Programmatic Advertising: Real time Marketing
Programmatic Advertising: Real-Time Marketing T he holy grail of advertising and marketing is to deliver the right message to the right person at the right time. If this were possible, no one would receive ads they did not want to see, and then no advertising dollars would be wasted, reducing the costs to end users and increasing the efficiency of each ad dollar. In the physical world, only a very rough approximation of this ideal is possible. Advertisers buy television and radio spots, newspaper ads, and billboards based on broad demographics, and the context in which the ad will be shown. The Internet promised to change this traditional method of buying ad space by allow-ing advertisers to gather personal information on consumers through the use of cookies placed on the user’s browser, which tracked behavior and purchases online and could be matched with offline information as well. Advertisers could then use this information to target ads to just the desired individuals they were seeking, based on personal character-istics, interests, and recent clickstream behavior. From the beginning, e-commerce was a trade-off for consumers between privacy and efficiency: let us know more about you, and we will show you only the advertising and products you are interested in seeing and would be likely to respond to. For brands, the promise was scale and cost: let us know who you are looking for and we will find millions of people on thousands of websites that fit your criteria. E-commerce was supposed to end the mass advertising that began in 19th century newspapers, 20th century radio, and exploded with the growth of television. The latest rendition of these promises from the ad tech industry is programmatic adver-tising, which it touts as an automated algorithmic platform that allows large brands to bid for ad space (web pages) on hundreds of thousands, and even millions, of websites, in coordinated campaigns, measure the results, and extend brands to tens of millions of consumers with unprecedented scale. But in 2017, it has become clear that the promise of programmatic advertising has not been realized and has many risks for brands. In fact, it has injured many brands, and the ad tech industry is reeling from advertiser criticism that the existing online ad ecosystem is murky, opaque, not accountable, and in some cases fraudulent. Contrary to the rosy promises of the online ad industry, most notably the ad giants Google, Facebook, and Twitter, most of the display ads shown to website visitors are irrel-evant, sometimes hilariously so, to visitors interests. For this reason, the click-through rate for banner advertising is stunningly low, well under 1%, and the price of generic display ads is less than $1.00 per thousand views because of their low response rate. Check this out: visit Yahoo (one of the largest display advertisers on earth) on any device, look at the prominent ads on screen, and ask yourself if you are really interested in the ad content at that moment in time. Often, it is an ad for something you have recently searched for on Google or even already purchased at Amazon or other sites. These ads will follow you for days as you are re-targeted across the web and on mobile devices. Researchers have found that only 20% of Internet users find that display ads on websites are relevant to their interests, and depending on the type of ad (sidebar, native inline, pre-roll video, or pop up) are viewed unfavorably by 50% to 78% of visitors. To understand how we ended up in this situation, its useful to review briefly how the Internet ad industry evolved. Digital display advertising has progressed through three eras. In the early 2000s, a firm with a website interested in ad revenue (a publisher) would sell space on its site to other firms (advertisers), usually through an ad agency or via a direct relationship. These were primarily manual transactions. By 2005, ad networks emerged. These networks allowed advertisers to buy ad space on thousands of participat-ing sites in a single purchase and allowed publishers to sell to advertisers more efficiently. Prices were negotiated among the parties. This was very similar to the manner in which ads on cable TV were sold. By 2011, even larger ad exchanges emerged and began using automated real-time bidding for ad space. This provided advertisers access to an even larger pool of publisher ad spaces that numbered up to the millions of websites. Prices and ad placement were automated by algorithms and adjusted based on real-time open auctions, in which advertising firms and brands indicated what they were willing to pay to advertise to consumers meeting specific criteria. Google, Facebook, Twitter, and others developed their own proprietary automated bidding platforms. Collectively, these are called real-time bidding (RTB) programmatic advertising platforms. The result today is an extraordinarily complex ecosystem of players, and sophisticated technologies (called the ad technology stack). In programmatic ad platforms, scale has increased dramatically. In 2017, there are
thousands of advertisers and millions of web pages where ads can be placed. The ads are chosen and generated based on the users browser cookie history and information about the web page, so that ads can supposedly target the right consumers. The content of the web page and the ad location on the page are also important. All programmatic advertising platforms use big data repositories that contain personal information on thousands to millions of online shoppers and consumers; analytic software to classify and search the database for shoppers with the desired characteristics; and machine learning
techniques to test out combinations of consumer characteristics that optimize the chance of a purchase resulting from exposure to an ad. All of this technology is designed to lower the cost and increase the speed and scale of advertising in an environment where there are hundreds of millions of web pages to fill with ads, and millions of online consumers looking to buy at any given moment. In 2017, advertisers are expected to spend over $32 billion (75% of all total display ad spending, including on banners, videos, and rich media) on programmatic advertising. This amount is expected to grow to over 80% by 2019. Programmatic ad platforms have since evolved into three different types: traditional
auction-based real time bidding (RTB) open to all advertisers and publishers; private marketplace (PMP), where publishers invite selected advertisers to bid on their inven-tory; and programmatic direct (PD), where advertisers deal directly with well-established publishers who have developed their own supply-side platforms (an automated inventory of available ad space). Currently, about 75% of programmatic advertising is programmatic direct and 19% is PMP. Open exchange RTB is no longer growing and represents only about 25% of programmatic marketing. The trend is towards publishers, especially well-known brands with large budgets, to reduce their dependence on the operators of the platforms, and exert much more control over where their ads appear, how visible they are, and what content they are associated with. To find out why continue reading. Currently, just 25% of online display advertising is still done in a non-automated,
traditional environment that involves marketers using e-mail, fax, phone, and text mes-saging in direct relationships with publishers. Traditional methods are often used for high value premium ads, say, the top of the screen with a video, expanding ads seen at major newspapers, magazines, and portal sites, and native ads appearing alongside or interwoven with native content. This is the world of the traditional insertion order: if you want to advertise on a specific newspaper or magazine website, call the ad department and fill out an insertion order. For instance, if you are a brand selling biking accessories, you can tell your ad agency to place ads in biking magazine websites and on social networks, targeting the readers of those magazines. In this environment, firms who want to sell products and services online hire advertising agencies to develop a marketing plan, and the agency directly contracts with the ad department of the publishers. This traditional environment is expensive, imprecise, and slow, in part because of the
number of people involved in the decision about where to place ads. Also, the technology used is slow, and the process of learning which of several ads is optimal could take weeks or months. Real-time so-called A/B testing is difficult. The ads could be targeted to a more precise group of potential customers, and to a much larger group of potential customers. While context advertising on sites dedicated to a niche product is very effective, there are many other websites or social network pages visited by bikers that might be equally effective, and cost much less. The process is very different in an open exchange (RTB) programmatic environment.
Ad agencies have access to any of several programmatic ad platforms offered by Google, Yahoo, AOL, Facebook, and many other pure ad platforms. Working with their clients, the ad agency more precisely defines the target audience to include men and women, ages 2435, who live in zip codes where mountain biking is a popular activity, have mentioned biking topics on social networks, have e-mail where mountain biking is discussed, make more than $70,000 a year, and currently do not own a mountain bike. The ad agency enters a bid expressed in dollars per thousand impressions for 200,000 impressions to people who meet most or all of the characteristics being sought. The platform returns a quote for access to this population of 200,000 people who meet the characteristics required. The quote is based on what other advertisers are willing to pay for that demographic and characteristics. The quote is accepted or denied. If accepted, the ads are shown to…
