The programmatic manifesto

This year’s DMS was a familiar gathering. Many of the faces were the same, even if they now fronted different companies altogether. The coffee area was bustling with men in blue suits greeting each other heartily. The mood, on the surface, was buoyant. Kawaja, an amateur comedian known for his spoofs and fake magazine covers, took a different approach in his welcome address. Kawaja threw cold water on the gathering by reminding the assembled ad tech CEOs of all the shortcomings of the programmatic world: a lack of transparency, shoddy measurement, rising use of ad blockers, fraud, unviewable ads, and so on and so forth. In digital media, Google and Facebook now vacuum up 85 percent of incremental ad spending, leaving the rest of the industry to fight over the rest.

“Winter is not just coming,” Kawaja said. “Winter has come.”

Programmatic advertising stands at something of a crossroads. There is a vocal minority who call for its abolition. “A toxic ecosystem that is killing itself, and it is taking digital advertising with it,” digital media veteran Shelley Palmer thundered on LinkedIn in June. This point was given some credence by the Association of National Advertisers’ long-awaited transparency report that laid out how the complexity of ad tech had given cover for agencies and vendors to cut side deals.

But most industry executives — especially those with revenue responsibilities — agree programmatic will play a vital role in the future of media. There’s little doubt it will take hold in media and marketing, which Google’s then-CEO Eric Schmidt once called “the last bastion of unaccountable spending in corporate America.”

“It’s a snowball rolling downhill,” said Bryan Wiener, chairman of 360i. “We’re not going back to insertion orders.”

And yet programmatic advertising is suffering from a crisis of confidence. Once high-flying ad tech stocks have plummeted. The investment climate for ad tech startups is chilled. There is a drumbeat of negative headlines, encompassed in Kawaja’s bill of particulars. That Kawaja chose to triage the top 10 threats on a scale of serious to critical to existential shows just how many issues the industry must address. And it must, since programmatic is problematic — and it’s also the future.

In discussions with industry insiders, a consensus emerges. Certain specific steps need to be taken in order to restore confidence in the automation of media — and to guard against this inevitability leading to a less healthy media world. Nobody argues media shouldn’t be more efficient, with more relevant advertising supporting great content, but it’s also clear there are real shortcomings to the initial wave of automation that must be addressed head-on. Here’s how programmatic advertising can heal itself.

People aren’t “users.”
Ad tech has too often abstracted what it does to the point where people don’t really matter. It’s akin to how the military talks about “collateral damage.” In ad tech’s first iteration, the cookie has served as a useful abstraction. For one, the cookie isn’t a person; it’s just an identifier of a browser. That allowed ad tech’s many intermediaries to collect as much data as possible, with the excuse that it wasn’t “personally identifiable.”

This approach has been problematic in a few ways. The most obvious is that the information is often inaccurate. Cookie-based targeting in a mobile world is a fool’s errand. For all the talk of big data and how many ex-NASA scientists ad tech firms employed, data sets were always a bit suspect. What’s more, all that data crunching has come at a steep cost: ad calls are grinding mobile sites to a crawl. And they’re also leading people to distrust all the various companies sucking up data for other uses.

Enter ad blocking, which is really a symptom of a greater industry malaise of putting the media experience behind the ravenous need to monetize. Kawaja made the point to the ad tech world that there are only two principals: the marketer and the consumer. But ad tech has not been rewarded for taking the desires of people into account. Instead, programmatic has too often been about volume: pushing impressions through newly laid programmatic pipes. Ad tech firms used to brag about how many impressions they saw and served. Then it became clear how many of those “impressions” weren’t valuable, and instead were bots or ads that couldn’t be viewed by an actual human being.

Transparency isn’t optional.
“Nothing is clear.” This is how Visa’s head of digital Shiv Singh sums up the experience of a marketer confronting the state of ad tech. The current system of interlocking intermediaries makes it difficult for marketers to figure out who they’re paying and for what. The ANA report laid bare how the game is played, with ad tech vendors funneling money to agency entities in exchanged for “preferred” vendor status.

“There’s been a lot of people in the value chain with their hands out,” said Wiener.

The sheer number of players need to execute buys is an issue, notes Wiener. A marketer will be paying for a data-management platform, a demand-side platform, an agency, a third-party data overlay, an anti-fraud vendor, an attribution specialist and others. This has led to what’s often called the “ad tech tax,” with “middleman on top of middlemen,” Wiener said, often without transparent pricing.

That’s the key point. Many in the ad tech ecosystem are adding real value — “it’s not the number of hops,” notes Ari Paparo, CEO of ad-tech firm Beeswax — but there are those who are siphoning off more than they’re adding. The ambiguity of the system drives marketer distrust, and plays a large part in many wanting to take all their programmatic buying in-house.

“The client has a right to know to how much it costs and what margins are,” said Dave Smith, CEO of media-buying shop Mediasmith. “Obfuscation is inappropriate.”

Quality must trump quantity.
For too long, programmatic has been far down the list of concerns for marketers. “Run of junk” is how Wiener put it. Part of that is a matter of misperception and part of that is due to an industry that’s long over-promised (perfect targeting, no waste) and under-delivered (repeated retargeting ads for products we’ve already bought.) For many clients, programmatic has been synonymous with real-time bidding in ad exchanges.

The open exchange era of programmatic advertising’s development held a lot of promise. It was sexy to think of advertising becoming like Wall Street, with liquid exchanges, trading desks and the like. But soon exchanges, rightly or not, became associated with the worst aspects of programmatic: fraud, bots, crap inventory, awful placements. Facebook confirmed many worst suspicions of open exchanges when it pulled out of them after its LiveRail acquisition, saying the inventory quality was terrible. This came on the heels of AppNexus disclosing last year that after cracking down on fraud, it saw 65 percent fewer transactions on its exchange.

“We build the pipes but the pipes were filled with crud,” said Eric Franchi, co-founder of Undertone, a programmatic ad specialist. Now, the pendulum is swinging away from the cult of big numbers — AppNexus used to brag in 2014 about delivering 30 billion impressions a day — toward private deals with trusted publishers. The ironic part is this development runs counter to the democratizing ideal of exchanges that would allow small sites with good audiences to compete with large sites with deep ties to advertisers. But in the end, the risk has proven far too high, leading to the retreat to private-marketplace deals.

“Automation is what programmatic is great at it,” said Jonah Goodhart, CEO of Moat and part of the founding team at Right Media, one of the early ad exchanges. “The mistake people made is programmatic meant you should be buying traffic on tiny websites and aggregate those into volume. It became long tail and abnormal inventory.”

Reward value creation.
Bad incentives lead to bad behavior. The digital media system for too long has been rewarding the last click and incentivizing middlemen to find the soft spots in weak attribution systems. There’s a reason the one home run of ad tech has been retargeting.

“When it comes down to making numbers, hitting reach goal, an agency might put into an indirect channel because it’s the only way to get to the results,” Paparo said. “Suddenly the marketer is not getting what they said they wanted.”

What’s more, the industry has been hooked on “served impressions.” Meaning that until recently the only thing that mattered was a server responded to a call — not if a person saw the ad at all or if it was served to a bot. Enter nested ads, placements jammed on the bottom of the page, and all manner of skullduggery. The issue is “foundational,” in Goodhart’s view. “If i’m no longer getting paid on served impressions, i have no incentive to serve impressions that aren’t viewable.”

All this waste — the Association of National Advertises (ANA) expects ad fraud will cost $7.2 billion this year — has eroded trust in the medium and led to questions from marketers about what exactly they’re paying for in the first place. According to comScore, 8 percent of all video traffic is “invalid.”

“The word I often hear is it’s really expensive,” said Wiener. “If you’re doing it right it’s not. In a transparent model, ad tech is a value-added tax. Margins shrink when you shine a light on things.”

And that doesn’t mean railing against “complexity.” There are many ad tech companies, but they all are for-profit enterprises that exist because they’re getting paid money to add value. Some are not, but the holding up “complexity” as the main issue is a “straw man,” according to Goodhart.

Clients should take control — and responsibility.
Ultimately, marketers call the shots. It is marketers who have the budgets to spend to reach people. Everyone else is in between. To date, most marketers have failed to take control of programmatic, and then expressed shock that there are shady things going on. There’s a “gambling in Casablanca” feel to the protestations. After all, the much-heralded ANA investigation into kickback and “rebates,” which will touch on programmatic deals, mostly arises from years of procurement-led reviews that have ground agency margins to zero. It’s no surprise agencies have found alternative revenue streams as vendors in programmatic. No wonder many marketers are exploring taking programmatic ad buying in house.

“The reality is clients are doing it for the wrong reasons,” Smith said. “They’re doing it because they don’t trust their agency.”

At the same time, the complexity of the digital media supply chain has shielded marketers from responsibility for the fraud, non-human traffic and other shenanigans. Sure, they might push for $1 CPMs for video ad campaigns, but they then can point the finger elsewhere. That head-in-the-sand era is coming to a close, as marketers take control of programmatic strategies, if not always the execution.

“Marketers have to be accountable for where their ads are running and who is making money off them,” said Goodhart “In my opinion it’s the only way we get to the right place with programmatic is if everybody takes responsibility. No more pointing fingers.”

That doesn’t mean marketers need to take programmatic in-house, as Netflix did in 2014. That can end in tears, as clients struggle to attract and retain the right talent — and risk having their marketing too automated. The human touch, whether through an agency or managed-service provider, is still needed. And most marketers aren’t Netflix — and thinking they are is a “dangerous trend, Wiener said. “There’s fear driving rush decisions often without proper diligence or integration.”

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