• by Skip Brand , February 18, 2014

Global search leader and now premium RTB guru Tim Cadogan, CEO of OpenX, has been involved in RTB since its beginning, and has seen the industry grow into a multibillion-dollar industry very quickly. “RTB has grown as fast, if not faster, than the paid search industry – the current juggernaut of digital marketing – in its first few years,” says Cadogan.

However, there’s more – much more – to come! Cadogan says the programmatic space is only just finishing its first phase, which lasted five years, and its second phase should be be another multiyear growth cycle, full of “what I call ‘programmatic sophistication.’ This phase will be even more exciting,” he asserts.

“In the scale phase, RTB grew fast but was utilized in relatively simple ways. This can been seen by examining three crucial dimensions: ad formats, screens and business models,” explains Cadogan. With ad formats, “over 90% of trading volume in programmatic has been executed within just three IAB standard ad format sizes,” he says. When it comes to screens, “the vast majority of RTB transactions have occurred on desktop – and laptop – screens.” And the business model has mainly been an “open market, RTB bidding model where all buyers compete for ad inventory.” In other words, “programmatic’s first chapter – RTB – has been a relatively homogeneous system.”

But now, “we’re at an incredible inflection point where programmatic is becoming more sophisticated because publishers and buyers want to apply its power to a much broader, more heterogeneous set of opportunities,” says Cadogan. “For example, we’re now seeing the range of ad formats really begin to evolve. You’re seeing Rising Star IAB ad formats, trading of units traditionally only sold via insertion orders (like big home page units) and cutting-edge work on programmatic native.” And screens are quickly becoming more diverse as programmatic buying is used for ads on mobile devices. Business models now include “private marketplaces, programmatic direct, programmatic guaranteed and many flavors within these new deal structures,” he adds.

Cadogan compares the evolution of programmatic to many other industries that went through a preliminary scale phase in which they proved themselves before entering a new level of sophistication that emphasized choice and creativity. “An obvious example is car manufacturing; a less obvious one – you can pick almost any mature industry category – is sunglasses. In the beginning, the products came in one form (one shape, one size, one pricing model etc.), but now you can pretty much build your own car or even build your own sunglasses – at least if you buy Oakley’s… You can provide much more choice with more mature products,” explains Cadogan. “In our case, I think we’ll all look back in a few years and say, ‘Hey that first phase was terrific, but we were really just getting started.’ Bottom-line: programmatic is moving from a scaled yet homogenous phase to a more sophisticated, heterogeneous phase. Needless to say, that transformation brings with it plenty of room for terrific innovation and of course major potential revenue growth for the participants.”

Of course there are challenges, says Cadogan. One is ensuring the transition into more sophistication doesn’t overwhelm people with complexity. “The raw potential here is huge,” he says, “but how this transformation is communicated and executed, how we enable people to understand, get comfortable and go through trial and error effectively across the buy-side and sell-side together, all of those things are essential execution challenges for our industry to overcome.”

Another challenge Cadogan notes is the transition from cookies to other forms of user ID, since cookies don’t exist on mobile devices. “There’s definitely a transition going on as the buy-side is connecting to supply in new ways that allow them to present the right ads to the right people at the right point in time,” concludes Cadogan.

Cadogan was early and correct 10+ years ago in paid search, and I will bet he is correct again in forecasting that the second wave of RTB will be significantly bigger and more sophisticated than the first!