the growth of programmatic advertising platforms and processes – what are we measuring?

Looking back on 2013, our industry saw a growing acceptance of “programmatic” transactions for buying and selling online advertising. Programmatic refers to the myriad advertising technologies that have come to market in the past several years to automate what have otherwise been manual processes. Lately, real time bidding (RTB) has been confused with programmatic. Real time bidding is a subset of programmatic; even before the advent of RTB, programmatic existed through numerous ad networks and ad serving platforms such as Doubleclick, Atlas, PubMatic, the Google network, 24/7-Real Media, Tacoda and dozens of others.

In the past several months, industry articles , blog posts and so on have explored how much programmatic will grow as players – agencies, publishers, marketers – adopt the tools to execute online advertising transactions. So far, the focus has been on online advertising, including search, display and video.

Measuring Dollar Amount or Number of Transactions

In most cases, studies have centered on the growth in dollar value of these programmatic transactions. Industry research firm eMarketing, for example recently reported on the future of programatic advertising.

But is the total dollar-value of the ad spend really the best way to measure adoption by the industry? I propose that it is not. Perhaps the better metric is the number of individual transactions executed programmatically, as percent of total, regardless of dollar value.

The Value of Efficiency and Productivity

To explain my point, we need only examine the underlying purpose for automation in the first place. The primary benefit of automation is improvement in productivity. It replaces or reduces laborious, repetitive (and thus costly) activities. By most accounts, the improvement is dramatic.

Workers in a technology office.

Measuring the adoption of technology has long been a challenge.

Programmatic ad automation frequently will substitute for the ad transactions that individually have low financial value but comprise a high percentage of total transactions, each with little or no margin due to the number of steps involved in completing each transaction. Meanwhile, people can spend more time on higher margin, value added activities, such as analysis of analytics data and audience behavior. My colleagues at DragonSearch have addressed the importance of analytics before. Programmatic transactions will limit the need for additional person hours as the amount of work increases. The reduced cost means increased or at least stable profit, even if the clearing price for the average transaction declines. After all, isn’t a lower cost per click a universal objective of pay per click advertising campaigns?

Reduce Costs, Increase Profit Margins

Programmatic has the potential to halt the vicious cycle in online ad pricing, where unit prices and margins trend down, while costs of execution remain largely unchanged, decline only slightly, or even rise a bit. Growing adoption of programmatic advertising automation, accompanied by advances in the automated processes themselves, will strip out costs faster than prices decline. Some automation techniques may even slow or stop overall price declines, as buyers and sellers use programmatic techniques to identify higher value inventory that more precisely targets the audiences that are most aligned with the product or service being advertised.

For programmatic advertising, the ultimate measure of success is the efficiencies achieved and mind numbing tasks eliminated from workflow, rather than dollars shifted to programmatic from traditional ways of conducting transactions. If anything, the man-hours freed up by these platforms will be more appropriately allocated to higher dollar-value transactions enabling them to achieve the best results. This has been the impact of automation across industries for decades. Why should advertising be different?

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