This column appeared in AdExchanger on October 3, 2014. You can view it here.
Programmatic direct is the fastest-growing area of digital advertising, with both publishers and advertisers flocking to set up programmatic direct relationships.
It works for publishers because it gives them more control over which advertisers are buying their inventory at specific prices. And buyers like it because it gives them transparency to see the inventory they are buying from which publishers.
Programmatic direct is generally agreed to mean any deal that is negotiated or transacted directly between the buyer and the seller, but executed through automation. This is a broad definition encompassing several different kinds of deal terms, including automated guaranteed, preferred deals and private exchanges. The challenge for publishers is to make sure they are using the right kind of programmatic direct for the right deals so they get full value for their best placements.
For publishers, there are clear advantages for either private exchanges or automated guaranteed, depending on the deal. For example, if a health-care site is negotiating with a pharmaceutical company, the site already has the audience the buyer needs. In this case, an automated guaranteed deal would ensure the pharmaceutical company gets the specific placement and audience with low risk, at a negotiated price. If they tried to use a private exchange, they risk not filling their budget.
On the other hand, if a buyer is looking for their own audience in a premium context, such as a credit card company retargeting existing cardholders with a special offer, then a private exchange might make more sense for both sides. The publisher could get higher CPMs for inventory that would otherwise have gone to a remnant channel. The buyer could get exactly the inventory they wanted, with the full knowledge of the placements from the publisher.
One other form of programmatic direct, the preferred deal, seems to be the worst of both worlds for the publisher. The price is fixed, so there is no upside potential for the publisher, but the volume is non-guaranteed, so there is only downside risk. To avoid this situation, smart publishers are converting all of their preferred deals into private exchanges or automated guaranteed deals.
The fundamental difference between automated guaranteed and private exchanges is the risk acceptable to both sides. Most publishers work to reduce the risk on their revenue stream, managing to a goal of 60% to 80% of their revenue from predictable sources, such as upfronts and guaranteed deals, and the remainder from the “spot” market where there is both upside potential and downside risk. This requires managing the mix of deals they do. When a publisher is negotiating with a buyer, they should ask themselves these questions:
- Is the inventory they want highly sold through or scarce?
- Does the buyer want predictability and forecasting on delivery?
- Are the audience targets based on publisher data or geotargeting?
- Is the buyer contextually related to the site (endemic)?
- Does the buyer have a brand objective vs. a direct-response objective?
If the answer to any of these questions is yes, then the publisher should be negotiating an automated guaranteed deal.
For example, most publishers find that their video inventory fits these criteria, so they only sell it with a guarantee. As they move to programmatic selling, they don’t want to give up the predictability and low risk of this revenue stream, so they should target automated guaranteed deals. This is the case unless the buyer is willing to pay a risk premium with significantly higher CPMs. Giving the buyer the ability to pick only the impressions they want is just like letting someone pick all the M&Ms out of the trail mix. Don’t let them get away with a discount just because it’s a private exchange.
The digital advertising world is moving to a more programmatic future. Publishers who manage their risk and choose the best programmatic deal types will be the ones that prosper.