Let me be upfront about this: When it comes to covering the advertising marketplace, I have some personal biases, and they come mainly from covering the upfront. I try not to let them influence the way I cover news about the marketplace, but I definitely try to use every editorial opportunity I can -- especially blog-like commentaries like this one -- when I can. So today’s RTBlog is about some analogies people have been making between the way Madison Avenue buys network TV, and the way it buys digital media, especially programmatically.
Let’s put aside how programmatic media-buying may or may not impact TV’s upfront someday. And let’s just focus on the brief history of digital programmatic trading and in what ways it is like, or unlike, the television advertising marketplace.
First let’s start with how agencies and trading desks buy programmatic, upfront. They do, you know. They have all sorts of terms for it. They call it “premium programmatic,” or “automated premium,” or “programmatic guaranteed,” or any number of other things, but it’s all basically the same thing, using automated processes and the infrastructure of the RTB marketplace to facilitate deals that enable agencies and trading desks to scrape off the premium parts of a publisher’s audience before they reach the open marketplace. This digital upfront may operate in a time frame of nanoseconds, but from a functional point-of-view, it is no different than the network TV upfront that can take place for weeks or months.
The ony differences are that machines, not people, are haggling and allocating the inventory, and that it happens at a speed that no human could haggle at. Otherwise, the function is exactly the same: Agencies and/or trading desks negotiated the best terms and conditions, including guarantees of price, audience composition and delivery based on a first-look opportunity to buy the most premium audience inventory.
That’s exactly what GroupM is effectively doing when Chief Digital Investment Officer Ari Bluman says it is shifting all its programmatic deals from open exchanges to private exchanges. For all the other legitimate reasons he cites -- viewability, fraud, algorithmic bidding engines, etc. -- the play fundamentally is about leveraging GroupM’s sizable budgets to "pre-negotiate" favorable terms (ie. price) to buy the most valuable parts of publishers’ inventory before it reaches the open marketplace.
GroupM is not alone. Other big agencies and trading desks are racing to lock up similar “first-look” and private exchange deals that give their clients preferred access and pricing. And the best part from the agencies’ POV is that it reinforces the best parts of the value they’ve always brought to the media marketplace, especially the ability to use superior insights about the value of media audiences and to leverage the clout of their clients’ media budgets to lock them up. They use people and data in the front-end to negotiate those terms. Then they use machines and data in the back-end to process them. It is the ultimate blend of the industry’s Mad Men and Math Men (and/or women).
Here’s why they will fail.
“No single buyer represents more than 5% of the demand in the marketplace,” explains Chris Karl, CMO at Sonobi.
Unlike the TV upfront advertising marketplace, where a handful of big agencies represent most of the demand, Karl says none of Madison Avenue’s biggest players -- not even GroupM -- represent enough of a critical mass of demand for most online publishers that they can constrain the market that way.
“Maybe they have 7%,” Karl says of GroupM’s digital market clout, but even if you add up all the buying power of the six of seven agency holding companies, you still come out with something that is significantly less than half the total demand for digital advertising inventory.
Does that remind you of another marketplace? You know, search? Well, in a lot of ways the programmatic marketplace is a lot like search. In fact, from what OpenX Foudner Jason Fairchild recently told me, it actually grew out of search, which was a 100% programmatically traded, auction-based, supply-and-demand marketplace. And you know, it has worked pretty well for brands of all sizes, and it continues to grow.
Of course, search is part of “digital,” even if a lot of people in the business don’t think of it that way. But whether we’re talking about online display, mobile, or social, Madison Avenue just doesn’t dominate the supply chain the way it does in television. Part of the reason is the supply chain in digital is so much bigger, and growing every day. And there just aren’t enough collective dollars on Madison Avenue to dominate it.
So the only way to create the same sense of an allocation market that exists in TV’s upfront, is to artificially constrain the digital marketplace. And the only way to do that, is to create some artificial buckets defining one part of the universe as being special, more valuable, precious, higher-in-demand and more sought-after than the rest -- you know, “premium.”
It’s a funny word, because it means so many different things to different people. And from what I can tell, it means completely different things to people on the supply-side and the demand-side, at least until Madison Avenue started retrofitting the programmatic marketplace to look more like TV’s. I have written about this in the past, and will do so again in the future, but the main difference in the way the two sides use the term premium in the digital marketplace, is that suppliers look at it as the highest price paid to reach their audience, while the demand side looks at it as the most valuable audience they can acquire, regardless of the price they pay, or the method they use to acquire it -- direct, private exchanges, or open exchanges. The main difference for them, is the price they end up paying to acquire them.
That’s the main reason I believe so many big marketers are taking programmatic in-house, because they believe their is no difference in how you procure the audience, so long as you reach the right audience possible, at the most efficient price possible. And some people believe the best place to do that is in an open, auction-based marketplace where the supply still outstrips the demand.
In the meantime, big agencies like GroupM will continue to create as much value for their clients -- and themselves -- as they can by leveraging things they do best in closed marketplaces, if for no better reason than they can actually manage that.
Some people have likened GroupM’s play to the notion that they are creating their own ad network, or ad networks for individual clients or groups. But I like Sonobi’s Karl’s analogy that they’re really just trying to replicate an upfront mindset by locking up first-look opportunities, negotiating preferred rates and guarantees, and then letting their machines scrape off the audience to create their own version of a premium marketplace.The flip side, says Karl, is that everything the big holding companies don’t dominate in private exchanges go into what is effectively programmatic’s scatter marketplace. And unlike TV, that represents the majority of digital inventory. In other words, programamtic’s scatter market is less like TV’s and more like search’s. And that means it is far too diffuse for any single entity, or group of entities, to dominate.