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Programmatic Ad Buying: And Now a Word From Our Sponsors

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The glamour of the Mad Men advertising world starkly contrasts with how online advertising is now bought and sold, since much of it happens programmatically. One expert says that without programmatic assistance, it would be physically impossible to place 40 insertion orders for a campaign to appear everywhere a client desires.

“Programmatic in many ways is leveraging real market realities; it’s data, upping your bid, lowering your bid, and really working more in an environment of near real time,” says Noah Fenn, head of video sales and strategy for AOL. “In some ways, it’s like trading stocks. In quick succession you are trying to make sure you get your marketing message across and that you’re scaling and reaching an audience.”

Although subscription video on demand (SVOD) and transactional video on demand (TVOD) have been successful, ad-supported content isn’t going away anytime soon, no matter the viewing device.

“Despite what some digerati might tell you, consumers regularly accept advertising in exchange for free stuff. The ad vertical is very healthy, and for Roku it’s one of our fastest-growing segments,” says Scott Rosenberg, vice president of advertising for Roku. “As the OTT ecosystem has matured, the ad-supported segments—apps and channels that are free—have grown tremendously.”

Previously, advertising was bought and sold through direct buys between media companies and brands. In contrast, eMarketer reports that $2.91 billion was spent on digital video programmatic buying in 2015. The company forecasts an increase to $5.37 billion in 2016. Almost all online display advertising is traded programmatically. Currently, 39 percent of video ads are transacted this way, which leaves a lot of room for growth in this area. The good news is that 9 out of 10 TV ad buyers are shifting an average of 10 percent of their budgets away from linear TV to digital, according to AOL’s 2015 “State of the Video Industry” report.

In the ideal programmatic transaction, a user clicks on a website, and her internet address and browsing history are packaged and whisked off to an auction site. On behalf of advertisers, software scrutinizes her profile (or an anonymized version of it) and determines whether to bid for the right to place an ad next to the media she is about to view. If you’re looking for affluent women between 30 and 35 who own houses and dogs in a specific ZIP code in Dallas, you may hit a premium price. If you take a broader view—say, all viewers between 30 and 35—your pricing may go down, and the supply of viewers could go up substantially.

Big Data

Today, brands and media companies have deep knowledge about what type of audience they are reaching, based on all the discrete data users leave as they navigate around the internet. This data helps programmatic advertising thrive.

Programmatic buying can spread ad buys over multiple platforms and content types to reach a targeted demographic. Online advertising benefits advertisers by allowing them to reach a specific segment of viewers, engage directly with these viewers, and measure their responses. In the OTT world, advertisers use contextual targeting based on a range of data to identify their best possible audience.

Publishers that require subscriptions have a lot of information about their viewers. Brands may own even more data. “P&G probably owns a lot more data about its customers and its target audience than ABC does,” says Mike Shehan, co-founder and CEO of SpotX.

That data can provide insight about viewer activity, ranging from basic demographics to complex psychographic information. The audience’s clickstream is big business. Advertisers know a viewer’s age, gender, location, browsing history, shopping habits, registration information, third-party cookie information, trending keywords, purchase history, interests, device information, and the size and location of the player within the frame.

Merging first- and third-party data with behavioral and contextual information and adding in machine learning based on predictive modeling yields in-depth information about the audience. This is something TV ad buyers can only dream about.

Brands use their data to decide whether they want to buy an impression on a case-by-case basis, in real time. If one parameter isn’t working well, they can turn off that buy and move on to another segment.

“We allow you to determine on each individual basis how much you want to pay for a particular impression,” says James Shears, general manager of advanced TV at The Trade Desk. “Essentially, you put in metrics you were looking to hit, you find your inventory services, and the system runs algorithms to determine what type of mix from a media perspective actually would benefit you the most, measuring against those metrics.”

Both buyers and sellers are able to track the entire life of the transaction and transparently see all details associated with a campaign. Previously, this type of information was held in secret with a middleman closely protecting many of the transaction details.

It’s known that advertising is big business, but the size of the advertising technology industry may come as a surprise. There are more than 2,000 companies in the ad tech space. To keep business transparent on a basic level, publishers list their supply of inventory available with third-party supply-side platforms (SSPs). Brand advertisers use another third-party service called a demand-side platform (DSP) to set the buying parameters and monitor the performance of a programmatic campaign.

“If I’m a website [and] I have cooking videos and someone comes to my site and I have a pre-roll ad slot, as the page is loading, an ad call will go out from my SSP. It will send out a signal to all of those DSPs and say, ‘We have an ad spot, do you want to buy it?’ They pass along as much information as they can,” says Brian Rifkin, co-founder of JW Player. “Then a bidding war starts, and those advertisers signal and say they’re interested and they want to pay X. They’ll send back what they’re willing to pay and the advertising creative. The SSP will decide in real time who the winner is; it’s usually based on price [but] there may be other factors. That advertising will be served on to the website. All that happens quicker than I can snap my fingers if it’s done correctly.

“I’m a big fan of, ‘Pick your type [of] technology and stick with it,’” says Rifkin. “A lot of people bounce back and forth all the time (to SSPs), but if you think about it, the same buyers are on all of these.”

There are a number of flavors of programmatic advertising. In a private marketplace, a media company and one or more brands have a private auction open only to those invited to bid. Programmatic direct is a one-to-one interaction for reserved inventory at a fixed price. In an open marketplace, inventory is aggregated from multiple partners for buyers to bid to purchase impressions via an open auction.

“Programmatic, in particular the open marketplace, is often incorrectly linked with driving down CPMs [cost per thousand impressions],” says Shehan. “In the video market where supply is short, it can allow publishers to charge a pricing premium on a much larger chunk of inventory. In some regions around the globe, we’re seeing some publishers charge as much as 25 percent more than rate cards to buy programmatically in a private marketplace.”

Advertisers are looking for premium inventory. “It’s inventory that is created by a well-known source, that is fraud-free and has a desirable audience,” says Alanna Gombert, deputy general manager of the IAB Tech Lab and vice president of technology and ad operations of the Interactive Advertising Bureau (IAB).” Fraud-free to me means there’s no mechanical device or ill intent within that webpage to mislead a consumer.”

The biggest issues for brand buyers according to the AOL report is the inability to access premium inventory at scale, cited by 52 percent of the respondents. The next biggest concern is safety and quality, cited by 47 percent. More than half (58 percent) of the publishers said the perceived risk of commoditization of content is their biggest concern, followed closely by what they felt was a lack of existing processes and systems at 53 percent.

The IAB Tech Lab is hoping to address some of these concerns. It runs workshops where buyers and sellers can converse with their peers about best practices. “For the most part, programmatic is on the media plan now,” Gombert says. “As a publisher, you’re going to be sourcing from advertisers you would never speak to in a normal sales process because they’re buying from all over. They’re also trying out new things, so be open and aware that this is a channel where you can glean new buyers.

“There is a fear factor when something new comes out into the market, especially among traditional companies,” says Gombert. “When a new technology comes out and it is widely adopted by the industry, you need to adopt it. You can’t wait, because you’re going to miss the budget if you’re on the supply side. You’re going to miss this inventory and client expectations if you’re on the buy side.”

Billions of ad transactions go through SSPs and DSPs every day. Here are a few technical pointers to make sure your ad doesn’t result in the dreaded spinning icon.

(Ad) Tech Talk

“Implementing programmatic advertising involves connecting your video playback to an SSP such as SpotX, YuMe, or DoubleClick. These SSPs in turn host an ad exchange and manage the programmatic fill against various DSPs such as AppNexus, DoubleClick, and Bid Manager,” says Michael Dale, vice president of engineering at Ellation.

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