Programmatic Zeitgeist: Five Important Takeaways From the IAB Programmatic Advertising Study
This week, the IAB, in conjunction with PricewaterhouseCoopers, released a study that looked at the programmatic advertising industry in 2014 in an attempt to size the market (by estimating revenue), and establish a benchmark for measuring future growth. The report looked at how dollars flow within the complex programmatic ecosystem, examined industry definitions like the word “programmatic” itself, and interviewed dozens of companies in the space to gather data on challenges and opportunities. In total, the results were fascinating. Here are 5 key takeaways:
- Programmatic advertising became the majority of display ad revenue. Back in 2013, programmatic (or automated) advertising made up only 23% of the display ad market, according to eMarketer. Back in October of 2014, eMarketer also estimated that programmatic was only 45% of the display ad market, but this new IAB data now shows that programmatic made up 52% of the market last year, more than doubling its share of the market! While this pace of adoption is not surprising to programmatic champions around the world, it is certainly quicker than most people expected, and a significant milestone for our industry.
- Public RTB auctions comprise the majority of programmatic dollars. According to the report, 70% of the inventory sold programmatically is of the “open auction” or public marketplace type, which is inventory that essentially anyone can bid on. This lion’s share makes sense because the open auction is really the only way to achieve the scale needed to properly execute audience-based campaigns. It’s also the only programmatic buying method that fulfills the promise of complete automation and efficiency. That being said, there will be an expected shift to other forms of buying, such as private marketplaces and programmatic direct.
- Ad tech cashing in more than publishers. Ad tech vendors collected more revenue than publishers (55% vs. 45% respectively). There is a massive amount of fragmentation in the ad tech space. With more vendors, there are more fees in the overall value chain. Not to mention the fact that these fees are all over the map, ranging anywhere from 1% or less for ad servers, all the way to 50% or more for ad networks. With the growth of audience-centric buying (versus publisher-centric buying), publishers risk being marginalized in the programmatic world, while ad tech platforms rise in importance.
- Banner ads are still the dominant creative format. Rumors surrounding the death of the banner ad have been largely exaggerated. According to the IAB, banner ads account for approximately 80% of overall programmatic revenue. This is not surprising, especially given the history and standardization of the formats, and the simplicity with which they can be created. There is an expected shift towards other formats like mobile and video, but adoption is currently hindered for many reasons. In video, premium inventory is scarce, and so most of it is transacted via non-programmatic direct deals. For mobile, buyers are still waiting for more mature cross-device targeting and measurement.
- Rapid growth in programmatic advertising will continue, but expect challenges. For starters, there is a lack of agreement over definitions, especially for private marketplace and direct buying types. There is also a lack of ability from many vendors to differentiate revenue from various programmatic buying types in their reporting. There is also a lack of standardization and transparency around viewable and fraudulent impressions, which relates to concerns about quality inventory available via programmatic advertising. Additionally, many believe that the fragmentation is hindering the industry’s ultimate growth — too many vendors exist.
Despite these challenges, programmatic advertising adoption continues to skyrocket. According to the report:
“Programmatic has become a strong contributor to Internet advertising revenue. The potential for growth is clear, but demystifying the programmatic landscape is critical to reach this potential.”
In addition to demystifying the landscape, several other issues need to be addressed. First, while understanding the landscape is important, understanding programmatic buying tech itself is just as important for media buyers and campaign analysts. Furthermore, advertiser trust needs to be fostered by addressing fraud, viewability, and brand safety. Technology also needs to mature so there is more confidence in cross-device targeting and measurement. And lastly, with so much fragmentation in the ecosystem, consolidation will help drive operational efficiencies and more confidence in the overall value chain.