Paths to Programmatic Premium, Part II: Onto the Promised Land

In Part I of this series, we examined how programmatic premium is less a revolution than a set of tools pushing the notion of programmatic trading beyond the confines of RTB. However, this process is still in its infancy as sellers and buyers experiment with the vehicles that aim to carry the ecosystem to a future where 75%-85% of digital media (be it display, video, rich media, native advertising, etc.) is bought and sold on an automated basis. Below we dissect a few of the supply-side tools in the programmatic premium canon.

Programmatic Guarantees It

“Programmatic guaranteed” may sound like an oxymoron to many people in the digital advertising industry, but it’s turned into a decent business for several up-and-coming players. At its core, programmatic guaranteed (or programmatic direct or guaranteed trading) is a technological streamlining of the direct sales process – as Foundry Group’s Seth Levine explains, “Programmatic guaranteed is about bringing marketplace aspects to tier 1 as well as workflow management.” 

A major selling point of third-party programmatic guaranteed tech providers such as isocket, Shiny Ads and AdSlot is efficiency. The piping of such providers enables pubs to sell premium/tier 1 inventory on a programmatic basis, where they keep control over the advertisers and ads that appear on site. In addition to “premium placements,” the advertisers get complete transparency, seeing exactly what they paid for. The publishers we talked to said that the majority of inventory going through programmatic guaranteed are standard IAB units.

“[W]e saw a great opportunity to both increase guaranteed revenue for highly contested inventory and save in operational cost by automating the sales process,” says Jen Flynn, Head of Product – Residential for REA Group, a major Australian realty site and an Adslot client. “The increased transparency for advertisers has resulted in higher participation and a more efficient marketplace for guaranteed inventory.”

Programmatic premium is often posited as the death knell of direct sales, but technology like programmatic guaranteed is really removing display advertising's most menial tasks – think of all the time devoted to RFPs or creative quality assurance. Increased adoption of programmatic premium tools will lead to some sales casualties (and possibly operations) as certain functions are no longer required – the path to efficiency is often littered with pink slips. In an ideal world, direct sales teams would have more time and energy to manage higher-value, custom campaigns – the “super premium,” which we’ll discuss later.

The programmatic guaranteed channel also seems to be a marketing equalizer – several publishers I spoke to said programmatic guaranteed enabled smaller advertisers to buy premium inventory on a guaranteed basis on their sites in smaller batches – or “at their own pace” as one ad ops leader put it. Similar to comments made by The Weather Company's Vikram Somaya in Part I regarding strategy and tactics, these publishers are also using programmatic guaranteed to expand their base.

However, publishers and agencies are also pushing into programmatic guaranteed without third-party assistance. While Jeremy Hlavacek, VP of Strategy and Business Operations, and his team at Varick Media Management are often promoting new strategies and tools to their clients, this time the client came to them. A large financial services advertiser was looking for a premium publisher to run a targeted campaign via different inventory sources. 

“Luckily [then-Thomson Reuters Global VP of Operations and Audience Vikram Somaya] was enlightened enough to open up a new slate of inventory,” he comments.

“We were looking at channels that are not in the ‘three-martini lunch’ category,” Somaya says. “It’s a different kind of sale, where products can be presented to easily sell programmatically to media buyers.”

These types of programmatic guaranteed sales can still be very relationship driven – Somaya commented that most advertisers dipping into the channel are endemic.

“They know the site and the audiences,” he explains. “They appreciate the brand. They’re looking for more efficient ways to do business.”

The Pivot

As a few publishers with programmatic guaranteed channels told us, they mainly use such sales in a limited fashion – it’s still in the experimental phase for now. One publisher told us that it will increasingly pitch its programmatic guaranteed channel to smaller advertisers as it can do a greater amount of volume at that level without risking margin. Following that, the pub would examine introducing preferred clients to the channel.

Another commented that media buyers need to make the next move – before improving and enhancing the programmatic guaranteed channel, the publisher wants to see a bigger desire for this kind inventory from the demand side.

Indeed, programmatic’s invasion into direct sales’ territory is forcing those manning demand-side buying technologies to re-evaluate their approach. Programmatic guaranteed opens the door for trading desks and demand-side platforms to enter marketing’s own promised land: branding dollars. However, this journey requires a major shift in thinking, with the biggest challenge in campaign measurement: tech platforms will need to define and begin capturing metrics related to upper funnel objectives.

And though it wasn’t the case in Hlavacek’s anecdote, it’s most likely trading desk workers will be the ones convincing advertisers to push their money into these channels – and they’ll need to deliver a different stump speech to their clients.

“We want all media channels to be available programmatically – we aim to be a fully capable media entity that can execute on any marketing strategy, not just performance,” says Hlavacek. “Premium programmatic requires a pivot on the part of the trading desk and advertiser. We need to say we can help your brand awareness in the marketplace, and we can do it with the same methods and technology, but deployed towards different objectives.”

An Exchange on the QT

As a kind of awkward first step on the path to programmatic premium, private exchanges attempted to shift a remnant strategy over to the premium side. Basically, limit the advertisers allowed into the exchange, but offer these chosen few higher-value inventory – whether that’s determined through data enhancement or improved “placement.”

No doubt private exchanges fell victim to the hype cycle – wildly hailed on arrival, the initial publisher guinea pigs didn’t see the return or demand they expected from private exchanges. Buyers were not impressed with what made this inventory “higher value” compared to what they saw on the exchanges.

However, after a few years in action, regular improvements and innovations and perhaps some concessions on both sides, the channel is rapidly gaining stream. In particular, it’s become clear the value of private exchange aspects such as priority access, audience segmentation, URL transparency – which are features you won’t find in open RTB, quadrantONE CEO Mario Diez notes.

Similar to programmatic guaranteed, the biggest obstacle currently for private exchanges is that the quantity of inventory is limited. Bob Arnold, Associate Director of Global Digital Strategy at Kellogg’s, comments that while more pubs are jumping into the private exchange waters, they’re merely dipping their toes in. Publishers need to become more comfortable with the systems, but eventually they will realize programmatic is a better proposition than direct sales because the data from programmatic buying will increase identify the best content, which will increase advertiser demand and thus grow the publisher’s yield.

Side by Side

The big differentiator between private exchanges and programmatic guaranteed is how the inventory is classified. Though it tends to be higher quality, private exchange inventory is treated like remnant while programmatic guaranteed retains “aspects of tier 1 inventory such as guaranteed fill, run time and reach that you can’t access right now on remnant and can’t replicate,” says Levine.

The chief element linking these two channels is that while third-party technology is employed  (although some argue that supply-side platforms powering private exchanges over-rely on black-box optimization algorithms), publishers are refusing to cede control of their inventory to networks or forsaking them to the damp basement of exchanges. The charge to RTB was generally led by advertisers seeking more efficient ways to buy inventory cost-effectively, and many publishers rode along with the opportunity to connect to a far larger pool of buyers – and sacrificed a great deal of control. Not with programmatic premium.

One publisher commented that the biggest challenge to further adoption of these tools is making sure pubs stay in the driver’s seat regarding control: “Systems that attempt to circumvent the publisher's sales relationships or create even lower net margins for the publisher will not win. The winning systems will allow publishers full control of the clients to whom they offer a programmatic channel and will price themselves like technology (more cheaply), not like a network or sales service.”

But just like Uncle Ben told Peter Parker, with great power comes great responsibility: while programmatic premium technology is empowering publishers, it’s also made the process of valuing inventory – namely, deciding what makes premium premium – much more difficult.

Will the Path to Programmatic Run Over Premium?

Once upon a time, perhaps just a few years ago, the digital advertising ecosystem was a simple place: there was “premium,” which referred to inventory sold by direct sales team, and then that other stuff – the unsold, the remnant, the second channel, what have you. But with the evolution of programmatic trading and the embrace of audience data, the solid line between the channels has become quite porous. Now the sentiment across the ecosystem is that premium is in the eye of the beholder.

"'Premium' remains incredibly subjective to each advertiser. To that extent, as what each advertiser considers 'premium' inventory has changed, the way the industry at large refers to 'premium' has changed as well – essentially as a delayed response to advertisers’ classification,”  says Sara Livingston, Director of Digital Marketing at Seamless. “'Premium'” will always exist as it’s a way to differentiate inventory and justify paying more for a given classification of inventory."

Inventory value is resetting alongside new approaches of valuation relying heavily on audience data, Diez adds. At the moment it’s far easier to say what premium is not – selling ads below the fold, cookie-bombing, etc.

“The bigger differentiator will be what’s guaranteed and what’s not guaranteed,” Levine suggests. “There will be a big price gap between the two, but a lot more inventory in the middle. It will no longer be just binary.”

The onus for pushing those harder terms would seem to fall on the supply. Inventory valuation – or perhaps pricing justification – is top of mind for many of the forward-thinking publishers planning for a programmatic future as the role of yield management rises in prominence.

“We’re ‘Nate Silver-ing’ the industry,” quips Somaya. “We are beginning to truly understand the value of a site – $15 one day is not $15 tomorrow... People who manage yield are going to be less relationship-driven and more math-focused – however, they can’t shed either side.” 

However, there’s still plenty of progress to make regarding inventory valuation, Somaya argues, particularly around context: “The industry has no tiered understanding why one impression is different than another, besides audience. Context needs to be part of the real-time buying equation.” 

Diez offered a comparison to the oil industry: the real revenue doesn’t go to the drillers, but the refineries. It’s easy to see a parallel to the optimizers in digital advertising, in-house or third party. Those driving the intelligence and data behind the automated transactions will be the winners.

“The buy side is in the business of monetizing the buy approach,” Diez says. “Publishers need to be in that same business when it comes to selling.”

Premium Is Dead; Long Live Premium

“There will always be premium; however, the multiple that strong media brands can command will shrink over time,” comments Peter Horan, President and COO of Answers. “Not that long ago, advertisers could only be assured of reaching a certain audience by buying a direct schedule through the media owner. Now consumer are individually targetable and reachable. Marketers will place a value on the environment separately from the value of delivery.”

No, the term premium will not simply disappear. While most standard display, rich media and video units will most likely pass through automated channels, 20%-25% of digital advertising will still be bought through direct sales. This is what Diez calls the "super premium" – inventory dedicated to campaigns that require a lot of “hand-holding” (also known as “human support”). These may be highly customized and integrated campaigns (think beyond native advertising) or technological innovations highlighted on homepages. The envelope-pushing kind of digital advertising that brings home awards — and is priced accordingly.

To an extent, the rise of programmatic premium is about killing the current notion of premium. In an eye-opening blog post on ExchangeWire called “The False Allure of a Premium Panacea,” Burt Corp.’s Carl Nelvig recently argued: “Giving every single ad placement a ‘premium’ designation not only dilutes value by commoditising what was once a valuable asset, it undermines the promise of digital and obstructs the flow of dollars our way.” 

The widespread adoption of programmatic tools for trading standardized units seems to be a necessary step on the road to bolder digital advertising and a whole new level of revenue. This evolution can only end in a complete overhaul of the concept of premium. However – as we concluded at the end of part I – these "programmatic premium" tools are still in their infancy and are in the process of becoming scaleable. While it may be premature to order a tombstone for the current state of "premium," it would be unwise not to recognize that change is on its way.

“The reality is the classic definition of premium is going away,” Diez says. “What you want to define is what’s valuable to the advertiser – if you can give them something they’ll pay more for, call it premium; better yet, call it revenue.”

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Gavin Dunaway is Senior Editor for AdMonsters’ Content Team. Previously he served as Senior Editor for interactive advertising trade news depot Adotas.com, and before that he held reporting and editing roles for numerous industry-related publications. When not diligently producing news and feature articles related to ad ops, he enjoys playing guitar so loud that the walls shake. Follow him, if you dare, on Twitter at @AdMonsterGavin.


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