Commentary

The Private Future Of Programmatic

Programmatic advertising is expected to help fuel growth in the U.S. online display advertising marketplace over the next five years from $19.8 billion to $37.6 billion, and the “flight to quality” is a major reason why.

The numbers come from a Forrester report projecting the growth of the U.S. online display ad space through 2019. The report says exchange-based programmatic advertising has gone “mainstream,” and will “seduce an increasing number of advertising and publishers in the years to come.”

While that may be technically true, the vast majority of advertisers and publishers already use programmatic. A recent study from AOL says that 91% of advertisers use programmatic in some capacity, with 86% of agencies using it to buy display inventory. Even the majority of local publishers -- 62% of them, according to an August 2014 Forrester study -- are using programmatic to sell.

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So perhaps a more apt thought is that programmatic will continue to “seduce” better inventory, bigger brands and the big bucks -- like, say, those TV ad dollars the digital folk are so keen to commandeer.

And seduce it has. We know which big brands are adopting programmatic -- P&G, American Express, Mondelez, Kellogg’s and many more -- and we have executives from other major brands, such as Unilever, openly speaking about the state of the programmatic marketplace.

The state, at least from Unilever’s perspective, is that there isn’t enough quality inventory on the open RTB (real-time bidding) exchanges to support the type of campaigns a company like Unilever is looking to run. But the programmatic industry is no longer just a “race to the bottom,” and has evolved to include a slew of private exchanges (it seems like every publisher is setting up their own) and “programmatic direct” channels.

Forrester believes programmatic direct tech and private exchanges to become “pillars of programmatic strategy.” The report adds: “Programmatic direct and private marketplaces are closer to traditional direct buys than RTB, with added automation and more-effective audience targeting. Negotiating directly with the seller and focusing on a smaller number of publishers creates more brand-safe parameters for thebuy. It gives marketers more visibility and control over ad placement, adjacent content, and viewability and reduces the odds of being subject to fraudulent traffic."

At last week’s Programmatic Upfront, hosted by AOL, chairman and CEO Tim Armstrong told a room of investors and journalists that just one year ago he felt the industry was still learning that “programmatic” was more than just “RTB.” Now Armstrong and other AOL execs believe the industry fully understands that RTB is simply a type of programmatic advertising.

As the market evolves to facilitate the automated trading of higher-quality inventory, Forrester says that “new categories of advertisers and publishers will embrace exchange-based trading.” This has already been seen in 2014.

For example, CPG companies were the second biggest programmatic spenders in Q2 2014, per a recent Casale Media report. That represented a noticeable quarter-over-quarter difference, as CPG companies were just the fifth biggest spenders in the programmatic space in Q1. That backs Forrester’s prediction -- “new categories of advertisers … will embrace exchange-based trading” -- and also indicates that the adoption may happen faster than anticipated.

“Exchange-based trading will make up 30.2% of total display impressions by 2019: nearly double the 2012 levels,” Forrester writes in the report. “As a result, Forrester expects performance-based pricing schemes to expand twice as quickly as impression-based schemes in the next five years. By 2019, 71.4% of display advertising spend will be sold based on performance; 26.6% will be sold based on impressions; and 2% will be sold on a sponsorship basis.”

"Private sign" image via Shutterstock.

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