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What’s the Problem with Programmatic Advertising?

By Martin Kihn | June 16, 2014 | 0 Comments

Recently, we here at Gartner ad tech HQ spent some time enjoying a report from an analyst who deserves a lot of credit for tirelessly championing the strategic benefits of programmatic media. I refer, of course, to ad tech doyenne Joanna O’Connell, Research Director at AdExchanger and author of a recent survey called “The State of Programmatic Media.” (You can get your own copy here.)

A word about AdExchanger. Founded in 2008 as a newsy blog by online media vet John Ebbert, it has turned into the kind of digital publication that belies plaintive bleats about the demise of journalism, churning out dozens of timely stories a week with fresh reporting, breaking items, top-tier access and thoughtful positioning.

AdExchanger’s beat is narrow and its staff is lean. It covers only online publishing and advertising with a slant toward technology and programmatic media. How it makes its nut I don’t know, but there’s nobody in ad tech who doesn’t read it, attend its bi-coastal “Programmatic I/O” events and want to contribute to its newsfeed as a guest columnist. (I’ve written a column and commented for a few stories, but Gartner has no official relationship with AdExchanger.)

O’Connell herself was a champion of programmatic as an industry analyst, and she made her bones as a very vocal cheerleader for machine-driven trading, bid-based ad buying, and the whole world of non-guaranteed, algorithmically exchanged digital advertising that seems finally — after some five years lurking in the shadows of respectability — poised to assume its place at the tables of the majordomos.

What is “programmatic”? In fact, it has as many meanings as “ad tech” itself, but at heart it is the new paradigm of digital media buying and selling, a marketplace for ads that moves more like Wall Street than the calls-and-cocktails cadre that still runs channels like television and print. Programmatic markets have three key characteristics. They are:

  1. Automated — machines make decisions on what ads will run where, based on rules (which are often set by humans, so relax)
  2. Auction-driven — although this is changing as more so-called private exchanges and “premium” inventory appears, marketers generally have to bid on impressions against other marketers (this is where the “non-guaranteed” point comes in — no one is ever guaranteed to win an auction)
  3. Information-heavy — the promise of programmatic marketplaces is that they value data over dealmaking, providing marketers an opportunity to bid (and pay) only what they think an ad is worth in a particular time and place

Nuances abound, as many top-tier publishers remain relunctant to release inventory into an auction that may undervalue it, driving down prices; and many marketers, particularly higher-end big-spending brands, wanting more control and some level of soft guarantee in exchange for their many simoleons. But one finding that leapt out of the AdExchanger report was that across marketers, publishers, and agencies, programmatic is rapidly climbing out of Filene’s Basement and has commenced a tentative march up 5th Avenue.

For example, the report, based on a survey of market participants, showed that:

  • More than a quarter of respondents managed at least 60% of their digital media programmatically
  • A clear majority (two-thirds) plan to manage at least 40% this way within a year
  • Agencies are even more aggressive, with more than a quarter rocking an 80%+ number

The most amusing part of the survey was a section on perceived “challenges” to wider adoption of programmatic methods. Inventory quality rose to the top (27% of marketers), but there were healthy minorities bemoaning issues such as viewability, “lack of understanding,” and concerns about transparency (i.e., exactly what am I buying where at what price?).

What’s clear is that there is a lot of finger-pointing going on:

  • Advertisers cite “inventory quality,” implying that publishers are dumping remnant impressions on the market
  • Agencies worry more about “lack of understanding,” implying nobody “gets it” like they do
  • Publishers fret about understanding also, but stress there is “too much complexity,” perhaps implying there are layers of middlemen squeezing out their margins
  • Tech vendors also cite complexity (thus, notes O’Connell, they “point the finger at themselves, if unintentionally”)

Ah, everybody feels misunderstood. That’s the Paradox of Programmatic: it’s like a party nobody wants to be at and nobody wants to leave. And the beat goes on.

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