Why automated ad buying in its current form may hurt revenues more than help


Programmatic advertising buying — that is, using machines instead of humans to purchase digital advertising — is the talk of the digital media world.

In 2013, programmatic ad spending accounted for 15% of digital display spending in Canada. In the United States, some analysts are predicting that, by 2017, programmatic will account for 30% of ad spending, a jump from 21% last year.

Proponents of programmatic say automated ad buying is a necessary efficiency in the lightspeed realm of digital impressions, freeing up human power to focus on campaign optimisation and overarching advertising strategies.

True, but not the whole story.

Programmatic is here to stay; few will argue with that assertion. It makes sense in many situations, especially when aligned with efforts on the ground. Established business models, like broadcast advertising, can be programmatic because quality brands understand the value of quality content and accept that value will rise year-over-year.

We are not there yet with digital media, and building the advertising value case for premium content is an ongoing process of education.

Programmatic direct or premium direct buys work well if the value is retained. It can save copious amounts of time on both the buyer and seller side of the equation; nobody needs to be convinced of the value of technology that minimises the tedium of making manual insertion orders.

However, programmatic buying’s time-saving efficiencies don’t necessarily translate into the best ad buying and selling model for all situations. In the same way that ad networks make it difficult to control the value wrapped around premium content, programmatic has its limitations.

There is an imbalance between traditional advertising and digital that has reduced the value proposition on both sides. Ad networks are driving down cost-per-impression (CPM) rates, and advertisers are getting poor value because of an increase in fraudulent views.

The result is a system that is currently not serving the best interests of content owners, publishers, or advertisers.

Before we can begin to address this market segment programmatically, people will first have to become experts and stabilise this digital ad environment.

As complex as computer algorithms have become, they don’t fully replace the nuances of person-to-person communication. Evidence is trickling in that suggests all is not well in the rapidly developing programmatic ad-buying sector.

This past February, The New York Times announced it was discontinuing its executive programmatic advertising position, confirming the newspaper publisher’s uneasy relationship with a system that allows advertisers to bid down the price of inventory, as reported in Ad Exchanger.

In his dissection of The New York Time’s fourth-quarter 2013 earnings, CFO James Follo pointed the finger at programmatic for at least a share of the blame for the publisher’s digital advertising challenges.

What’s the solution? I believe there’s a strong argument in favour of private exchanges that give ad representatives, who manage the relationship between the brands and the agencies, confidence that there will be absolute pricing alignment in content inventory.

In other words, if an ad rep is selling, say, U.S. National Football League (NFL) highlight content in the market direct for US$50 CPM, it will be available on a private exchange at an equal CPM rate. 

Premium content combined with premium publisher audiences will drive value to the advertiser. Private exchanges must back market offerings, leaving it up to the buyer to dictate the form of the buy.

I’m definitely for programmatic in its most basic form of direct sales, but only if the technology creates buying efficiencies and supports in-person, human-to-human negotiated direct market rates for your inventory. If programmatic buying can thrive in this role, then I say bring it on. If not, premium inventory will take a hefty hit.

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