• by Tyler Loechner , Staff Writer @mp_tyler, September 25, 2013

Yesterday's news of Microsoft, Yahoo, and AOL coming together to create a common set of API specifications for programmatic direct sales marked what some (with some meaning people with a horse in the race) have called a "watershed moment" for programmatic direct. I'm not yet ready to call it a watershed moment, but the pieces are certainly in place for programmatic direct to take off like, well, programmatic has.

I spoke with Daniel Sheinberg, Microsoft's senior director of display marketplaces, about the news. Microsoft has already partnered with a programmatic direct company in isocket. At presstime, neither Yahoo nor AOL had announced partners.

Scheinberg shared that this will be the first time Microsoft -- or any major publisher, as far as he knows -- utilizes programmatic direct. "I don't think that there is anybody who you could say is really fully enabling programmatic direct today as a large publisher," he said.

The company has been dealing with real-time bidding (RTB) in the past via their Microsoft Advertising Exchange, but Sheinberg said that their move into programmatic direct is different. "The inventory we are making available on the exchange is our unsold inventory. Our reserved ad server sits upstream of our exchange, so that's where our premium ad offerings get booked." The programmatic direct deal with isocket will link to that reserved ad server.

Microsoft is going to start with their browser-based and ad network offerings for programmatic direct, which includes MSN. There is also Skype, Window 8 app inventory, and Xbox advertising online, Sheinberg noted.

What I really wanted to know, though, was how the deal with AOL and Yahoo came about, how much inventory Microsoft is planning on trading via programmatic direct, and why they invested in it in the first place.

RTM Daily: How did talking with AOL and Yahoo even come about? Aren't they competitors?

Daniel Sheinberg: We do compete in the marketplace, but at the same time we also have a lot of areas where we have common interests and work together. And we have ongoing conversations of how we can work together in certain ways; it's not unusual to have those conversations.

The interesting thing in this particular case is that it is something that's been on the drawing board at Microsoft going back to the beginning of the calendar year. We were asking: Is this a viable offering? What's the right way to approach it? Is the ecosystem starting to grow up to support it?

As we were having these conversations internally, we also kind of recognized that it's not something that we would go out and make such a primary focus of Microsoft advertising to change buy ourselves.

[So] our business development folks started having some of these conversations with the folks and Yahoo and AOL and found that they were having similar conversations internally.

It took a little while [to get everyone on board]. Then over the summer it got more serious as we began talking about converging on an API specification. That's where we felt we'd have enough scale between the three of us to set a standard for the industry, and that [it] would provide a catalyst for things to accelerate.

RTMD: Why do you see programmatic direct as an opportunity?

Sheinberg: If you look at why we've seen growth in programmatic buying in the digital ad space, it really builds on the promise of scale and efficiency for buyers. Programmatic to date has largely meant RTB, but we think of it more as talking about automation and driving greater efficiency.

The strength of RTB is that it's achieving that scale and efficiency. The challenge of the RTB marketplace is that…as it gets more sophisticated, or as buyers are looking for more information from publishers, it starts to become more challenging for publishers to think of it as additional revenue…rather than cannibalization. Premium publishers have been reticent to share data in an exchange environment because that's their value proposition in a premium space.

When you look at programmatic direct, rather than inventing a new way to enable those premium offerings via RTB, we can just leverage the existing ways buyers and sellers have done business and drive the efficiency and scale [with technology].

We aren't reinventing the wheel. We're saying that the wheel is decent, [but] we are going to take out some of the friction. Think of it as adding ball bearings.

RTMD: How much inventory will you sell via programmatic direct? Or will you simply meet the demand?

Sheinberg: The way you put it in the second part of your question is probably right. I don't want to speculate on…numbers.

RTMD: Thanks for your time.