What’s wrong with programmatic advertising?

It’s hard to believe that the first RTB (real-time bidding) impressions were bought only a few years ago, disrupting a display market rife with inefficiencies that was ripe for change. And it made sense for everyone involved, smooth workflow, fair pricing and precise targeting. A raft of new companies were born and predictions of stratospheric growth of programmatic media buying ensued. At a glance the prophecy is coming true, with programmatic buying now accounting for up to 20% of display buying in more advanced markets, but actually this hides a curious picture.

Display has been and is growing at a fast pace, 12.4% according to the IAB in 2012, but search has been and still is growing at a faster pace. In a more mature market, double the size of display, search growth still outstrips that of display (which is a number that includes video, without which it would be flat). With the proliferation of inventory now available to buy programmatically the only conclusion we can come to is we’re simply witnessing a shift in the buying mechanic from phone-based to programmatic. It’s a really significant fact that the market isn’t growing and signals a worrying lack of innovation in execution.

In looking at the sector there is in fact one standout category of business that has increased the size of the display market, generating results for advertisers and increasing display spend, enter the Retargeter. Dynamic, product-level retargeting has changed the perception of display advertising in previously low spending categories, namely retail, travel and classified, making it a viable channel for investment due to the high returns.

There’s been some talk within the industry about whether we might be reaching a plateau for programmatic media buying. Other seemingly comparable sectors have actually seen this; within finance High Frequency Trading (HFT) has fallen from its peak and settled at about 40% of trading volume. We don’t think this will be the case however as there are two core areas of gain for the display industry, only one of which has been fulfilled to date.

The first and most obvious is the huge workflow benefit. The trading and campaign execution process was costly to run and riddled with inefficiencies on both demand and supply side, buying programmatically has revolutionised this. The second key benefit is the ability to use data to inform both buying and creative decisioning – the ability to create something completely new, Real-Time Advertising (RTA). The realisation of RTA is the key to moving the market on and creating value for advertisers. Retargeting is the best and most obvious example of this as advertisers first-party data both selects the audience and generates relevant creative.

This is still a nascent market and the technology within it is immature and in constant development. Over the last few years we’ve already witnessed a number of USPs emerging for demand-side technology. Firstly, just the ability to buy was a big deal, then it became queries-per-second, then integration of other tech and inventory partners and most recently, which platform has the best trading algorithm. But the next phase of innovation is upon us and it’s about customisation. The reason we haven’t realised the potential is that the technology simply hasn’t been ready to facilitate this. Inflexible platforms with limited ability to integrate first-party data, powered by black box algorithms and with only the most basic reporting, haven’t allowed us to do anything different.

Access to programmatic is fast becoming a commodity and the biggest players realised this a long time ago. The market is now looking to enable innovation in the data management and decisioning layer, the most critical piece of the puzzle for unlocking differentiated performance for advertisers, and something that has been lacking to date.

When all this started five years ago our vision was that display would become platform-traded and data driven, opening up new possibilities for advertisers. During this time we’ve worked with many off-the-shelf technology platforms and we have always felt constrained by either a lack of flexibility or a black box approach. This is why we invested early in building our own proprietary platform.

The industry is beginning to realise the early promise of programmatic media buying by activating the use of data to drive media and creative decisioning, rather than just using it as a trading mechanic. This will excite advertisers and benefit everyone within the display ecosystem, and this should be when we see display start to really grow.

Martin Kelly is CEO and co-founder of Infectious Media.