The 'Problematics' With Programmatic Buying
I am in awe of the intelligence of those working in the automated buying space. I get how much they care about improving the online display ad business, and I understand the unique benefits this advancement in technology delivers. I also see a fundamental problem being swept under the rug. Programmatic buying via ad exchanges only works for buyers (and related facilitators); it doesn’t work for premium branded publishers.
Those working in this automated buying space who have never sold advertising directly for a publisher may be operating with a distorted view of the relationship between sellers and buyers of media. I believe their view has buyers and sellers working together toward one common goal. The reality however, is that this relationship is the exact opposite: Buyers get paid to decrease the cost of media inventory that sellers are paid to increase.
Defining “fair value” for this inventory through a real-time bidding process sounds ideal, since competition should drive up CPMs for premium publishers, but what will actually occur is a constant state of price erosion. Here’s why:
A. Programmatic buying amputates the value of brand and context.
If you don’t think context creates value, please read the story about Joshua Bell, a world-renowned violinist who was ignored by commuters as he played at the metro station in Washington D.C., and who sold out a plush theater in Boston two nights prior at $100 per ticket.
RTB via ad exchanges targets audiences -- not contextually branded environments. While that works extremely well for long-tail sites with sub-par content, it will have an adverse effect on the comScore 500.
By mixing in their ad impressions into one vat and then allowing buyers to pull out audiences disconnected to the context and brand in which that ad impression is seen, the value a premium publisher produces will vanish.
Just like the commuters who ignored a world-class violinist, buyers will have such an easy time ignoring the value of brand and context, and will define “fair value” for ad exchange inventory based on the quality of the data used to target an audience, and how that audience responds to the ad message. Inventory evaluated this way sets up an easy win for buyers and serves up lower CPMs for publishers, who ascertain no value for the consumer attention their brand delivers to advertisers regardless of any actions taken in response to an ad.
B. Programmatic buying has an incentive issue.
The promise buyers are making is that if publishers put their premium inventory onto the exchange, and it performs really well, buyers will pay more for that inventory -- which is a contradiction of what buyers get paid to do.
The reality is that buyers (and advertisers) have an incentive to have their ads perform “just well enough” in order to offer CPMs for exposure on premium branded sites that are just high enough for premium publishers to accept (because it’s more than what they get from an ad network), but significantly lower than what buyers would pay if these impressions were bought directly. This misalignment of incentives creates a moral hazard and another big win for buyers -- who want and need to buy premium-branded inventory, but now won’t have to pay a premium to purchase it.
Programmatic buying via the ad exchanges feels like a poker game set up for buyers and sellers where the buyer’s cards are stacked and the house makes the money -- making premium publishers the mark.