Direct Deals Grow for Marketers, but Won't Solve All of Programmatic Ad Buying's Ills

They alone can’t fix the industry’s existential crisis of cookie deprecation

Four years ago, The Hershey Company, which says it spends between $350 million-$450 million annually on advertising, decided it wanted more from its digital media because the company was tired of ads running too frequently, not showing up in premium environments and—worst of all—ending up adjacent to unsavory, long-tail publishers.

The solution was to buy more media through programmatic, direct channels. The Hershey Company is working toward buying 80% of its addressable media via private marketplace deals and only 20% on the open exchange, a goal it plans to hit by the end of 2023 (as of now, more than 70% of deals are via PMPs), said Vinny Rinaldi, head of media and analytics at the company.

The chocolate maker isn’t alone in this shift. In 2020, PMP spending overtook open exchange for the first time across all forms of real-time bidding, including display, mobile, CTV and the walled gardens of social platforms, according to Insider Intelligence. The IAB surveyed 223 buy-side ad investment decision-makers between October and November 2022 and found that 53% were planning to increase their focus on ad placements with publishers using first-party data, a greater percentage than those who said they would target buzzy areas like retail media or the metaverse.

Marketers are increasingly disillusioned with the pitch programmatic advertising made 20 years ago that unprecedented scale could be reached by buying audiences across a wide swath of media properties instead of negotiating directly with publishers.

For 2023, marketers are looking for more control in digital ad buying to cut out unsavory inventory, have better reporting metrics and increase access to more first-party data. At the same time, many of the industry’s ills are already out of the bag, and more programmatic direct deals may not be enough to mollify them.

The promise of control

Bidding across the open internet on web, mobile and CTV makes the risk too high for buyers to inadvertently advertise across low-quality inventory, said Chris Kane, founder of ad-tech consultancy Jounce Media.

The industry is keenly aware of this problem. In a survey conducted by Jounce, ad-tech professionals said at least 12% of the most common inventory marketers bid on are poor investments for the typical marketer. “The open auction is too open. There’s too much of a mix of high-quality and low-quality supply,” Kane added.

Moreover, in a time when brands are being forced to justify their media spend, a buyer that has a direct relationship with a publisher may be able to get more data to prove the effectiveness of their buys, said Evelyn Mitchell, analyst, digital advertising and media at Insider Intelligence.

The open auction is too open. There’s too much of a mix of high-quality and low-quality supply.

Chris Kane, founder, Jounce Media

“There’s a lot that can be added when you have publisher data,” Mitchell said, especially in the case of display advertising, which relies on third-party cookies.

Publishers are particularly keen to strike direct deals, though they tend to be less worried about quality control than monetizing the large chunks of their audiences that are quickly becoming unmonetizable due to cookie deprecation, and direct deals are an easier way to transact first-party data than the open exchange, sources said.

Robert Webster, global vp of strategy at marketing tech consultancy CvE, said around 50% of the deals he saw in 2022 among more advanced publishers across display inventory were direct, up from 25%-30% in 2021.

For marketers, first-party data is insurance against fraud, Rinaldi said. “At the end of the day, their first-party data is a known user,” he added. “In the open exchange, you might run into a bot.”

Going direct doesn’t lift all tides

Direct deals with publishers often lack scale, which is what originally made open-web programmatic so attractive. Kane said that for the majority of buyers, direct deals are too small to be meaningful, but curated lists of high-quality publishers can ameliorate this problem.

Even so, in 20 years, programmatic has developed plenty of skeptics who don’t necessarily see it as worthwhile to find solutions to its problems.

Monica Cepak, CMO of sexual health telemedicine company Wisp, said the company has used open-exchange programmatic display ads to retarget, but recognizes its limits because of the potential for leakage of sensitive customer data, especially as a health care brand.

Against this backdrop of distrust, the bifurcation of certain buyers and sellers in the industry will grow, with more sophisticated advertisers and publishers able to invest to unlock the promise of direct deals, said Ana Milicevic, co-founder of ad-tech consultancy Sparrow Advisers.

“Advertisers who have a lot of first-party data, who have a lot of users, they’re dealing with one set of challenges and opportunities, and the rest of the ecosystem is dealing with another set of challenges,” Milicevic said. “We used to all use the same kind of stuff.”

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This story first appeared in the Jan. 9, 2022, issue of Adweek magazine. Click here to subscribe.