• by Skip Brand , June 4, 2013

When I spoke with Frank Addante from Rubicon Project last week, we had a lot to say about where programmatic is heading. I’m optimistic about top-tier publishers engaging in programmatic, in the adoption of rich media ad units, and in the broader adoption of HTML5 standards. Addante’s optimism comes from a much more pragmatic place.

Addante began Rubicon Project six years ago with a simple mission.  “It was to automate the buying and selling of advertising,” he tells me. “If you look at any other major market where there are billions of dollars exchanged between thousands or millions of buyers and sellers, those markets have all moved to automation.” As examples, he points to financial services (automated by NASDAQ), travel (the SABRE system), and retail (Visa and MasterCard as data automation). More recently, companies like eBay and Amazon have taken retail automation to an entirely new level.

Addante believes it’s important to consider the history of automation in these markets. “They all started by automating low-value inventory first,” he points out. “The first stocks traded on NASDAQ were not large cap stocks; SABRE was built by American Airlines to sell its unsold seats. But AA eventually spun that out into its own company, allowing all airlines, hotel and rental car companies to automate the buy and sell of their inventory. Today, you can buy first-class flights and five star hotels via that automated platform.”  That trajectory was also repeated in retail. Ebay began as an automated garage sale. Today there's a car sold on eBay every single day.

History is repeating itself once again in the digital advertising market. “That was our vision for the market coming in,” Addante says. “We felt like this was one of the largest markets that had yet to become automated.” The company’s approach has been based on what its strategists have observed across other markets: automate the low-value inventory first, and everything else will eventually follow, including the highest premium inventory.

Programmatic, to date, has been focused on the lower-value inventory. Over the past year and this year going forward, however, the higher-value inventory is becoming a focus. But there needs to be a shift in perception for programmatic premium to really take off. 

For starters, Addante prefers to say “automated” rather than “programmatic,” a term he believes simply complicates and confuses the market. And then there’s the word “remnant.” Addante tells me, “I have this conversation with publishers all the time. Years ago, they’d refer to unmonetized or under-monetized inventory as ‘remnant.’ Then they started calling it "unsold,’ which is probably a more accurate.,” He adds, “A publisher might report a 20% growth in sales to me between Q3 and Q4. I’d congratulate them and ask how they achieved that growth. Did they pick up the phone and call an advertiser and say, ‘Hey, do you want to buy my remnant inventory?’ Of course they didn't, because it's still valuable inventory. Some of it may even be premium inventory that remains unsold.”

The simple truth is that programmatic will grow, as it has in every market, because it just makes the process easier. Addante points out that between research, negotiations, cutting checks and trafficking, it takes about 40 man-hours to manually add a publisher to a digital ad buy.  You’ll recall that, pre-Expedia, it used to take about that long to book a trip to Disney. Now you can book a first-class ticket to Paris and a room at Raffles from your desktop in less than 10 minutes.

“The growth of the automation market has gone from zero to over $3 billion in the last couple of years. If you look at that with regard to any market, it’s one of the fastest-growing markets probably ever,” Addante points out. That's $3 billion of a $30 billion display market, and programmatic (or automated, to use Addante’s terminology) will continue to grow its share -- even more quickly as adoption of programmatic premium grows.