Programmatic for Dummies

You know that it’s really important, and that it uses computers. That young, ad tech-obsessed guy at your office talks about it incessantly, throwing around acronyms and speaking of the dire need to plug into multiple platforms. You’re pretty sure that robots might be involved, and you’re kind of hoping it doesn’t become mainstream before you retire. • The fact is, programmatic is a fast-growing part of the buying and selling of media. How fast? This year, eMarketer predicts that advertisers in the U.S. will spend $3.36 billion on a thing called “real-time bidding,” up from just shy of $2 billion in 2012. That sure sounds like a lot of money. But still, you find yourself wondering: What does that mean? • In the spirit of the For Dummies book series, we present a primer for the ad exec who’s not sure whether programmatic is real, coming soon or requires a Commodore 64 to conduct business. One caution: Not everyone sees it the same way just yet. —Mike Shields


What is programmatic anyway?

There are a few descriptions of programmatic you’re likely to hear. It’s where ads are bought like products are bought on Amazon. It’s the method by which all advertising will come to be bought and sold like search ads on Google—auction based, with the buyer paying whatever price an ad is worth at a given moment. It’s buying specific audiences using lots of data to figure out the right ad, the right person, the right time. It’s the idea that machines will simply handle all of the process involved in buying media—the insertion orders, the paperwork, the trafficking, the spreadsheets. A few mouse clicks, and you can go home.

Or, the answer could be: all of the above.

“Programmatic is a catchall term that many people are using to categorize everything from behavioral and intent-based targeting to real-time bidding and exchange-based buying of inventory,” says Peter Naylor, former evp at NBCUniversal. “Programmatic is advertising’s newer, better mousetrap.”

It is a term that has grown in usage—and led to much confusion. “Programmatic started off as a more acceptable synonym to RTB,” says Andy Atherton, svp at AppNexus. (What is RTB, you ask? We will get to that.) “Now folks are trying to apply programmatic to different things. If you’re a TV guy, you’re not up to the minute on this, [and] it’s probably very confusing. It’s this problem we’ve created for ourselves.”

Digital firms have made programmatic a major cause. “For me, it’s about using an automated system to make media buying decisions instead of doing it manually,” says Allie Kline, CMO of AOL Networks. According to Kline’s thinking, a brand could take its goals, inventory data, consumer data, ad formats and potential media buys “and put all that into a washing machine. Programmatic takes multiple data points and makes decisions [about] what screen an ad should be on, what is the most effective strategy at a given moment, and lets you do all the nonmanual decisions.”

Kline’s POV is high level. But Eric Bader, a former media executive who is now CMO at RadiumOne, puts it in more practical digital terms. “We’re talking about software,” he says. “I know there are references to platforms and technology out there. But programmatic is about software that is productive in a way that humans can’t be.”

Bader explains the underlying need. “The media buying process has completely outstripped human capabilities,” he says. “We’re using millions of fragmented places and data sources. So you’ve got to figure out how to put something together. We’re literally talking pedabytes of data.” —Mike Shields


What does programmatic actually look like?

Seni Thomas, CEO and co-founder of the exchange-buying specialty firm Heights Media, says programmatic means getting rid of all digital paperwork. “Instead of trafficking and marrying spreadsheets, it’s about clicking buttons and doing buys,” he says.

Naylor agrees, to a point. “Sellers and buyers used to spend all day faxing change orders on deals they were actively optimizing for performance or delivery,” he says. “That was awful. Today, they trade PDFs on change orders. Less awful, but still an act of busy-ness and inefficiency. Just as tellers no longer run paper tickets around the floor of a stock exchange, so, too, will go insertion orders and change orders.”

So why wouldn’t everyone just do that now? Is there a pro-faxing and pro-paperwork lobby out there holding things up? Not exactly. When it comes to automating all the online ad world’s inherent busy work, it’s more that the rhetoric doesn’t always match reality. “This is all theory right now,” admits Atherton.

Beyond automation, programmatic should be about making advertising better, some argue. “This is about selling dog food to dog owners,” as one executive puts it succinctly.

So it’s like buying ads on Amazon, right? Someone wanting to buy 500,000 ad impressions aimed at dog owners in Q3 can just click here, and nobody has to get on the phone or go to lunch or ever talk to one another.

Not so fast, argues Bader. “Some of these metaphors are taken too literally,” he says. “I’m not buying the Amazon analogy. This is about activating advertising, electronically brokering deals, software-mediating transactions and doing real-time optimizations. In the past, you’d let a campaign run for a while, spend some money and then optimize after a month or something. With programmatic, this can happen in real time.”

Undertone co-founder Eric Franchi disagrees. “I like the Amazon analogy,” he says. “You have two choices in buying baby diapers. There’s the grocery store, where you drive, get a cart, walk through the aisles, wait at the cashier, etc.—it’s a pretty manual process. Or, you can pull up Amazon, navigate the site and with one click, it ends up on your doorstep. That’s a lot more efficient. Programmatic aims to do the same for media, with a touch of eBay added for the auctioning of impressions as in RTB.”

In other words, there are lots of definitions, and no real consensus. It is a nascent business. —M.S.


Is programmatic the same as realtime bidding? What is RTB?

Andrew Pancer, COO of the data-driven ad firm Dstillery, describes RTB as a technological solution for addressing the vast fragmentation of digital media. “Historically, marketers turned to a handful of publishers with whom they would contract to run campaigns,” he says. “These contracts were typically for a fixed budget amount over a fixed period of time. “

Even given that simple scenario, publishers had to individually traffic each ad. Buyers had little control over how often the same user would see the same ads. “And each publisher could only provide the marketer with analytics and insights based on the activity that they saw on their website,” adds Pancer.

Add to that Bader’s point that media planners can only process so many sites. With the growth of the long tail, digital advertising became unwieldy, giving rise to ad exchanges.

“While this was all happening, technologies came along that allowed marketers to add consumer data into the mix,” explains Bader. “This allowed the marketers to make smarter decisions about which sites to buy and which audiences made the most sense to buy. RTB was one of the first major tactics adopted as part of marketers’ programmatic solutions. It allows advertisers to buy individual advertising impressions from publishers via an auction-based system,” with machines making decisions in milliseconds.

So RTB is the same as programmatic, and all ads will be bidded in real time, like Google or on exchanges? No way, insists AOL’s Kline. “The way we think about programmatic is very different than just a selling media in a bidded environment. I think we do a massive disservice when we define RTB as programmatic—that it’s all bidding and exchanges.”

The distinction is value, Kline argues. “If you only allow it to happen on least valuable inventory it’s not helping the cause. If you think about programmatic as using data, tech and software for getting more for every dollar spent, that really elevates our clients’ thinking. And it starts to reveal agencies for their true value and makes it more interesting to move more money.”

“The theory is that all media can and will be traded this way,” adds Franchi. “We’re a long way from that. Digital is obviously the early adopter.”

Atherton believes that RTB will eventually become the standard way that display advertising will be bought and sold, and the discussion surrounding it will fade into the background. “It will become part of ad serving,” he says. Then, the industry can focus on its bigger programmatic challenge: how to increase operational efficiency.

Is there really that much operational inefficiency outside of digital that programmatic is warranted? Maybe yes, maybe no. But more and more, digital executives versed in data-driven buying are taking on leadership roles at agencies and media companies. Programmatic, in all its forms, is going to be hard to avoid. —M.S.


What’s the cost structure? And does premium play a part?

Many believe that programmatic buying is all about cheap, remnant inventory, where marketers pay pennies for ads appearing on unpopular Web pages or unprofessional blogs. That’s not always true, as what is generally referred to as “premium programmatic” is routinely sold at cost-per-thousand (CPM) rates from $15 (display) to $25 (video)—and in certain cases, higher rates. The ads appear on homepages or via extremely contextual placements for high-end publishers, often in the financial-content space.

How quickly is this practice actually emerging? Depends on who one asks. “I think we are at a tipping point, where premium inventory becomes more available through programmatic interfaces,” says Shannon Denton, CEO of Razorfish North America. “It’s really going to have more sweeping changes in terms of the media marketplace.”

“Though using automation for premium inventory is growing, we believe the lion’s share of inventory sold through real-time bidding/programmatic is remnant or network inventory,” counters Clark Fredricksen, a rep at the research firm eMarketer.

Indeed, premium programmatic still has plenty of maturing to do. Users can’t even decide on what to call the space, with some preferring “direct programmatic” or “automated direct” instead of premium programmatic. Here’s why some prefer to throw “direct” into the term: Many of the details on these premium buys are actually negotiated via phone and email, but then the transaction is performed through a programmatic system.

So why are Google and AOL (which held a programmatic upfront during Advertising Week this year in New York) so interested in moving to more automation? Jay Sears, svp, market development at ad-automation firm Rubicon Project, argues that programmatic improves targeting and creates more streamlining and transparency when it comes to a transaction’s particulars. “It allows you to [place ads] with individual pieces of media as well as individual pieces of data,” he says. “It makes advertising smarter. Holding companies are reorganizing how they buy media because of automation.” 

Rubicon has inked a deal with News Corp, allowing titles like The Wall Street Journal, Barron’s, The Times of London and the New York Post to sell premium programmatic. “We are looking to capture higher CPM dollars in the automated space,” says Charlie Weiss, vp of ad marketplaces at News Corp. “Through premium content adjacency, we can capture more premium money.”

How premium is premium? In terms of effective cost-per-thousand rates, according to Mahi de Silva, CEO of consumer mobile for Opera Software, the Journal’s cost for iPad placements can run between $100 and $150 through direct channels. Weiss wouldn’t comment on those figures. But for luxury brands and business-to-business marketers, the price could soon be right via automated platforms.

“Hey, if you want to reach businesspeople who make financial decisions, you have to be there,” says Joanna O’Connell, an analyst at AdExchanger. “If it converts well, it’s worth it.” —Christopher Heine


What are the obstacles to making programmatic happen?

Plenty of challenges stand in the way of programmatic’s future, from the basics of educating advertisers and publishers to more complex issues like cross-device targeting. And even programmatic’s biggest proponents say the drawbacks need to be addressed in order to capture a larger share of the ad pie.

One top priority for the industry is to figure out how to move effectively in the multi-device landscape, with users migrating from tablet to smartphone to desktop and back.

Jeremy Steinberg, head of digital sales at The Weather Channel’s TV and online properties, says he’s sidestepped that problem by amassing an audience on all screens. Still, he agrees it’s an issue for many others. “From a marketplace standpoint, it could be an impediment,” he says. “There should be emphasis on buying cross-platform, but there’s just not an easy way to do it.”

Cookies—an increasingly endangered product in this privacy-obsessed market—may be key to success or failure. “Marketers and agencies leverage first-party or third-party cookie data to help inform their buying, and if cookies go away, that’s a potential obstacle,” Steinberg says.

Digital giants such as Facebook and Google are prepared for a post-cookie world, because they can potentially sync their user data across devices. But “if you’re a smaller player in this space then you don’t necessarily have scale, and it’s difficult to manage cross-screen activations,” Steinberg adds.

Then there’s the issue of inventory quality. Advertisers don’t want their messaging showing up against controversial or low-quality content due to automated placement. “Who cares about brand safety if no one even saw the ad?” says Brian Cohee, svp of data sciences at digital ad firm Mixpo. “There needs to be more transparency into the quality of inventory.”

RadiumOne’s Bader says it ultimately comes down to publishers’ willingness to embrace programmatic by making their premium inventory available through automated means. “If media companies refuse to sell their best assets this way,” he says, “that will really hold things back.” —Garett Sloane


How does creativity fit into this world?

At first blush, data-driven programmatic advertising seems to turn a cold shoulder to the very human practice of perfecting copy and imagery. That doesn’t sit well with ad creatives, especially those who already see programmatic pecking away at their clients’ budgets.

Of course, creativity isn’t going anywhere though. The art and science of marketing are going to evolve and ultimately merge with increased automation, forcing marketers to think about how their traditional and programmatic messaging follow each other like a one-two punch. Even algorithm-ruled Google is pushing programmatic creativity with a series of tools developed under an umbrella initiative called Art, Copy & Code.

“I think creative folks are going to have to embrace a broader strategy,” says Matt Cohen, founder of OneSpot. “But it’s my experience there are always early innovators.”

OneSpot is trying to get ahead of the curve, offering a programmatic platform on which advertisers can convert their branded content into targeted display ads. Unilever, Dell and Remington are among marketers testing the system.

Some are crafting social media content with the idea that it will be used in paid ads via real-time bidding, Cohen says. “People who do a lot on Facebook, Twitter, Tumblr, etc., are already reasonably good at it,” he says.

Starbucks and McDonald’s are standout brands to have folded creativity into programmatic efforts. For example, the coffee chain has run ads via Facebook’s exchange with copy and images highlighting the local weather.

“Programmatic can come in and fuel the fire,” says Pete Stein, CEO of Razorfish. “Instead of just targeting a specific ad, you can generate content that’s relevant and then use real time to drive attention to it.”

Gaston Legorburu, SapientNitro’s global chief creative officer, suggests big brands need to transform their mind-set for a more programmatic era or else risk being on the wrong side of competitive battles. “Marketing technology can be the big equalizer that quickly gets you to parity,” he says. “Anyone will be able to do it, and the learnings apply to any competitive brand in the category.”

Regularly using data and programmatic to optimize ad executions could mean big bucks for brands, Legorburu believes. “Think of applying multivariate testing on a landing page,” he says. “The first credit card company to make the investment in those technologies likely reaped some very tangible benefits—until all of the other credit card companies did the same.”

Just as traditional ad spends went through the roof in the 1950s and ’60s, programmatic growth will likely keep surging through this decade. By 2017, eMarketer estimates the space will quadruple to $8.7 billion.

“You are starting to see more agencies realize they can take advantage of programmatic,” says Cohen. “I’m sure you’ll find creative folks who find it challenging and upsetting. But the key is to have a consistent voice.”

Cohen’s not alone in that belief. “Programmatic tools work only as well as the content and targeting that is fed into them,” says Rick Wion, social media director for McDonald’s. “They can create efficiencies in planning and buying, but creative still needs to be strong and, most importantly, relevant to be effective.”

One thing’s for sure: Programmatic is changing creativity. “It opens the creative palette a bit,” says Razorfish’s Stein. “It’s different, but it creates opportunities.” —C.H.


When is programmatic buying coming to television?

TV sales execs say never. “The only networks that could use programmatic for their video on-air are networks that have no brand value,” says Viacom’s head of ad sales, Jeff Lucas. “If you have brand value, you’re never going to be in that position.”

Lucas points out that programmatic tends to rely on a lot of similar inventory. Television, he says, is able to thrive because it can showcase high-end content that gets sold á la carte. More importantly, though, TV ad executives have spent the last few years emphasizing the advantages of deep integrated advertising—an attractive way for advertisers to duck the ever-present menace of the DVR and boost engagement.

The programmatic world doesn’t account for variations in quality across TV series, adds Lucas. “We spend about $3.5 billion a year on programming, and then we spend on research so we know how to spend to the brand,” he says. “The client wants to be a part of that ecosystem and they want to be seen by the viewer.”

That said, companies like Viacom do actually sell inventory on the exchanges that programmatic tech uses—it’s just not TV inventory. “We put display in there, just so we know what there’s demand for, and so we can see how the pricing works out,” Lucas says.

Mitch Weinstein, svp, managing partner, ad operations for UM, admits that there are challenges to getting networks to sell inventory this way, but he profoundly disagrees that said challenges are insurmountable. “There are people spending their time trying to crack this,” Weinstein says. “We’re definitely going in that direction, working with these different platforms that have TV inventory. [In the future], you’d be able to buy programmatically on a platform using analytics, and the data comes from Nielsen and Rentrak.”

There is, of course, the problem of the upfront/scatter divide (which is part of the reason premium inventory doesn’t fit the bill), but that may just get worked into the system, Weinstein says. “I don’t know if it’ll be real time, but it’ll certainly be faster time.”

Despite some false starts (Google TV sold ads via programmatic, but the whole project was dropped), programmatic TV is definitely happening now, at least in some corners of the market, notes Weinstein. Cable and satellite providers “seem to be the first ones coming up,” he says—among them, Dish and Comcast. (That’s local buys on Comcast, not NBCU properties). In other words, local TV inventory may offer a far more suitable opportunity for programmatic TV buying.

How about other video? If it can be purchased in bulk, there’s a good chance we will see a smarter, more efficient buying platform one day. “There’s a lot of downward pressure on agencies from their clients, and if you talk to the folks on the sell side, they feel like the hand-to-hand sales process is missing out on an enormous margin,” says president Toby Gabriner. He says the inefficiencies in the handshake sales market are being exploited to a large degree by programmatic. One publisher, he says, might have “four people managing their programmatic business, and 35 or 40 on the non-programmatic, and the revenue split is 50-50.”

But more specifically, programmatic buying will catch on wherever there’s a digital video network. Given the rapid advance of display hardware, that’s going to be a lot of places. “We’re seeing that specifically in digital place-based media,” says Weinstein. “I was actually at the Digital Place-based Advertising Association event the other day, and the major theme of the day was programmatic selling. Companies have popped up over the last couple of years that have built exchanges specifically for place-based video.” —Sam Thielman

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