Is the programmatic ecosystem fat, bloated and in need of an efficiency review?

A follow up has been published on Linkedin focusing on suggestions to improve efficiency - https://www.dhirubhai.net/pulse/making-programmatic-fit-7-practical-ways-reduce-bloat-ben-shepherd/

“Technological innovation is great for consumers. As technology gets more advanced, prices drop and products get better.”

So says the World Economic Forum.

Over the past 20 years, this is true for virtually every technology sector. The only exception is Cable TV, due to a lack of competition and barriers to entry, which have protected the industry.

Source: World Economic Forum 2018

In the advertising industry, programmatic has been the biggest technological advancement in the last 20 years. According to BCG research, by 2020, it will be a $43 billion USD industry but is programmatic great for its consumers – the worlds large advertisers?

I’m a simple person, and I believe that generally, advertising exists as a lever to sell more things. To get better, it must become more efficient (cheaper for the same results), or more effective (the same cost for an improved result). Programmatic advertising promised a better way, and it started to gain traction in Australia around 2009.

Prior to this, there was the ‘ad network’ – a collection of sites aggregated to provide an efficient way for advertisers to purchase multiple publishers. In most instances, inventory was packaged together, and the costs of the component parts were non-disclosed. These were arbitrage based businesses; they bought inventory in advance of selling it, packaged it up, and then sold it via a non-disclosed model. During this time, advertisers generally paid their agencies a commission. For digital, this was generally between 8-12% (cost of media). This commission included strategy, planning, trafficking, tools, optimisation, reporting, financial logistics and so on.

It was touted that programmatic advancement would provide:

-       Efficiency through automation

-       Improvements in inventory and supply

-       Enhanced targeting ability, resulting in better performance

This was an appealing prospect, and one that has seen billions of dollars migrate from traditional channels into the programmatic advertising.

However, do we really think as an industry we have stopped to analyse how far we have progressed in these three areas over the past decade?

Or more to the point, do we feel advertisers and their organisations are seeing material, business improving results from the usage of this technology? Or do we need to relook at how we are deploying it – resource, processes, talent – and seriously consider whether we have just made the entire process of buying ads on the internet a tonne more convoluted, confusing and opaque than it really needs to be?

Let’s look at the three pillars of benefit through the eyes of the advertiser, not the various players in the complex supply chain of digital advertising.

-       Efficiency through automation

Is my investment is being deployed more efficiently?

Often, advertisers are paying commission in excess of 25% (cost of media). Additionally, there is the cost of DSPs (~5-10%), verification, and other ancillary costs. For a $1m programmatic campaign, the cost of resource alone is $250,000.

Why does my $1m programmatic buy attract $250k in service fees, but my $1m national radio buy attract a $40k fee? Is one really six times the work? And if so, why?

What components are the platforms automating, and has it resulted in less human resource? What do increased fees represent; higher value, or higher resource costs? Or higher margin?

-       Improvements in inventory and supply

Has inventory that was not previously available been made available at a cost commensurate to, or lower than, equivalent comparable media inventory?

Has media inventory that used to be purchased manually now been made available by the same supply sources at a lower cost but with no quality sacrifice?

Has the cost of like-for-like inventory decreased?

The consensus is generally yes, but the evidence is light. Media inventory, like any other inventory, is subject to the basic economics of supply and demand, and whilst I’m no economist, I do know that if more people want something and there isn’t a commensurate increase in supply, prices will rise. This would explain BVOD CPMs ($70 and beyond), for example. Sure, it’s easier to buy a broad range of inventory, but is this helping advertisers deliver superior results?

-       Enhanced targeting ability, resulting in better performance

There is no question that advertisers can target more effectively on some platforms than ever before. In particular, Facebook and Google data is exceptional and deep. That said, there is a lot of inferred data in the ecosystem, and a lot data that represents itself as something but doesn’t demonstrate why this is so.

In most instances, enhanced targeting carries a premium, but is this targeting selling more product, and is the premium justified?

These are legitimate questions that the industry must consider. Programmatic has been an incredible generator of wealth for many, but has this been so for the advertisers, the source of the budget?

In my opinion, advertisers are more confused and in the dark than ever, and in some cases, their programmatic budget has become the largest line on their media plan and a material expense to the business, with little evidence as to why.

Can we make the industry more efficient? More productive? And deliver a better service to advertisers at a lower cost?

In an industry supposedly in the throes of disruption – surely a rethink about how programmatic is resourced, operated and presented is a sound strategic concept?