatic guaranteed (also called programmatic direct) to the open auction (RTB) – with several variants, of course, in between. In a programmatic guaranteed transaction, just like in a direct sale, the deal is negotiated directly between the buyer and the seller. The inventory and the price are guaranteed. Most developed DSP platforms offer the possibility to buy media across channels like display, video, mobile, native advertising, social platforms, digital out-of-home, television and even print, by optimising frequency and targeting on a user level.

What can be automated must be automated

In Europe, the adoption of programmatic is fast. According to the 2016 IAB Europe report, 5.7 billion euros of ad spend were traded programmatically, growing by 70 per cent on the previous year. The growth is mainly driven by mobile (+164 per cent), which highlights the role of social media, and by video formats (+95 per cent), instrumental in the attention economy. The share of programmatic is high in the four largest European markets. US marketing consultant Magna Global forecasts for 2017 a penetration of 59 per cent in the UK, 56 per cent in France, 33 per cent in Germany and 60 per cent in the Netherlands.

Significant resources are being invested in the advertising technology ecosystem, involving hundreds of players. Each year, LUMAscape provides maps categorising the players in the industry. In spite of the high fragmentation, the industry is dominated by large American companies. Google DBM and Appnexus are the largest, with the most diverse technology stacks. They have the advantage of owning each segment of the value chain (and the data points). Facebook, Twitter and LinkedIn all participate in programmatic advertising with a significant impact on mobile advertising. Facebook and Twitter are connected with proprietary platforms. Leading pure technology players are Mediamath, The Tradedesk, Turn, Dataxu, Adform (DSPs) and Rubicon, Pubmatic, Improve Digital (SSPs). A consolidation in the market is taking place as too many intermediaries are sharing a slice of the same advertising budget.

Resurrecting advertising

The power of computers and software is a phenomenal accelerator for the industry. Not only does it enable automation (cost reduction), it also allows for the selection and pricing of valuable impressions (creating scarcity). The latter represents a resurrection of the advertising industry, overwhelmed by unlimited inventories. In the programmatic era, redundant and mechanical tasks are left to machines. Execution teams have more time for value-adding tasks such as buying and selling strategies, tactics, results monitoring and ultimately developing the knowledge of customers. Algorithm and data alone are useless: the success of a programmatic campaign depends on the fine combination of an experienced trading team, a good DSP or SSP and the right creative. The lack of experienced people in the industry is currently the number one limitation.

Programmatic opens up a new generation of campaigns that deliver optimised creative content for specific target groups, devices, channels and even timing or position of a user in the marketing funnel.  Imagine a prospective buyer for a car. The message will be adapted according to his or her gender, age and device used, while also taking into account whether the user is familiar with the brand or whether they are close to purchasing. This granularity can only be executed with automation.

Smart data means knowing your customer. With the use of customer data you can achieve much more with the same advertising budget. For brands, more than ever, knowledge of their customers will be the key driver to increase their ARoI. This is the task of the chief marketing technology officer (a rare specimen) and I suggest that this responsibility should not be delegated to a service provider. A digital native company like Zalando is committing larger investments in client knowledge and in its proprietary data platform.

Further development required

The programmatic industry is evolving and maturing. It discovers and expands its boundaries every day. Let’s look at some of its current limitations and expected improvements:

Botfraud and blind networks are negatively impacting brand safety. This is a problem in the digital advertising industry in general. The 2016 report of the Advertising National Association estimates that advertisers will lose around 7.2 billion US dollars this year. Automation has favoured the development of botfraud in particular in non-transparent and high cost per thousand impressions (particularly video) inventories. All participants in the industry are vigorously banning this practice and implementing measures against it. This includes best practice in sourcing and buying inventories such as avoiding bulk buying or blind networks and favouring trusted domains or direct agreements with media owners. Efficient fraud filters provided by independent companies like Ad Science, Sizmek’s Peer 39 or DoubleVerify are increasingly being used.

Ad blockers have a material impact on digital advertising. In 2015, an estimated 200 million users activated an ad blocker. This non-captive audience is not available in the digital buying process. Programmatic advertising cannot solve the problem alone. It brings the technical solutions to significantly improve the relevance of advertisement (targeting the right audience with the right message). This will help to improve user experience and tolerance over time.

The ineffectiveness of tracking cookies on mobile. Tracking cookies is the prevalent tracking method in digital advertising. With the rise of mobile, new tracking methods have been developed, in particular the IDFA (identifier for advertising), able to track actions like app installs and other activities in the mobile environment. Large brands rely on their proprietary user data. Independent technology companies like Mediamath developed Connected ID solution to track advertising across walled gardens like Google and Facebook. The challenge ahead is to offer a holistic method working across devices.

A new reality

There is no turning back. The use of computers and software enable brands to automate complex buying processes, to customise their message and become relevant on a consumer level. Further developments are required to improve the user and brand experiences, and the effectiveness of cross-device campaigns. With the exponential investments committed in the industry, this will become a reality very soon.

Renato Martignoni

Renato Martignoni is head of digital and marketing services and head of corporate development at Swisscom AG. He led the corporate development of PubliGroupe, traded on the Swiss stock exchange until it was acquired by Swisscomm. He initiated and developed leading European initiatives in the programmatic, affiliate marketing and digital agency fields through organic and M&A investments. As non-executive director he served on the board of leading ad tech players and agencies. Renato started his career at Mondelez, a global leader in the fast moving good industry.