Navigating The Modern Ad Serving Stack, Part 2: Programmatic Direct

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In the first installment of this series, we examined the age-old process of buying and selling inventory directly from publishers: direct orders. We learned that direct deals are a process wherein the locus of control sits mainly with the publisher, allowing them to reserve large chunks of their inventory to advertisers with deep wallets. Large brands and agencies tend to fit that description, which is why they are often the ones who are buying in this manner.

Now, while direct orders still comprise the vast majority of display ad dollars, the underlying drawback is the terrible amount of recurring operational inefficiency inherent in selling and executing such campaigns.

First, transactional costs, or the human effort required for execution, are quite high. Also, because of the inherent slowness in human execution, speed-to-market is affected. (It can take upwards of a month to get campaigns rolling.) Furthermore, because human effort doesn’t easily scale, it’s tough to scale direct orders. However, that does not mean that direct orders are doomed to remain manual forever.

What if you could automate the drudgery of direct buys while retaining the benefits of running directly on the publisher’s ad server? Well, in the last few years, great strides have been made to bring the automation and efficiency of programmatic advertising to direct orders.

That’s where programmatic direct enters the picture.

How Programmatic Direct Technology Works

According to estimates from eMarketer, spending via programmatic direct will surpass $8 billion dollars by 2016, and will represent more than 40% of all programmatic display ad spending. It also happens to be the next level in the ad server waterfall (shown in the illustration below), as well as one of the industry’s most commonly confused terms. [1]

Exploring The Modern Ad Serving Stack

How modern publishers typically structure the priority of their ad servers.

Programmatic direct is made possible by a small handful of specialized ad tech vendors — companies like iSocket, Shiny Ads, and Adslot — that focus exclusively on delivering programmatic direct solutions. Their technology relies on tight API integrations with publisher ad servers, providing advertisers and agencies with a mechanism to have their campaigns served directly on the publisher’s ad server, all in an automated, software-driven manner.

These companies allow marketers and agencies to purchase “packages” of inventory directly from the publisher. You could think of these packages as pre-configured insertion orders. Another way of looking at these packages is by comparing them to the “Buy Now” buttons on eBay.

How Programmatic Direct Works

A high-level view of how programmatic direct technology works.

You essentially bypass any kind of auction, or any kind of direct negotiation with the seller, and immediately purchase the product (in this case, the publisher’s inventory) as described. Once you purchase a “package” from a programmatic direct vendor, their technology places a line item programmatically (i.e., automatically via API) onto the publisher’s ad server, which means no emails, no phone calls, and no manual campaign setup by humans.

It’s a compelling value proposition, but let’s do a deeper dive and explore the benefits and drawbacks of programmatic direct, as well as the role it plays in the larger ecosystem.

Advertiser Benefits

Why would an advertiser want to purchase advertising via programmatic direct?

  • Automated Process: With programmatic direct, the primary benefit to advertisers is the increase in efficiency. With the introduction of automation with the publisher’s ad server, manual clerical work is drastically reduced, which results in far less operational overhead. Some programmatic direct vendors also have direct integrations with third-party media scanners, for example, allowing them to do automatic ad tag validation, among other things.
  • Better Targeting: Another advantage to using programmatic direct is the ability to layer on additional targeting. While some publishers might create their inventory packages in a rigid way, in an attempt to sell larger orders, programmatic direct vendors do allow better forms of targeting, such as: zip code, radius, and first-party publisher data values (e.g., weather, gender, age, or whatever is available.)
  • Ad Serving Priority: As with traditional direct orders, ad serving priority is maintained with programmatic direct. This is because, at a fundamental level, the campaigns are still running on the publisher’s ad server, and so they reap most of the same benefits as direct orders.
  • Guaranteed Inventory Volume: Another benefit to running directly on the publisher’s ad server is the ability to guarantee or “reserve” inventory in advance. As a result of this guaranteed volume, premium rates for inventory ordered in this manner are still justified.

Advertiser Drawbacks

From an advertiser perspective, there are also tradeoffs to programmatic direct solutions:

  • Detached Relationship: By automating the workflow or process of buying and selling direct orders, especially through a third-party ad tech vendor, the relationship between advertiser and publisher becomes detached. As a result, there is little room for negotiation [2] regarding orders, including custom creative opportunities. To maintain the efficiency of the programmatic direct model, virtually all of the inventory “packages” are off the shelf, so to speak.
  • Limited Adoption: At this time, the proliferation of programmatic direct amongst publishers is limited. It’s hard to say how many publishers support integrations with programmatic direct vendors, but I would wager that the penetration is quite low. Needless to say, it’s far from a universally available buying method.
  • Isolated Platforms: A major challenge with pure-play programmatic direct vendors is that they are point solutions, like mobile or video ad platforms, for example. Such isolated platforms can create havoc when it comes to proper attribution and global frequency capping, to name a couple of challenges. [3]
  • Premium Prices: Even though CPM rates are sometimes discounted in programmatic direct channels, as a result of operational efficiencies, the prices are still significantly higher than in open RTB auctions. But, given the benefits of ordering directly from the publishers, that should be expected, since they consider it their top tier inventory. However, these prices can still be prohibitive to all but the largest brands and agencies. If a campaign aims to achieve aggressive performance goals, premium inventory prices can make those goals unfeasible.

Closing Observations

Even thought programmatic direct vendors introduce efficiency to a process that has historically been very inefficient, both to advertiser and publishers, it’s clear that, as a technology, and on balance, it is still very much set up to benefit the publisher.

First of all, the ad serving is still happening directly on the publisher’s ad server, which means the locus of control for all campaigns is weighed heavily in the publisher’s favor. Furthermore, the “packages” of inventory are created by the publisher, which means that they are configured in a way that aligns closer with their goals: selling as much inventory as possible (which usually means broad targeting) and maximizing revenue (which usually means high CPM rates).

Therefore, programmatic direct really serves a specific subset of digital media buyers: larger agencies and brands. The needs of the small or mid-market marketer and agency are usually focused on directly measurable response or performance, oftentimes with more humble budgets. Programmatic direct may be operationally useful to these marketers, but only if the higher CPM rates can be justified from an ROI perspective, especially against alternative channels.

Next Up: Private Marketplaces

Programmatic direct is proof that advertisers and publishers have an appetite for the benefits of automation. However, in the world of direct orders, the overall benefits remain tilted towards publishers. But what if there was a way to retain some of the characteristics of direct orders, but make the whole process even more efficient? What if the locus of control over campaigns could be shifted closer to the advertiser?

That’s where private marketplaces come into play, and where real-time bidding (RTB) technology enters the picture as the underlying delivery mechanism. My next installment in this series is a deep dive into private marketplaces and “Deal ID,” exploring the benefits and drawbacks, and how it fits into the larger picture.

See other installments in this series:


Notes

[1] While we are on the subject of terminology, let’s geek out for a minute. In my opinion, the term programmatic direct should be the de facto term for this process today. However, some people prefer to use the terms: automated guaranteed, automated reserved, programmatic reserved, or programmatic premium. Here is why these alternative terms fall short in my eyes. First, we should refrain from using the word premium to describe it, because of the ambiguity inherent in the word “premium,” which we previously examined at length. As for the word automated, while it is more straightforward and palatable to outsiders, it lacks a deeper specificity. It’s also already implied in the word programmatic, which is more meaningful within the context of our industry. As for reserved or guaranteed, those are both merely characteristics of direct orders, and are also implied in the word direct.


[2] While negotiation — or the ability to communicate back-and-forth with the publisher over order details — is not a common feature of most programmatic direct platforms, I would keep my eyes open for this functionality in the future. Or at the very least, some kind of communication layer that allows messaging between advertisers and publishers.


[3] Programmatic direct is an important component of the digital media ecosystem, but it’s still just a piece of the puzzle. At the end of the day, programmatic direct must be part of a more holistic approach to media buying, which also includes, where applicable, custom direct buys with publishers and open exchange bidding with RTB. It all depends on what type of advertiser you are and what your objectives may be. Sophisticated advertisers and agencies ultimately need centralized buying platforms that include both guaranteed and biddable buys, across various channels and creative formats. As we watch the demand-side platform (DSP) evolve, I believe we will see a hybrid of RTB and direct technology combined to offer the best of both worlds to advertisers.


Opinions expressed in this article are those of the guest author and not necessarily Marketing Land. Staff authors are listed here.


About The Author

Ratko Vidakovic is the founder, author, and principal consultant at AdProfs, where he and his team advise a wide range of clients — marketers, publishers, tech companies, and investors — on the inner workings and best practices of advertising technology. He also publishes his insights on ad tech industry news in his weekly newsletter, This Week In Ad Tech.

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