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Economist Special Report

Programmatic Buying And The Future Of Advertising

Neo@Ogilvy and Xaxis experts respond to the recent Special Report from The Economist on Advertising and Technology.

As you’ll see below, The Economist’s recently published special report on programmatic advertising, “Buy, buy, baby,” provides a quick introduction to how technology has changed the way ad space is traded and what this means for the future of advertising.

Navigating complexity

Programmatic advertising is powered by emerging technologies provided by large global media companies and hundreds of venture-backed startups. DSPs, SSPs, DMPs, ad exchanges and ad servers are all components of the programmatic technology “stack” – and these technology platforms iterate rapidly with new features of increasing sophistication. This new, constantly changing, and complex world has the ability make advertising more relevant, effective, and ultimately more efficient.

User Privacy

The data used to conduct digital programmatic trading is based on anonymous profiles.  In order to be effective for advertisers and publishers, programmatic advertising must provide benefit to the end consumer. That’s one of the reasons why some platforms, including Xaxis, offer users notice and choice – notice that anonymous data is being used to serve them more relevant advertising content and choice on whether the user prefers to opt-out of such targeted advertising.  Personally-identifiable information (PII) is not used to construct profiles used without explicit opt-in from a user.

Full POV

Proliferation of Channels

Users engage with more channels and devices than ever before. Programmatic advertising has quickly spread across all these digital channels. It began with search but now has expanded to display advertising, online video, smartphones, tablets, connected TVs, gaming consoles, streaming radio and digital outdoor signs. Advertisers are able to use technology to deliver relevant messaging to their target audiences across any device or screen with engaging creative customized to their environment and interests. Programmatic truly enables closer connections between customers and the brands they love.

Geographic Adoption

Programmatic advertising took rise in the US followed by fast adoption in the UK, Western Europe (Germany, France, Spain, Italy, Netherlands), Canada, Australia and the Nordics.

Today we see enthusiastic adoption of programmatic advertising in China (especially in video), Southeast Asia, Brazil, Mexico, Poland, Central and Eastern Europe, Turkey, the Middle East and North Africa, Japan and Korea.  Yes there are challenges in some of these markets where technology may not be as widely adopted by consumers, advertisers and/or publishers. At the same time, many of these markets are able to leapfrog stages in development of the early adopters; for example, large local publishers enable private exchanges or programmatic direct deals with large agencies and advertisers instead of programmatic buying relatively commoditized low-cost high-reach inventory in an open exchange.

The global move towards programmatic advertising platforms gives multinational advertisers the opportunity to establish a consistent data-driven and technology-enabled approach across all geographies in which they operate.  Advertisers in the automotive, CPG, personal finance and retail categories have been first to move to establish global platforms to realize the effectiveness of programmatic in their digital marketing planning.

Avoiding the “Technology Tax”

As technology has now become more critical to the advertising production and distribution process, costs for such technology can sometimes match or exceed the cost of the media being bought to place the advertising.  Marketers are concerned that the amount of what has traditionally been referred to as “working media” is reduced due to cost of technology.

We advise clients to look at the total package investment of technology, data, programmatically-traded media and the expertise and consider that the new cost of “working media”.  Clients must measure ROI based on the total cost of reaching an audience.  If a client continues to measure ROI based on an antiquated notion of working media, then yes technology costs will seem exorbitant – yet this technology is essential to deliver on the effectiveness of programmatic advertising.  The leading programmatic advertisers look at working media as the total package of media + data + people + technology.

 “From Mad Men to Math Men and Women”

The programmatic era represents a transformative change in the advertising industry.  Today’s marketer is as likely to have a mathematical degree as a marketing degree.  Analytics are more important and abundant than ever before.  Agencies and programmatic companies are hiring statisticians, engineers and even rocket scientists to harness the power of data, algorithms and statistical models.

Real-time adjustments to campaign targets, distribution, pricing and creative messaging are possible through the platforms which exist today.  Automated traders conduct forward guaranteed buys or scoop up inventory in a spot buy within milliseconds.  The media planner of today is empowered to make data-driven planning and buying decisions through technology more effectively than ever before.

In the future we’ll look back at this time as the turning point in the way media is transacted and messaging is delivered.  Content will become even more relevant and more effective: delivering both conversions and customer value.

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Reprinted from the Special Report with permission from The Economist  | Programmatic bidding: Buy, buy, Baby

JONA MICI, A 27-year-old media trader, sits in front of her screen at Varick Media Management, a real-time advertising company in New York, and explains how she uses superfast algorithms to buy 20m-30m advertising “impressions” a day. Today one of her clients, an American bank, has asked her to find new customers. At first she guides the algorithm to buy as many impressions as possible near bank branches. Then she narrows her targets, choosing criteria that produce a better hit rate. For example, she finds that tablet users sign up more often than iPhone users, and afternoon seems to be a better time than morning. She instructs the algorithm to bid more for consumers that have recently visited the bank’s website, who may be more easily persuaded. In her office less than two miles from Wall Street, Ms Mici embodies the excitement and entrepreneurialism of an industry in the midst of momentous change.

The advertising industry is going through something akin to the automation of the financial markets in the 1980s. This has helped to make advertising much more precise and personalised. Some advertising agencies and media companies have told their executives to read “Flash Boys” by Michael Lewis, a book about Wall Street’s high-speed traders, to make quite sure they get the message.

Real-time bidding sounds high-tech but straightforward. When a consumer visits a website, his browser communicates with an ad server. The server sends a message to an exchange to provide data about that user, such as his IP address, his location and the website he is visiting. Potential ad buyers send their bids to the exchange. The highest one wins and an ad is served when the website loads. All this typically takes about 150 milliseconds.

In reality, though, the ad-tech ecosystem is stupefyingly complex. Luma Partners, an investment bank, has put together the “Lumascape”, a bafflingly crowded organisational chart showing several hundred firms competing in this market. Sellers of advertising space often go through technology firms: a “supply-side platform” (SSP) helps publishers sell their inventory, and a “demand-side platform” (DSP) gives access to buyers. Many choose a data-management platform (DMP) to store and buy information about users. Ned Brody of Yahoo, an internet company, makes light of all the three-letter acronyms: “It usually ends with WTF,” he quips.

Real-time bidding is a form of “programmatic” buying, which means using computers to sell advertising space. An advertiser can buy a certain number of impressions on a website in advance at an agreed price and execute the order by computer, avoiding the need for paperwork, spreadsheets and faxes. The technique was first used over a decade ago in search advertising, in which advertisers bid for search terms entered by users, and Google and other companies serve relevant ads alongside the search results.

Over the past 18 months real-time bidding has spread across the web. According to IDC, a research firm, around 20% of online display advertisements in America are now sold this way; by 2018 that figure is likely to rise to 50%. Online video and mobile ads, too, are increasingly traded in real time. “Ten years ago you would never have had the information technology cheap enough to do these transactions,” says Mike Driscoll, the boss of Metamarkets, an advertising-analytics platform.

A study by BCG, sponsored by Google, found that advanced behavioural targeting, which uses technology to reach specific users with the desired characteristics, helped advertisers increase their return on investment by 30-50%. One popular tactic is “retargeting”, which allows advertisers to look for people who have visited their website before and show them an ad related to an item they were looking for but did not buy.

So far programmatic buying has taken hold mainly in America, which accounts for around a third of global ad spending, along with Britain and continental western Europe, but it is set to become a global trend. Singapore is already home to several ad-tech firms. China, which will overtake Japan to become the second-largest online-advertising market after America this year, is behind in automated buying because it does not have third-party ad servers or data that advertisers trust. Instead advertisers often rent advertising space by the day, so they can go to websites and check that their ads appear. But even Chinese websites will gradually move to buying by computer.

The automation of media buying has raised all sorts of questions, such as how much ad-sales staff should be paid, and whether they are still needed at all, when machines seem to be doing the work so much more efficiently. Bob Pittman, the boss of Clear Channel, says that automation will “free up very smart people…from grunt work”. But it may also free them up to look for another job.

Advertising agencies that specialise in buying media space for clients have set up their own trading desks to buy digital media on behalf of clients and capture some of the margin for themselves. But some of the world’s largest advertisers, such as Procter & Gamble, are already bringing more of it in-house, causing concern that advertising agencies may lose their edge in the future (see article). Upmarket publishers have been cautious about making their premium ad space available for sale by computer because they think, probably rightly, that it will put pressure on prices. But more of them are testing the market. Some, such as the New York Times, the Wall Street Journal and The Economist, have created private exchanges which limit the number of advertisers who can bid for their ad space or buy it in advance, giving them more control over pricing.

Wait for it

For all its promise, programmatic buying has not yet delivered greater transparency and efficiency. Advertisers and publishers complain, not without cause, about a “technology tax”, claiming that 60-80% of ad spending is siphoned off by ad-tech firms which take advantage of the market’s opacity.

But these are early days. “We are only where search advertising was in 2001,” says Konrad Feldman of Quantcast, a real-time advertising firm. Over time the system will become more streamlined and sophisticated, just as the finance industry did after it went electronic. Some companies, including AOL and Google, are already trying hard to become the one-stop shop that provides everything needed to buy ads across the web. Venture capitalists are also scouring the terrain. In the meantime advertisers need to watch out. Curtis Houghland, the boss of Attention, a social-media agency, advises clients not to sign contracts for more than six months because technology is changing so fast.

The rise of real-time bidding is important because it offers a glimpse of how other ad-supported media may change over time. As more devices, including television sets, radio and outdoor billboards, become internet-equipped, a market for advertising space that can be bid for will spread to other industries, eventually even to television. And in the longer term the coming “internet of things”, such as connected homes and cars, could be powered by a system similar to programmatic buying. According to John Battelle, an entrepreneur, “media are laying the trace path for how we interact with information-based services in every category of endeavour.”

Click here for The Economist’s Special Report on Advertising and Technology.

Follow commentary on the Economist Report here.

 You might also find this of interest: Put the ‘PRO’ in programmatic bidding.

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