James Aitken is co-founder and CEO of The Exchange Lab and chairman of Aitken Investments, a venture capital group which invests in start-up digital media businesses.
Unlike our predecessors, programmatic companies in today’s economy don’t just broker media, they judge it. Here are three rules of the new programmatic era:
Rule #1: Companies don’t have to own the inventory
Rule #2: It’s not about getting the best price
Rule #3: It’s about showing the best value by making the best judgment calls
Programmatic media companies must be divorced from the inventory, because they are judging it and optimizing it. Being agnostic is what makes them effective. Good, effective programmatic media companies will use various and different DSP technologies (not just those owned by media giants like Microsoft, Google and AOL) across multiple screens to optimize the best results for clients. Users are consuming media differently now. They don’t just surf the internet on a desktop. They use multiple screens and have multi-device consumption habits. For instance, 60% of transactions originate from users researching on mobile devices before they actually purchase on a desktop.
There is a massive transformation in how media will be bought in the next 10 years. In 2013, $12 billion was bought programmatically. Global ad spend was $503 billion which means 4% of global advertising was bought programmatically. Experts in our industry claim that 80% of all ad spend will be bought programmatically within the next 10 years. This massive shift is one that the television industry experienced 50 years ago, and it’s not dissimilar to the massive change that occurred in the financial markets 30 years ago.
The programmatic shift has caught the eye of venture capitalists and businesses, who continue to invest in these transformative digital technology companies in the digital ecosystem. Ad agencies are also shifting their business models, building trading desks to help them ride the programmatic tide. What is clear is that transparency is essential, as programmatic commands more and more of the inventory available. Using companies that specialize in programmatic media can ensure that media agencies continue to focus on what they do best.
Media agencies have always acted as agents on their clients’ behalf, and that is where their value is recognized. Agents have the freedom to choose the best offerings in the market. Media buying, planning and strategy have always been central to their offering and while they marshal their brands and set parameters they have always let media specialists do the heavy lifting. It’s because these partners provide value. As programmatic media becomes more mainstream, agencies mandating that programmatic media is purchased through their own trading desks will have to provide more value and transparency in order to scale.
In the future, there will be a great many sources of inventory and it won’t be practical for media agencies to scale up to cope. Clients’ interests are best served by having maximum audience access, rather than access determined by media holdco’s trading desks and a restricted view of the marketplace. This is also why we are seeing some of the larger clients take programmatic on themselves.
The biggest threat to an agency is not external programmatic media companies – it’s not the RocketFuel, Criteo or The Exchange Lab — but rather the agencies themselves, who are limiting their subsidiaries and groups by mandating their own trading desks. Media agencies should continue to focus on what they do best, and turn to their trusted partners to once again do the heavy lifting. This way we can all continue to guarantee that clients’ interests are best served with maximum audience access.
We all recognize that the value chain is changing and that the need for smart automation can be the only way forward. That, however, can’t and must not detract from the need to demonstrate great planning, accountability and value in a very complex media landscape. There is already disquiet among many clients as they see their agencies become both the buyers and sellers of media with a degree of opaqueness in between. Media agencies are part of this evolution, but must avoid taking on functions that they are not best placed to serve if that detracts from their primary function.