Network Effect: The Rise of Programmatic

David Murphy

This article originally appeared in the March edition of our quarterly magazine. To get the full experience, you can read the issue online here, or subscribe to receive a physical copy here.

New York Times Square Billboards Outdoor Advertising Shopping - CopyOne word dominated the mobile advertising landscape in 2014: programmatic. And 2015 looks like being no different, as almost everyone in the mobile advertising business seeks to show off their programmatic credentials in a bid to secure their future. But how big a deal is programmatic in mobile, and what impact is it having on the way mobile advertising campaigns are planned, booked and executed?

James Chandler, global mobile director at media agency Mindshare, suspects there may be some hype at play: “You do hear lot of people in the programmatic game beating the drum and saying there is a lot of it about, and the fact that Apple, the most closed company in the world is now working with Rubicon on programmatic, is obviously significant,” he says.

“But then you hear the other side of the coin where it’s not even reached maturity on desktop yet and here we are trying to figure out mobile. Maybe we should look at the mistakes that have been made using online as a proxy for mobile and not try to run before we can walk.”

Alex Kozloff, who heads up the IAB’s mobile initiatives, says there is a lot of interest in the subject from advertisers and agencies. “As part of our planning for 2015 we asked all our members where we should focus our efforts and programmatic came through loud and clear as one of the key things they are interested in,” she says.

Some of the stats kicking around do seem to justify the interest and excitement, and the need to stake your claim as a programmatic expert. At an event staged by SSP (Supply Side Platform) PubMatic late last year, IDC analyst Karsten Weide revealed that global programmatic spend, including all mobile and online display and video advertising, accounted for $4.8bn (£3.1bn) in 2013, and was set to almost double to $8.5bn in 2014, rising again to $14.7bn this year, to $38.1bn next, and $55.3bn by 2017. By which point, if that figure was achieved, it would mean that 59 per cent of total global display ad spend is being bought programmatically. “Anything that can be automated will be automated,” the analyst noted.

Another study, conducted by the IAB in partnership with MTM last year, found that in 2013, 28 per cent of digital display spend, and 37 per cent of mobile spend, was traded programmatically. Most importantly, the study forecast that 60 per cent of mobile display inventory would be programmatic in 2014.

Google app reengage HotelstonightThe Google effect

Some are skeptical about those figures, while others accept them, but believe that two companies are skewing the picture to a disproportionate degree. “The spend in programmatic on mobile outside of Facebook and Google is very small,” says Mark Slade, managing director EMEA at Opera Mediaworks.

On the other hand, Jon Buss, UK managing director at Criteo says: “Programmatic spend on mobile is growing massively with the publishers we work with. We are plugged into a reasonable number of platforms to buy mobile inventory in this automated way, and if it didn’t work, it wouldn’t be growing so fast.”

And at PubMatic, Dan Wilson, senior director, emerging media, EMEA and APAC, says: “The world is far bigger than Google. If you look at the growth in mobile supply, a lot of it has been polarised at two ends. One is the Flashlab games and freemium games we all use but no one clicks on the ads on purpose, then at the other end where we play, you have the premium inventory.

"A lot of publishers were slow to monetise mobile inventory; the shift to mobile took a lot of them by surprise and they struggled to evolve in terms of their monetisation strategies. But now they have rolled out responsive design and more engaging ad formats and are starting to see success. It’s down to clients, planners and buyers to look at opportunities outside of Google and Facebook.”

So if you accept that the programmatic revolution is happening, what’s driving it? Some say (though they say it off the record), that part of the rationale is about agencies trying to increase the margin they make by building divisions that are not dissimilar to ad networks. One source told us: “If you go back to the early days of mobile media where a large proportion of the revenue went to the ad networks, they were making 40-50 per cent margin through arbitrage (buying inventory at one price and selling it on to clients at a profit) and agencies didn’t like that because they were making much slimmer margins, so part of this is about the agencies increasing their margins by taking the ad network out of the media plan.”

Another key driver is increased efficiency. “It is more efficient because you’re making much more use of technology,” says Gavin Stirratt, COO at StrikeAd, one of the earliest mobile DSPs in the market. “This allows things to happen at greater scale. When you’re buying from a DSP, the DSP is plugged into multiple exchanges and DMPs (Data Management Platforms) so you can achieve very refined targeting at scale. Programmatic really took off online off the back of retargeting, because to work well, retargeting needs vast scale, and programmatic delivers that.”

Programmatic defined

At this point, a definition of programmatic might be in order. In its early days, it was synonymous with real-time bidding (RTB), where advertisers bid for the right to show their ad to a given user at a given time in a real-time auction, in much the same way as advertisers bid to come at the top of the paid search results on Google. But while auctions are still very much part of the programmatic scene, another version of programmatic, known as a private marketplace (PMP), is on the rise.

In a PMP, the advertiser knows where their ad will appear and pays a pre-agreed price for it (usually higher than in an RTB auction) in a forward market, (as opposed to a real-time auction) but the inventory is still bought in a programmatic, automated manner.

For media buyers and their advertiser clients, it gives them planning certainty; they can put a certain type of inventory in place, with impression volume guaranteed, at the right time to support a launch, but because the workflow is integrated and automated, it’s faster, less prone to human error and so easier and more cost effective for both the buyer and the publisher.

“For an advertiser, PMPs are all about securing the first look; it’s like being first into Waitrose on a Saturday morning,” says PubMatic’s Wilson.

But the volume of PMP inventory is still very small compared to RTB programmatic. “PMPs are still niche,” says Craig Palli, chief strategy officer at Fiksu. “In mobile, they started to creep in about a year ago and there is advertiser interest, but we need to build publisher interest in putting the inventory in there; we need to build the infrastructure to feed the impressions in.”

Rob Kramer, GM, mobile at SSP, OpenX, agrees, but says this will change as the type of brands that advertise on mobile changes.

“I don’t know the ratio today, but RTB dominates,” he says. “But you have to remember, most early RTB transactions were around performance advertising, which did not need a PMP component. But now that you have brand display dollars moving into programmatic, it makes sense, and we are seeing brands who want exclusive access to certain types of premium inventory and publishers.”

On mobile, however, even that term, premium inventory, needs defining, because as StrikeAd’s Stiratt points out, it bears little resemblance to premium inventory on the web.

“Private marketplaces are in a slightly different place on mobile than desktop,” he says. “On desktop it is the publisher and the title you associate the brand with, such as a premium credit card associating itself with the FT for example. The challenge in mobile is that it forces us to redefine premium, because premium titles on mobile are not same as desktop. Sessions are more ‘snacky’ and the brand names serving them, often games and information services, are not the ones large brands would normally associate themselves with. Brands have to get used to the fact they have to get comfortable with a new wave of publisher brands.”

Vibes mobile acquistion calculatorKey acquisitions

So what does all this mean for the traditional mobile ad networks? Some have responded by partnering with or buying programmatic companies. InMobi has tied up with The Rubicon Project, while Millennial Media bought Jumptap towards the end of 2013 to get into the DSP business, then also acquired Nexage more recently to tick the SSP and exchange boxes.

“If you take Jumptap and Nexage and couple that with the existing Millennial offering, it’s a comprehensive solution,” says Todd Tran, who led Nexage and joined Millennial as part of the acquisition. “If you think about buyers and agency groups, they can look to Millennial and buy via an IO (insertion order), or programatically, use the DSP or just buy data, we are unique in the market to have all of that under one roof.

“If you listen to what advertisers and agencies are telling us, they say they don’t care if it’s mobile or desktop, if it’s programmatic or a managed service, what they care about the consumer and my message to the consumer; whether it’s the right message reaching the right consumer at the right time.

"Programmatic can help a lot with that, which is why it has grown so much, but it is not the only solution and sometimes it is not the solution. This is why we provide the full suite of solutions, because advertisers need that flexibility.”

Opera Mediaworks’ Slade believes that in order to survive in the programmatic age, ad networks need to add value. “The ones that survive will be the ones that have some technology to integrate into the publishers in a meaningful way to gain data on the customer, to define what type of audience they are,” he says.

“It could be picking up their location lookups and mapping against points of interest to know they regularly go to the gym or shopping centres so that they go into whatever audience segment the ad network has defined. The ones that have no tech integration or client integration via an SDK will go to the wall.”

While it’s perhaps no surprise to hear an ad network defending the role of the ad network, others also feel they have a future.

Mobile monetisation

“I still think the ad networks will have a large role to play in mobile monetisation going forward,” says OpenX’s Kramer. “According to Flurry, 86 per cent of consumers’ time in mobile is spent in-app. “Mobile monetisation in-app comes down to having your SDK footprint in those apps, and the first people to do that were the mobile ad networks, so they have tremendous power when it comes to the monetisation of apps, whereas the pure exchanges, ourselves, PubMatic, Rubicon, we still have some work to do. Because the ad networks were there first, they will remain relevant for the foreseeable future.”

This point is echoed by Tim Finn, co-founder and CTO at data provider, Statiq. “Speak to InMobi or Millennial and they know they have to get into programmatic, and have done so, but let’s not forget that they are sitting on the majority of the spend coming out of agencies right now,” he says. “The programmatic guys are on the right path, but they look enviously at the spend going into the ad networks.”

Location play

Finn’s company is one of a new breed looking to satisfy the insatiable demand for data, in particular location data, from companies operating in the programmatic space. Formed by a bunch of ex-StrikeAd execs, Finn says the company was founded in response to the lack of clear, accurate data in the ecosystem. It uses location to pinpoint the current whereabouts of a mobile user so that advertisers can target them with relevant messages; but also to build a picture of their location history and create anonymised audience data that can be used to create segments that advertisers can target at some point in the future.

The location data space is hotting up. Factual is making waves in the US, while xAd is another relatively new US firm looking to establish itself in the space. It tracks the location of 160m unique users’ via integration with over 30,000 apps, reaching 300m unique devices each month, with 300bn available monthly ad impressions and close to 1m advertisers on its platform each month.

“Desktop targeting strategies don’t work in mobile because it’s a cookieless environment, says xAd’s EMEA GM, Theo Theodorou “But location is a real-world cookie, and it’s critical for online-to-offline targeting and building audiences based on their visitation history.

BlisMedia is another company making a major location play. It’s been around longer than most in the space, since 2004 in fact, and while it obviously didn’t start out as a programmatic specialist back then, location has always been at the heart of what it does.

Like xAd, it can use location data to target in real-time, or to build a picture of the user’s location history for later use. Managing director Paul Thomson estimates around 75 per cent of the company’s campaigns are real-time, the other 25 per cent based on the user’s location history.

“It doesn’t always make sense to send someone a message just because they are in proximity to something,” says Thompson. “If you are the British Airways lounge in T5 right now, we could serve you an ad on the mobile web or in-app. There would be no point serving an ad for an airline because you’ve already booked that flight, but at some point later, given your location history, that can inform the type of ad we would serve. The decision on which ad to serve is different depending on whether we are looking at your history or the here-and-now, based on analysing 40bn ad requests a day, all in real-time.”

What next?

So while the battle for location data supremacy rages, what next for programmatic? The consensus seems to be that the shift from RTB to private marketplaces will continue this year. “2015 will be a big year for PMPs,” says Millennial Media’s Tran. “It’s an interesting evolution, where we have gone from the managed world to RTB and then halfway back to the world of PMPs and Programmatic Direct, so it’s essential that the two world’s start merging, that we don’t have two or more solutions, just one solution with multiple different ways you can buy to allow the advertiser to do what they want.”

Jay Fowdar, chief product officer at Byyd, which rebranded from Adfonic when it pivoted from an ad network to a DSP a year ago, also expects to see growth in the PMP space in 2015. “PMPs are still very nascent in mobile,” he says. “We thought it would be huge last year, but it was not as big as expected. But it will happen; advertisers want to do it. Data will be key because the only way you can buy data, particularly location data, effectively, is key and the sources for good, real-time location information are opening up.”

But perhaps the truth about programmatic is not that it’s going to take over the mobile – and wider – advertising world (though some believe it will), but that it will settle down and find its place in the ecosystem, alongside more traditional ways of working.

“Programmatic is a huge buzzword across the industry for 2015, and it absolutely a big thing in mobile,” says the IAB’s Kozloff. “But it will never be the only way. There are so many things you can do with mobile, and the human element is still really important. There are also more creative formats that might not fit a programmatic sell. I’m never surprised to see new, different ways of getting ads onto mobile, and programmatic is massively important, but not to the exclusion of everything else.”

Mindshare’s Chandler, echoing the thoughts of his boss Sir Martin Sorrell, who has gone on record to say that brand communications in the future needs to be a combination of “the maths men and mad men”, also believes there is more to mobile advertising life than programmatic. He says: “The people we hire used to be brand-driven media types with degrees from Bournemouth and that has changed.

"We now have more now econometricians, statisticians and, mathematicians; they look more like business analysts. But I don’t think we will end up in a world where everything is traded programmatically. We still want to build the stuff that wins awards and you don’t necessarily get that by four or five PCs talking to each other. Advertising is still about relationships; if programmatic enables us to do things in more efficient ways, then that should free us up to do the more creative, strategic thinking. No one gets in to this to stare at spreadsheets all day, we are in it to do the exciting stuff.”

A fair point, but it’s worth remembering perhaps, that for the econometricians, statisticians and mathematicians out there, the ones rapidly infiltrating the world of advertising, the words ‘exciting stuff’ and ‘spreadsheets’ are far from mutually incompatible.