The Maturation of Programmatic Direct

Raising demand side awareness & video potential

Maybe it’s because I’ve been watching too much “Downton Abbey,” but I can’t shake the idea that if programmatic direct was a debutante, 2013 was the year it came out.

While the concept had been around for a while and people had long whispered about its prospects, last year was when it really hit the circuit – that is, providers integrated their APIs into just about every platform out there. Potential suitors on the buy and sell sides started lining up for appointments, and many even partook in a dance or two.

Still, the question that has many on both the demand and supply sides of the fence flummoxed is, “How do we make this work?” For agencies and advertisers, how does prog direct fit into their buying strategies? And for pubs, how do they get the channel to really drive revenue – and not cannibalize other streams? And overall, when does the tech move beyond display into the fertile ground of video?

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But perhaps we need to take a step back and ask ourselves the more obvious (yet somehow confounding) question: What exactly is programmatic direct?

“It’s a direct programmatic relationship with an advertiser, agency or a DSP – really, we’ll talk to whomever has the dollars and the direct advertising relationship,” says Alanna Gombert, General Manager of Condé Nast’s multichannel media trading platform, Catalyst. “There are two ways of doing it: is the inventory reserved or unreserved? It’s a direct relationship, a direct conversation, but the way we integrate the deal depends on what the requirements are.” 

By this definition, programmatic direct actually includes private marketplace deals – programmatic direct means there is a one-to-one relationship between buyer and seller where a negotiated transaction (e.g., Deal ID) is executed through programmatic channels.

Others simply see programmatic direct as just a platform bringing automation technology to reserved inventory transactions, therefore filling a serious gap in the advertising technology market. The buying, selling and execution of guaranteed digital inventory has been a massively inefficient process accounting for an immodest percentage of digital ad spend. RFPs, spreadsheets, faxes (?!?) and seemingly infinite email threads clog the works of reserve transactions.

Programmatic direct is at the center of a massive shift in how digital media is bought and sold. Note that it’s not just display – this may be the proving ground, but the technology has the potential to spread to the transaction processes of video, print and even TV. It’s still early days for this debutante, but 2014 is looking to be the year we see a major increase in deals that are sold through direct and then ordered on a programmatic basis.

Neeraj Kochar, EVP and Managing Director of Programmatic at MAGNA GLOBAL, believes that in 2014 the growth rate for programmatic direct will outshine other channels like open RTB. However, the overall money flow may not seem that impressive for a while – MAGNA GLOBAL estimated that in 2014, 29% of all US display spend will go through “Non-RTB Programmatic,” compared to 34% through RTB.

“We’re beyond experimentation, but it’s still early days,” he says.

Demand-Side Awareness

“Internally, I’ve stressed the efficiency benefits of automation – the ability to execute somewhat flawlessly once the pipes are in place, taking a lot of discrepancies and human error out of the equation,” comments Jason DeMarco, Director of Yield Optimization at A&E Television Networks. “That goes a long way to increasing yield.”

However, A&E included a programmatic direct display offering in a one-liner in its 2013 upfronts to see few advertisers show interest. Granted, it was overshadowed by A&E’s TV products, with digital display being smaller business in comparison, but the lack of attention drawn highlights an obstacle for programmatic direct.

In previous reporting, we noted that publishers experimenting with programmatic direct providers by using them to capture small-to-medium-sized buys that were not worth the time of the direct sales team. Programmatic direct providers enabled smaller brands with modest spends to buy reserved inventory on premium publishers, and providers even pointed certain advertisers to direct sales teams when they looked prime for upselling.

Still, interest in programmatic direct from the demand side has been limited, and as AdMonsters has heard at various conferences, publishers are perplexed at how to market the channel. While major buy-side players began looking into the channel in 2013, ShinyAds Founder and CEO Roy Pereira says the major issue for programmatic direct providers in 2014 is demand awareness. From early on, pubs have understood the benefits of the channel, but he believes the demand side didn’t see what was in it for them.

“I look at it in same light I saw RTB four years ago, when they first made the big push into automating remnant,” he says. “We are still in a very early stage.”

However, he notes that it’s not 2007 anymore, when DSPs sent out hundreds of salespeople to gin up advertiser and agency interest in RTB exchange buying. It’s not even 2009-10, when SSPs did something similar on the publisher side. Partnerships are key for programmatic direct providers, as many existing vendors have huge sales teams that can push the channel.

“As a champion of programmatic, I’d love to see the space get off the ground,” comments Jeremy Hlavacek, VP of Programmatic at and previously VP of Strategy and Business Operations at trading desk Varick Media Management. “At the same time, as a publisher who has to drive revenue, I’m a little skeptical of how much demand is actually scaling, and how quick.”

In turn, he expresses surprise that programmatic direct is developing separately from DSPs – rather than creating “yet another platform,” it would seem more intuitive to integrate such functionality into a DSP.

“Ultimately I think these guys would be smart to start partnering up with the DSPs in a big way,” he says. “They probably view it as risky, but I think the greater risk is continuing to try and grow a small market with agency customers who may have a hard time understanding the benefit of your product.”

The Publisher Push

Publishers that evangelize the efficiencies of programmatic direct to their major buyers are proving highly effective partners for providers. Condé Nast is increasingly funneling larger advertisers buying guaranteed display through its programmatic direct provider.

“It’s really an API into [our ad server], so we can create packages based on keywords and other features,” says Gombert. “It’s just easier because you can offer it in the UI, as opposed to the RFP going back and forth.”

While RFPs are still a necessary annoyance as the reserved sales process is not streamlined, Condé Nast uses its programmatic direct provider like a store interface of availabilities.

An overhyped concern around the adoption of programmatic direct – and before it, RTB – was that technology would replace direct sales teams. Instead, programmatic direct has proved to be a highly useful tool for evolving publisher revenue teams with diverse skillsets. At Condé Nast, orders may be entered and processed programmatically, but the negotiations around pricing and packaging involve plenty of human collaboration.

“We still have the conversation about what they want to purchase, and we’ll package it up, but that becomes a more personal conversation rather than these giant RFPs that are coming through,” she says. “It makes the process more human again, which may seem counterintuitive.”

Everyone on the Catalyst team – Gombert’s group includes sales, operations, product, yield, analytics and data – takes some initiative in selling. Operations folk without sales backgrounds are actually incentivized to score deals, getting comped just like salespeople.

In effect, programmatic direct is also driving more advertiser spend through agency trading desks and other buy-side programmatic platforms, offering them the long-sought opportunity to play with brand money. Sources suggest this is where the majority of programmatic direct spend is currently coming from, and only likely to scale. Prog direct will increasingly allow agency programmatic platforms to pitch for larger (reserved) budgets that have largely been off-limits.

But they won’t receive those budgets overnight. MAGNA GLOBAL’s Kochar noted he is increasingly talking to programmatic teams at publishers – in line with the direct sales group and in some cases working together – but there is still a great deal of negotiation at this point.

Publishers “see this is how people will buy in the future,” he comments. “They’re trying to figure out how best to handle programmatic direct without causing channel conflict.”

Jumping Into Video

It seems inevitable that video will follow display into the world of programmatic direct – surely the idea perks the ears of publishers. Video has proved to be a lucrative revenue stream for the supply side, but imagine the benefits of streamlined programmatic transactions fo reserved inventory on top of CPMs much higher than display? Oh my…

Theoretically, video would simply be another creative format that could be added to a programmatic direct storefront, but of course reality is a bit more complicated. In particular, video ad serving has variables like shifting bandwidth, multiple formats and little standardization among players. 

Streamlined transcoding efforts are negating the need for advertisers to supply several versions of creative in varying sizes and formats to account for bandwidths and platforms. This development takes on acute importance considering that reserved video transactions will stretch across desktop, mobile and increasingly television with greater use of IP-delivered TV.

It would not be surprising to see video have a similar trajectory as display when it comes to the introduction of programmatic direct. Widespread adoption of video RTB on both the buy and sell sides may pave the way to programmatic’s direct entrance into the video world – as has been noted, the remnant display space proved a fruitful laboratory for experiments in automating spot buys.

Forrester estimates that real-time auction video spend will account for $1.1 billion in 2014, about 24% of the $4.6 billion video market. Video RTB is already veering into premium territory through private exchanges and Deal ID, buoyed by buyer confidence and best practices around the delivery of creative. Publishers should get excited that programmatic direct video is not far behind.

Destination in Sight, Path Unclear

Although programmatic direct seems to have a wide-open frontier to conquer beyond display, Weather’s Hlavacek is skeptical about the long-term business prospects of the actual providers.

“I think it’s going to be very hard for these companies to sustain themselves,” he says. “This has to get rolled into a larger company – a DSP, an ad server. I don’t see it existing on its own.”

The question then for established DSPs, SSPs and ad servers: will it be cheaper to acquire a programmatic direct provider than build a similar tool in-house?

ShinyAds’ Pereira is of a different mindset when it comes to the future of programmatic direct providers. He argues the opportunity is akin to the opportunity RTB providers saw in the remnant space. Now five years or so later DSPs like Rocket Fuel are executing billion dollar IPOs – Pereira believes the programmatic direct market may be heading in a similar direction.

But as mentioned before, these are early days, and the shakeout of the space is probably some time coming – definitely after programmatic direct truly scales with the demand side. In addition, display appears to be the proving ground for the technology, though arguably social media platforms like Facebook have championed the channel (with proprietary technology). How soon before programmatic direct begins to make a mark in the video space?

Condé Nast’s Gombert hopes the development of the channel is the beginning of the end of the digital platform wars, as well as a gateway to creating more robust supply systems. Think about comprehensive booking systems that include video, email, print, maybe even television. Consider how much easier it would be to connect metrics across channels for superior campaign performance analysis – and possibly even refined attribution systems.

“I wish the holy wars of platform or media would go away,” Gombert says. “We could do more cool things if we stopped talking about how this isn’t working as well as that – just because you want to push your solution. The solutions should be holistic, because every medium is powerful – it’s all about how you deal with it.”