Multimillion-Dollar Annual Cost Of Programmatic Platforms Could Slow Industry Growth

The multimillion-dollar cost of building and maintaining a programmatic platform could slow industry growth for those that lack the funds.

It could also force an uptick in mergers and acquisitions in the coming year.

The latest divestiture shuffling the industry is Collective's decision to divest its dynamic creative technology to Adobe Systems. Collective will focus on building out its new platform the company will publicly name in May, according to Joe Apprendi, the company's CEO.

The cost for any company--from trading platforms to advertising agencies--to build and maintain a programmatic ad system comprised of a workflow system, a DMP, a reporting layer, a bidding platform, and an attribution model sits at between $20 million and $25 million annually, Apprendi estimates. 

The multimillion dollar investment goes toward the annual maintenance and development costs for existing and new features that comprise the platform, which consist of five key features.

Apprendi said those five key features in a programmatic system include DMP, workflow, bidder, reporting layer, and attribution. "The biggest problem in advertising is attribution," he said. "Viewability issues make 50% of the money spent basically worthless."

The most rudimentary ad-serving system, depending on the decisions it makes, could cost as little at $1 million, but the average price tag sits at between $3 million and $4 million. "Ad serving in its most raw form would only serve one ad per client over and over again," said Kevin Lee, Didit founder. "A sophisticated ad server makes much more complex decisions."

It depends on whether the platform can work in mobile, dynamically build creatives and serve ads based on location, among other features. Each time the company adds a complex feature the price goes up about $350,000, Lee said.

Lee believes there is ample investment money for those "who can build a better mousetrap." He said programmatic advertising systems are taking their cue from search engine marketing bidding systems. "It used to be he who pays higher in search wins, and now it's happening in programmatic mobile, display and video," he said.

John Nardone is betting on that reality. He recently stepped into the CEO shoes at Flashtalking, a programmatic ad-serving start-up, after his company X+1 was acquired by Rocket Fuel. Investors are still willing to open their purse strings because the potential is huge. 

3 comments about "Multimillion-Dollar Annual Cost Of Programmatic Platforms Could Slow Industry Growth".
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  1. Kevin Lee from Didit, May 1, 2015 at 8:04 a.m.

    Of course some features of an adserving or targeting stack can cost far more than $350K to build, and some are less.  Infrastructure, coding and product management are the tip of the iceberg. One also needs to maintain API connectivity and compliance with the major players and those APIs are in constant revision.  The investment requirements are constant.  Of course the value of success is huge because billions are changing hands within the programmatic marketplaces.  Perhaps I shouldn have said the better algo (algorithm) wins, but event that's an over-simplification because better data is also key.  Any information asymmetry provides a huge advantage to the information holder if their information is correct.  Those with bad algos and/or bad data either:
    a) lose the bids for the impressions they want
    b) win the bids having over-estimated the value (winners curse) 


    Either of these outcomes mean you lose the online ad battle. 

  2. Laurie Sullivan from lauriesullivan, May 2, 2015 at 11:08 a.m.

    Kevin Lee, if there was a like button next to your added comment I'd click on it. Thank you for the added insight.

  3. Kiran Gopinath from Adadyn, May 12, 2015 at 12:38 p.m.

    Hi Laurie, you hit the nail on the head. Google's move toward programmatic is likely to generate some confusion about the transition – especially as the concept of dynamic creative optimization (DCO) with programmatic is still relatively new to most marketers and advertisers. And we expect ‘DCO + programmatic’ to remain a hot topic for the rest of the year, and even into next as more agencies start to grasp the concept and experience the significant cost, time and targeting benefits it provides in making ad campaigns more impactful. Adobe’s acquisition of DCO technology from Collective may be small news in the broader M&A landscape, but it’s quite significant in the ad world for several reasons. Adobe’s admission that, “[#DCO] once was a nice to have [#adtech] feature, and now it's just critical," will elevate industry awareness around DCO and its benefits and we can expect to see more advertisers and marketers start to embrace DCO to strengthen and optimize their ad/marketing strategies. This acquisition by a major industry player also further illustrates the maturity of programmatic. While Adobe’s offerings may not be for every company, or Google’s, it goes without question that more agencies will start looking for ways, regardless of budget size, to marry DCO + programmatic for a more effective and targeted campaigns. - Kiran

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