When Will Media Buying Be 50% Programmatic? What’s Your Opinion?

Please add your comments and opinions at JackMyersThinkTank.

In October 2010, Jack Myers Media Business Reportpublished a commentary on real time bidding, demand side platforms and exchanges. This report was the first published overview of the most dramatic shift occurring today in the culture of the media and advertising industry. The speed of the shift from traditional human-dependent media buying and selling to programmatic buying is changing the dynamics of display advertising and spreading to other media. A panel of industry leaders gathered last week by Martini Media and AppNexus agreed that the shift would spread quickly throughout the digital landscape and spread to linear television, print and other media. What do you think? For context, the following is the Jack Myers Media Business (Member’s Only) Report from 2010. Add your comments at JackMyersThinkTank.

Real Time Bidding: Do Online Trends Forecast the Future of Traditional Media Buying and Selling?

Classic Jack from October 25, 2010

Do you believe that digital media buying and selling trends are likely to eventually be adopted by agencies and media companies for TV, newspaper, magazine, radio and out-of-home media buying and selling? If you do not believe, what will prevent it? And if you do believe, how quickly will this transformation occur and how ubiquitous will it be?

I was struck by a recent comment made by Rajeev Goel, president of PubMatic, an online display advertising yield optimization company that represents several of the leading online publishers including The Huffington Post, eBay, MSNBC and most of the comScore Top 10 publishers. "Online advertising is on the brink of becoming a seller's market for the first time in a decade," Goel claimed. His comment was made in response to a growing trend of publishers to embrace "Real-Time Bidding," (RTB) and new data arguing that RTB delivers increased revenues, higher display ad value for publishers, and improved return-on-investment for marketers (see details below).

RTB enables publishers to auction advertising inventory without face-to-face interaction and Goel predicts it will account for 20% of all non-guaranteed advertising by the end of 2011. Of course, 'non-guaranteed' is the operative phrase; RTB enables publishers to control pricing on their unsold and remnant inventory through the auction model, ostensibly maximizing their revenues based on instant response to demand.

According to data published by GSS Savvian, PricewaterhouseCoopers and others, the actual display ad revenue-per-thousand impressions generated by IAB member publishers in 2009 and early 2010 was less than .25 cents. High demand publishers such as The Huffington Post, ESPN, Wall Street Journal, The New York Times and others generate significantly higher costs-per-thousand, but even their pricing is highly commoditized, with inventory supply exceeding demand and with multiple options available to media buyers who impose strict pricing limitations. I don't necessarily buy the idea that sellers of unsold online display advertising will regain control over marketplace pricing. But tools that help balance the leverage points between buyers and sellers are an important advance.

Most of the leading agency holding companies have established technology-based media buying platforms within their media groups, and have developed, invested in, or partnered with "Demand Side Platforms" (DSP).

DSPs use sophisticated algorithms to optimize their online display advertising buys by enabling them to buy display impressions across multiple ad exchanges. Google and others have unsuccessfully attempted to bridge the chasm between online and traditional media buying and selling technologies. The emerging interface between venture funded enhanced selling tools (RTB) and agency funded and supported competitive buying tools (DSPs) represents an important giant step forward for automated media transactions that could easily be adopted for traditional media. While traditional media companies will actively resist this move, they will be forced to adopt supply side and RTB platforms for their digital inventory management. Incorporating unsold traditional inventory into this model may soon be mandated by agencies, which are eager to build greater cost efficiencies into both their own business practices and their media purchases made on behalf of clients. With long-term demand for newspapers, radio and local television inventory on the wane, a handful of media companies will inevitably make the leap and potentially transform the business.

There are at least eight major ad exchanges including DoubleClick, Right Media and contextWeb that work with virtually every media agency that buys online display ads. DSPs assure that advertisers and agencies generate maximum value (i.e. lowest cost) for each individual online display ad impression. Real Time Bidding is a response by publishers to offset the increased control DSPs exert over publishers and the ad networks they empower to sell their unsold inventory. While some high demand publishers restrict the amount of unsold inventory they sell through networks and exchanges, the growing trend of agencies to implement purchases through DSPs has increased the pressure on publishers to either:

· increase their focus on custom applications and face-to-face sales directly to marketers and senior agency execs,

· develop enhanced targeting solutions thereby increasing demand and sell-through;

· reduce direct sales costs and increase sell-out through ad networks and exchanges.

The publisher, RTB, DSP, Ad Exchange, horizontal and vertical ad network, data, verification, optimization and tools business is not an easy maze to navigate. There are at least 15 leading online DSPs (MediaMath, InviteMedia, [x + 1], TURN, Data XU, appnexus, Efficient Frontier, Triggit, XA.net, AdBuyer.com, Trade Desk, Lucid Media, BRANDSCREEN and Adchemy).

WPP has launched B3, a DSP focused on real time bidding for both online and mobile ads. rVue is a DSP focused on digital out-of-home media. MediaBank recently announced the development of a DSP targeting more efficient buying of traditional media inventory. YieldVision is a European-based agency using DSP technology for direct response media buying. DSPs are taking hold globally. In response, Real Time Bidding is gaining traction.

If PubMatic's data proves accurate on a sustainable basis, and Real Time Bidding proves to represent a viable competitive balance for Demand Side Platform buying, then a widespread shift to online transactional management of media buying and selling for a high share of both online and offline media inventory may become a reality within the next 48 months.

The PubMatic study was conducted in collaboration with four leading DSPs and, according to Goel, established that publishers generated significantly higher revenue from RTB campaigns in comparison to Non-RTB campaigns, across all advertising verticals; RTB outperformed traditional run-of-network non-RTB media buying methods; and based on cost-per-success metric as outlined by the advertisers for each campaign, RTB provided better ROI than non-RTB audience targeted campaigns.