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What are Programmatic Buying and Real-Time Bidding?
Posted on May 3rd 2013
Back in March of this year, I penned Programmatic Advertising: Is It the Future? The opening sentence said it all: "I am by nature a very curious person especially when it comes to the world of marketing, advertising and branding."
I prefaced my column that day because I am indeed a very curious person and in that particular context in that particular article I was referring to "programmatic advertising."
In the piece I shared a conversation I had with Gurbaksh Chahal who is the Founder, Chairman & CEO of a company called RadiumOne. whose platform“is designed for today’s real-time,programmatic media landscape.” And while I had a great chat with Gurbaksh, my curiosity remained piqued, as it were.
As luck would have it a few weeks ago I was introduced to a gentleman by the name of Eric Bosco, who is the new CEO of ChoiceStream - a company that deals in the world of "programmatic advertising" among other things.
Recently I had the opportunity to throw a few questions Eric's way but instead of diving right into programmatic advertising, buying and bidding, I decided to start off with a much more global, all-encompassing query.
SO: How is digital advertising changing?
EB: The allure of digital advertising has long been its inherent one-to-one nature. However, until recently we have only realized one-to-one metrics – who clicked on an ad and who converted. Now, consumers are more complex than ever, forming fragmented audiences spread over plentiful and diverse content. Additionally, new technologies such as programmatic buying have enabled bidding on each ad impression separately as well. This empowers marketers to pick and choose one audience member at a time and show them a relevant ad.
We’re at an inflection point in the evolution of digital advertising. Media buying will become increasingly programmatic, campaigns will become much more efficient, and ads will become more relevant. The shift to programmatic buying is being driven by two catalysts.
The first catalyst is the ubiquity of the digital advertising method. Now, on a large scale, digital ad technology is being used to deliver advertising in all sorts of channels including TV, mobile, tablets and even in-store kiosks. Where once there were many disparate platforms with separate technology, metrics, and delivery models, today’s market is converging and marketers can take advantage of a more unified stack in all these channels.
The second catalyst is the rapid growth of computational capacity, enabling scalable ad technologies including: Data Management Platforms, Real-Time Bidding, Audience Targeting, and Optimization. The intelligence resulting from these synergistic systems -- when applied to programmatic buying in the unified stack -- enables digital advertisers to gain performance while improving relevance for consumers.
There will be several of winners who profit from this seismic shift in digital advertising. The first set includes developers of the two distinct components of programmatic buying: Real-Time Bidding and Continual Optimization. The second set of winners will be publishers whose premium content and premium audiences will be bid up as more programmatic buyers enter the market. The third set of winners will be the marketers who acquire internal expertise and develop the partnerships necessary to operate in the evolving ad ecosystem.
Q: What are programmatic buying and Real-Time Bidding?
EB: At its heart, programmatic buying is an automated auction in which ad impressions are traded, one impression at a time. The systems that run the auctions are called exchanges and systems that buy programmatically in these auctions are called Real Time Bidders. IDC has projected programmatic buying will grow at a 53% clip per year in the United States between now and 2016, while Forrester Research has claimed that programmatic buying will ultimately capture the bulk of all digital advertising spending.
Two basic approaches are used in programmatic buying. In Price-Based Trading, the goal is to buy impressions as cheaply as possible –improving campaigns simply by reducing costs. Targeting and optimization in these systems may be derived from analysis, but it is largely a manual (therefore infrequent) process. Because these early systems treat all impressions like remnant and focus on price, we have witnessed a downward pressure on pricing raising concerns about a “race to the bottom.” We do not see this trend continuing.
The second approach is Value-Based Trading, in which the system continually learns from ad responses and automatically values each impression based on the probability of a response and the value of a response for each campaign. Value-Based Trading works to achieve the greatest margin between media cost and response value for each campaign. By recognizing when expensive impressions are well worth the cost and when inexpensive impressions do not deliver value, value based systems maximize ROI.
These advanced systems will bid high for valuable impressions. For example, our monthly Audience Cost Index provides some early evidence of wide pricing ranges where some impressions are recognized as premium and command significantly higher prices.
SO: Why should a CMO add this to the mix?
EB: Programmatic buying should be part of every CMO’s marketing arsenal. It is a labor efficient and cost efficient way to accurately reach huge audiences. When backed up by continual optimization for value, it can be very effective for performance focused campaigns.
Perhaps even more exciting for CMOs is programmatic buying of display ads to support top-of-the-funnel goals: such as acquiring “followers” or building awareness. Often, these top-of-the-funnel tactics are expensive (think Super Bowl ads) and the results can be hard to quantify. Now, brands can buy digital ad impressions efficiently and leverage the analysis to discover the right audience and gain insights. Programmatic buying may be the best way a savvy CMO can get cost-effective access to large numbers and wide varieties of consumers across all content, day-parts, and devices.
SO: What’s an example of a big brand using programmatic buying successfully?
EB: One brand seeing success with programmatic buying is Zappos! The online retailer of apparel, footwear and more has a performance goal that they established through a year of experience with all of the partners in their plan. When we applied value-based programmatic buying techniques, the early results were 15 percent better than the goal. Programmatic buying backed by algorithms that continually learn and optimize campaign performance will show month-to-month improvement in performance.
Zappos! also worked with our creative services to deliver contextually relevant dynamic ads that show apparel or footwear that is in-line with local weather conditions. So Samantha, experiencing snow in Syracuse, will get an ad for boots and sweaters while Fred expecting fun-in-the-sun in Phoenix, will see an ad for flip-flops and shorts. Between these creative services and continual optimization, Zappos! has further improved results over the first few months to beat their goal by 30 percent.
SO: What do you suggest those new to programmatic buying do to get started?
EB: Pick a partner. It’s really not any harder than that. The right partner can bring a marketer up to speed quickly while managing the risk and performance for them.
No marketer can do this alone, so they need to get serious about identifying an internal advocate, then testing several vendors.
Choose vendors that can provide a breadth of audiences (access to exchanges) and depth of data to meet your goals. Deep data requires algorithms and computational power capable of analyzing third party data (available from a number of providers) and advertisers’ first party data (which includes CRM, email, customer data, etc.). The best programmatic buying partners will also be able to provide their own proprietary second party data that can enrich and inform the campaign. Those vendors should be able to demonstrate continual optimization and value-based bidding. Throughout each campaign, marketers should receive insights through audience profiles and performance breakdowns to inform not only the optimization of the campaign as it happens, but future campaigns and even overall marketing strategies. After that, it’s important to look for something special.
We have a product we call “Active Audience,” which embeds a branded poll in ads. The self declared attitudes and intents gathered from poll responses reveal unexpected insights and greatly focus campaigns. Finally, vendors should act as real partners, providing full services and sharing the risks and rewards of success.