Programmatic Lunch

A guide to programmatic advertising

Tyrone Stewart

Tyrone Stewart takes a deep dive into programmatic, looking at the good, the bad and the ugly, and at where the technology is headed

In this guide, you will find:

1) History of programmatic                       
2) Key parts of the programmatic ecosystem
3) Types of programmatic deal                                                                
4) Programmatic trends
5) Issues facing the programmatic industry                    
6) The future of programmatic

In recent years, programmatic advertising has slowly grown to become the main way in which digital advertising is traded, with 65 per cent of online ads set to be bought and sold programmatically around the world this year. In the US alone, an estimated 86.2 per cent of digital display ads will be bought programmatically by 2020.

At its most basic level, the definition of programmatic advertising is quite straightforward. It’s simply when digital ads are bought or sold using machines or any form of automation – meaning publishers don’t have to manually sell their inventory to advertisers.

“The term is a broad one, but one which now mainly refers to the buying of display and video standard ad units within a real time bidding ecosystem,” says Alex Rahaman, chairman at Nexd.

Sounds simple enough, right? Well, it’s not. As is often the case in the tech world, there’s a lot more to address than just what appears on the surface. And programmatic has had quite the journey to get to where we are today.

History of programmatic
“We’ve come a long way since the first digital advert in 1994,” says Gavin Stirrat, VP of partner services EMEA at OpenX. (That first digital ad that Stirrat refers  to was a banner ad on HotWired.com, which you may now know as popular tech-related publisher Wired.) “It was a time where clicks were king, and ads were garish and obnoxious. And while programmatic erupted onto the scene only a decade ago, its massive growth and innovation has greatly influenced digital advertising for the better.”

Indeed, a long way we have come.

Fast forward to 2009 and that’s when programmatic really starts to enter the ad tech lexicon.

“Back in 2009, the nascent DSPs (demand side platforms) and SSPs (supply side platforms) offered unheard-of efficiency in a media landscape still controlled by annual TV buys and faxed insertion orders,” says Rahaman “With digital still a minority medium and relatively new, the growth in programmatic was slow and focused on performance advertisers who could see the opportunity to bid against a cookie ID they knew were in market for a product. This cut buying wastage considerably, but it left the industry focused on the retargeting space buying on blind inventory deemed unsafe to brand advertisers. Agencies also spotted the opportunity to cut out the ad network middleman and buy the effective media via RTB (Real-time bidding) themselves and set up trading desks and often kept a margin.”

As OpenX’s Stirrat notes, it was around this time that, “almost overnight, the digital ad industry was flooded with new tech solutions – and acronyms – from exchanges, SSPs and DSPs to RTB, CPMs and CTR. This programmatic ‘Wild West’ scenario is what allowed the tech to grow so rapidly. It was clear programmatic had the potential to evolve from a vehicle for selling unwanted ad space into a sophisticated, critical piece of every marketer’s digital ad strategy.”

We’ll look at what all those acronyms mean in good time, but first, we should consider two other factors that were crucial to programmatic’s development. The first was the rise of mobile. . For years, people within the industry had been referencing ‘the year of mobile’, but this didn’t start becoming a reality until mobile programmatic began outpacing desktop in 2014. Initially, “mobile was plagued with challenges” in the shape of a lack of cookies, inexperience with mobile-first creative, and brands unsure about investing, according to Stirrat. But one by one, these challenges were overcome.

The second factor was the introduction of header bidding into the programmatic space. This was significant because of the way in which it enables publishers to offer ad space out to numerous SSPs and ad exchanges at once.

“Harking an end to the publisher waterfall and the beginning of unprecedented access to inventory, header bidding took programmatic by storm in 2015 and has become the de facto way to buy impressions today,” says Stirrat.

“Publishers seized greater control over their inventory, advertisers gained equal footing to purchase impressions and ad tech providers could finally compete with Google. Header bidding changed many a company’s fortunes, but has also placed significant overheads on many players in the industry, as ad opportunities are made available through multiple different connections and exchanges. Cue another acronym: SPO (supply path optimisation).”

As more premium publishers and big-name brands began getting involved in programmatic, there began to be a huge growth of verification and analytics firms, as these businesses “demanded that their agencies buy premium inventory via private marketplaces which were much more transparent from a brand safety and economics view,” comments Rahaman.

Though programmatic has been seen as a positive development over the last decade overall, its rapid growth has come in tandem with concerns around ad fraud, brand safety, poor user experiences, ad blocking, low-quality players, and hidden fees, and these issues have led some big-hitting marketers such as Procter & Gamble’s chief brand officer, Marc Pritchard, to question whether it’s in their best interests to continue using the tech.

The industry claims to be trying to address these problems. How successfully it does so will be key to programmatic’s future.

Key parts of the programmatic ecosystem
The programmatic ecosystem is made up of a bunch of different types of company, all with their own part to play and more often than not referred to by one of those acronyms I mentioned earlier.  you want to understand programmatic, you need to know this key terminology and where each component fits into the programmatic landscape.

The chain begins with the brand that wishes to advertise. They enlist media agencies to buy advertising on their behalf. A demand side platform (DSP) then helps those media agencies to buy advertising inventory through a software platform that enables buyers to manage and place ads across multiple ad exchanges, which broker deals between the advertiser and publisher.

“The source of all money for advertising are the brands that advertise. They have apportioned some of that spend to media agencies to buy on their behalf and target relevant consumers across multiple channels,” says Dave Castell, general manager of inventory partnerships EMEA at The Trade Desk. “The Trade Desk is one of the technology platforms that helps those media agencies best buy advertising digitally in a programmatic environment. This means a DSP that plugs into all different inventory sources across multiple channels. And, in real-time, provides those media agencies and those advertisers with the ability to have their budgets and their advertising be bid upon to appear in the most relevant environment, and in front of the most relevant consumer at the right place, at the right time, in the right environment.” 

If we think of ad exchanges as the middleman, to the right of them we have the supply side platform (SSP). SSPs are software platforms which enables publishers to add their advertising inventory to ad exchanges. Beyond an SSP, you have the publisher itself, where the advertising is served to the site visitor or app  user.

“DSPs plug into SSPs. SSPs are another kind of technology company entity, typically with their own technology, to aggregate relationships with lots of different publishers. So, an example of an SSP we partner with would be Rubicon Project or even  Google. Those SSPs are essentially a front of house for a lot of different publishers and they plug into them and help them manage yields,” Castell continues.

“We plug into all the global SSPs, who are essentially receiving our advertising and then placing that advertising into the ad slots across multiple different channels, multiple different inventory sources and publishers.”

Another key player in the programmatic ecosystem is the data management platforms (DMPs). These have more of a fluid role in the chain and pop on both on the buy side (advertisers) and the sell side (publishers). They provide a location for advertisers to create targeting segments based on stored audience and campaign data, and are also used by publishers to house data about site visitors or app users that can be sold to advertisers.

“We partner with many different data partners, data management platforms, and data marketplaces to help inform the advertising buys that are happening within our platform. We also have our own DMP called the ‘Data Alliance’, which essentially aggregates a number of data sources and leverages those data sources to inform the advertising in real-time,” says Castell.

“An advertiser or media agency can use our platform and opt in to look at how the particular aims of the campaign for that advertiser matches against different data sets and, therefore, tailor that strategy for buying that ad to hit certain consumers, at certain times, within certain environments. Data is the energy drink which powers the field.”

Types of programmatic deal
Within programmatic, there are four main types of deals that media sellers can seek – each with their own advantages and disadvantages.

Open auction
Open auctions – also known as real-time bidding (RTB), open exchange, and open marketplace – are pretty straightforward at their most basic level. Advertisers on an ad exchange, network, or SSP get an impression call, they all bid, and the one that bids highest wins. This all happens within the time it takes for a webpage to load.

Often, advertisers will use a DSP to help them decide the ad impressions to buy and how much to bid on them.

Despite the seeming lack of control for publishers, they can set block lists and price floors in order to make sure their inventory isn’t undervalued. Nowadays, open auctions are used to sell remnant (or scrap) inventory, but most major brands tend to stay away for fears of fraud and brand safety.

Private marketplace
These bear some similarities to open auctions and are also known as private auction, invitation-only auctions, and closed auctions. A private marketplace (PMP) is an RTB auction which is strictly invitation-only, with publishers selecting the buyers who can bid on their inventory.

Unlike open auctions, there’s more control due to the exclusivity of PMPs and, as such, inventory here is considered premium. Here, the middleman of an ad exchange, network, or SSP isn’t present and DSPs plug directly into the publisher’s inventory source. The transaction happens within an auction environment, but the terms of deals are negotiated between the buyer and seller beforehand.

PMPs provide greater transparency and control for all parties involved, providing a clear look at the inventory being bought, what CPM (cost per mille/thousand) needs to be paid, and the types of creatives being displayed. It also gives advertisers access to premium inventories before they are made available for open auctions.

There is still potential for fraud through domain spoofing – which is when bad actors disguise themselves as premium publishers – but this is something that IAB Tech Lab’s ads.txt and app-ads.txt specifications were introduced to combat.

Preferred deals
Within the private marketplace, there is an opportunity for buyers to reach out to sellers to negotiate fixed-price, first-look, priority access to inventory, before it’s made available to the other parties in a private auction.

These ‘preferred deals’ are made when advertisers approach publishers about specific ad sizes, placements and audiences and they negotiate a fixed price for the impressions. Though this deal is made between the two parties, it still all happens programmatically through DSPs and SSPs.

This approach lends itself to highly-targeted ads, stronger relationships between buyer and seller, and more creative control for the publisher. However, if a buyer rejects an impression, over price or segment, they cannot re-join the auction for the same impression.

Programmatic guaranteed
Programmatic guaranteed deals are based on a guaranteed volume of impressions at a fixed price. As with preferred deals, these are negotiated directly between the buyer and the seller.

Inventory, pricing, and run time are fixed, but buyers are able to apply additional audience targeting, filters, and frequency caps during the campaign.

These deals promise guaranteed revenue and, like preferred deals, create stronger relationships and give the seller a chance to review creatives before the campaign is executed. At the same time, there is a risk that inventory is either undersold or oversold. 

Programmatic trends
As with any key area within advertising and technology, there are several key trends to keep an eye on.

Over the last few years, we’ve seen the shift from waterfall to header bidding (as mentioned earlier) and, in turn, this has led to a similar recent shift towards in-app header bidding on mobile. Within the in-app ecosystem, we’ve also begun seeing High Street brands finally commit to in-app advertising, with the automotive and entertainment industries leading the way, and FMCG/CPG brands also dipping their toes in the water.

We’ve also seen the introduction of both ads.txt and app-ads.txt in a bid to increase transparency and reduce fraud within the digital advertising industry.

The emergence of both video and audio have seen both areas achieve huge growth within programmatic over the last few years, and of course, native has been the success story of the past couple of years.    

More negatively, we’ve seen the impact that GDPR has had on industry, with the likes of Drawbridge and Kargo forced to close their European operations over fears they would be unable to comply with the new rules.  There’s also the ongoing power of the Google and Facebook duopoly, perhaps soon to become a triopoly as Amazon flexes its muscles. This is obviously having an impact on the rest of the industry, with Sizmek filing for voluntary bancruptcy the fact we’re heading toward a triopoly (with Amazon joining the party), and the impact this is having on the rest of industry – see Sizmek filing for voluntary bankruptcy at the end of March, and Amazon subsequently acquiring Sizmek’s ad server just a few days ago.

Perhaps the most important trends, however, have been the increasing importance being placed on data, and the advance of programmatic technologies, beyond web and mobile into connected TV, digital out-of-home, and traditional TV.

Even prior to GDPR, the evolution of programmatic saw the industry begin to recognisethe true value of data, and this movebeen given an extra nudge in the right direction by the numerous high-profile data-related scandals and breaches that have occurred over the last few years.

“Initially, this was driven by the Silicon Valley giants, but now brands are familiar with working to better structure, and developing and augmenting their own first party data. This, together with last year’s high-profile data mishaps, is precisely why we see an increasing number of brands taking a ‘build-your-own-algorithm’ approach,” says Cadi Jones, commercial director at Beeswax. “Currently, this trend is dominated by the direct-to-consumer, digital ‘D2C’ brands, but other sectors are gaining ground, including FMCG which, historically, has lagged in gathering first party data.”

By building their own algorithms, brands are able to “own not just the data they input but also the resulting learnings,” according to Jones. As a result, legacy DSPs which take a ‘one-size-fits-all’ approach have become less appealing to the brands with their own algorithms.

“They have come to realise that the learnings from an ad campaign for Coke, for example, could help inform the strategy used by Pepsi, if both were on the same legacy DSP,” continues Jones. “As brands wake up to the value of their first-party data, they may be reluctant to expose their data within shared infrastructures.”

As for programmatic’s expansion beyond web and mobile, that’s been driven by the need to reach people more easily across all the myriad channels that they interact with.

“Traditional display advertising paved the way for programmatic to be successful, as it thrived in a world where formats were a commodity, but with the rise of component-based social formats, it was only a matter of time before these types of placements gravitated to the programmatic world,” says John Stoneman, general manager for Europe at TripleLift.

People haven’t entirely abandoned ‘traditional’ media and instead combine them with the wealth of digital options we now have at our disposal. To keep up with these consumers as they move across multiple channels, programmatic advertising has had to respond accordingly.

“Modern generations are really shifting their attention across every single channel and experiencing content online in many digital forms. And that’s at a massive pace cross audio, TV, connected TV, digital websites, and apps. Attention spans are going that way so, for digital advertising appearing on all of those channels, the fastest growing area within digital advertising is obviously programmatic,” adds The Trade Desk’s Castell.

Issues facing the programmatic industry
Despite all these generally positive trends within programmatic advertising, the industry does still have a number of contentious issues, as outlined below.

Brand safety
Brand safety is defined by the Internet Advertising Bureau (IAB) UK as keeping brands safe when they advertise online by not letting their ads appear next to inappropriate or illegal content.

However, the term can also be used more broadly to represent general digital risk, creating a more umbrella term that covers contextual placement and ad fraud.

We’ll begin with the more commonly-highlighted contextual placement element.

The most notable brand safety-related incident over the last few years involved multiple brands seeing their ads appear next to inappropriate content around the internet.

Back in 2017, The Times revealed that a number of well-known brands, including Sony, Mercedes-Benz, Honda, and many more, had ads appear on sites from hate groups and on YouTube videos created by terrorists and their supporters.

This led to many brands rethinking their programmatic advertising strategy in a bid to prevent their image from being further tarnished and a bunch of them even pulled their ads from YouTube.

“Tempting as the allure of cheap scale is, with hundreds of hours of content uploaded to social sites every minute, it’s inevitable that people will find ways of getting around the automated checks designed to ensure that advertising does not appear around inappropriate content,” says Fran Cowan, Inskin Media CMO.

“A crude approach to contextual placement, such as excessive keyword blacklists, hugely restricts viable available inventory and overlooks the fundamental complexity of cognitive principles, such as the development of lasting associations. However, no brand or agency wants to risk a PR disaster, nor should be criticised for a desire to spend their advertising money around quality content, in quality environments.”

Ad fraud
Fraud is something that I’m sure most people are familiar with but, if you’re not, it’s defined as carrying out intentional deception in order to make an unlawful or unfair gain. In advertising, this definition transfers over pretty seamlessly.

“The issue of ad fraud is a serious one amounting to billions annually. According to eMarketer, recent estimates vary from $6.5bn to as high as $19bn. Display accounts for 39 per cent of all digital ad spend in the UK according to the latest IAB / PwC Adspend study, growing 22 per cent from the previous year to reach £5,249m,” says Cowan.

“Meanwhile, the proportion of this display spend traded programmatically is increasing steadily, to up to 65 per cent of all digital media advertising in 2019, according to recent figures from Zenith. For all its wealth of data and workflow efficiencies, programmatic trading can be more vulnerable to ad fraud than direct trading: inventory can pass through multiple buyers and sellers, and too-good-to-be-true low eCPMS are rife with non-human traffic.”

Ad fraud can come from bots (or non-human traffic), click farms, ad injection, domain spoofing, or cookie stuffing. But what do these things actually look like?

  • Bots: When computer programs mimic human interactions, creating the illusion that a human has seen an ad.
  • Click farms: When groups of people are hired to click on ads.
  • Ad injection: The placing of ads on a publisher’s site without their permission by overlaying or replacing existing ads.
  • Domain spoofing: When bad actors pretend to be premium publishers.
  • Cookie stuffing: Where multiple cookies from third-party websites are received on the user’s browser without their knowledge.

“Like any way of buying, programmatic algorithms are subject to fraud. It’s just a different type of fraud,” says Robert Pawlowicz, technical director at Machine Advertising.

“The biggest problem for programmatic is that, without careful supervision, algorithms can inadvertently optimise towards fraud, and focus bidding on those sources. If left unchecked, this can cause reputational damage for the DSP – who are ultimately the ones being defrauded in this situation.”

Viewability
Viewability is a metric which tracks impressions that are actually seen by users. According to the Interactive Advertising Bureau (IAB) and the Media Rating Council (MRC), a display ad impression is considered viewable as soon as at least 50 per cent of the displayed surface of the ad is viewed for at least one second continuously. Meanwhile, video ads must be viewed for at least two seconds continuously when at least 50 per cent is visible.

“Ads must have the potential to be seen if they are to make an impact, which makes maximising viewability crucial for brands focused on optimising returns,” says Clementina Piazza, programmatic director EMEA at Integral Ad Science (IAS). “With the ad tech industry committed to ensuring brands aren’t paying for ads that never have the opportunity to be seen, the time has come for another evolution: to reach beyond baseline viewability and include more performance-based metrics that measure success.”

Recent research from IAS found that programmatic advertising viewability rates are now outperforming publisher direct buys across both desktop and mobile web display.

Breaking this down further, 69.1 per cent of UK desktop display ads met minimum viewability standards in the second half of 2018, rising 8.2 per cent from H1 2018. Meanwhile, 62.4 per cent of mobile web impressions did the same, representing growth of 16.6 per cent over H2 2017.

In comparison, publisher direct ads saw a rise of just 3.9 per cent, growing from 65.1 per cent to 67.7 per cent.

Mobile app display viewability was well below all of the above, with only 42.8 per cent meeting the MRC standards.

“With mobile ad spend in the UK set to surpass the £20bn mark in 2019, this increasing investment in mobile advertising presents an ever-growing need for independent verification. While for years, consistent and scalable in-app measurement wasn't achievable, by adopting the IAB’s Open Measurement software development kit (SDK), publishers can now effectively cater for independent verification, enabling third-party viewability and measurement within mobile app environments,” says Piazza.

“Creating a simple, unbiased, and transparent viewability measurement within the mobile web and in-app environments will ultimately result in a better understanding of the channels. This therefore increases efficiency on every impression and maximises return on investment (ROI).”

Creativity
Questions around creativity in programmatic advertising have been floating around for years. The industry has had to ask itself whether programmatic can actually be creative, and whether creativity and data can work in harmony to produce the most relevant, engaging advertising.

“The rise of programmatic has widened the gap between creativity and media activation,” says Chris Childs, managing director at TabMo UK. “A key issue is that the average advertising campaign requires a variety of creatives to be run across several lines of targeting and across multiple channels. However, it’s rare that the creative agency is given full visibility of the complexity of the campaign at the point where they are developing the raw assets, making it difficult for the team to deliver across all the different consumer touchpoints.”

With the wealth of data now available, it is possible to produce relevant creatives for an ad campaign that connect with consumers in the right place, at the right time. The problem is that creative professionals don’t tend to use big data in their work and data scientists aren’t creators. Added to that, there’s the need to creatively engage consumers across channels in a consistent manner – with research suggesting that creative consistency across all digital ad formats leads to higher attention rates among consumers.

“Solving the issue requires that every stakeholder is fully aware of every detail of how a campaign is going to run,” says Childs. “There is still too much of a gap between the various teams, especially the creative agency, the media activation team and the programmatic buying unit. There is also a lack of knowledge sharing. How many creative teams have seen how a campaign is run programmatically? Are they aware of the number of audience segments being used, or the geo targeting being deployed?”

The future of programmatic
Looking ahead, it experts predict that programmatic advertising will continue to go from strength-to-strength and become the primary way that digital advertising is traded in most – if not all – of the developed world.

“Generally, if we carry on the trajectory that we’re on, we should reach a pretty good penetration level in terms of programmatic advertising being the way to buy all advertising,” says The Trade Desk’s Castell. “It’s better for advertisers, better for publishers, better for consumers, and it delivers better advertising across all channels.”

Beyond that, there is also the continued trend of programmatic being used to power advertising in other areas, such as TV, DOOH, and audio.

“If we define ‘programmatic’ as ‘the automation of buying media that unlocks the magic of data’ then it’s clear why programmatic advertising is expanding to ‘traditional’ media with audio, out-of-home and advanced television advertising competing to move into the world of automation and data. In my mind, there’s no doubt that within a couple of years, all media buying will be automated and data-driven,” says Beewax’s Jones.

Despite Jones’ beliefs, she points out that programmatic advertising will only be able to continue its expansion across the media spectrum if legacy DSPs ditch their ‘one-size-fits-all’ approach to customisation and if the pricing model evolves for both media buyers and sellers. 

“As TV and other, more expensive media are traded programmatically, more and more buyers are switching to new DSPs, which are architected to be able to transact on a fixed monthly fee, instead of the punitive percentage of media model,” Jones adds.

Perhaps the biggest thing to look forward to in the near future is the arrival of 5G, however. The next generation mobile network technology “is going to change the course of the mobile experience,” according to Castell.

All-in-all, Programmatic advertising has been on quite the journey for the last 10 years and advances across the worlds of technology, marketing, and advertising are only set to help continue that journey for the foreseeable future.

“The last decade has been a whirlwind. Advancements in technology have delivered new products and services that have improved the way marketers engage with consumers online,” says OpenX’s Stirrat. “Given the pace which programmatic has grown in the last 10 years, we can only imagine what the next 10 years hold. With potential ad tech regulation, and the introduction of 5G, the future certainly won’t be boring.”

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