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.