Digital Advertising Demands Savvy Buyers

Tyler Adams, GEP

Digital advertising exceeded $35 billion in the USA and $90 billion globally in 2012. With expected growth of over 15% in 2013, an integrated approach to marketing procurement is essential to maximizing the efficiency of this budget.

Digital advertising is seeing a seismic shift as advertisers begin to reduce their reliance on traditional buying behaviors and integrate automated purchasing technologies. Known as programmatic buying, the niche technologies and suppliers that participate in this space have developed the ability to use data, algorithms, and real-time systems to help advertisers deliver specific ads to target consumers. Similar to stock trading, these technologies have created a marketplace for online ad inventory to be bought and sold in real time via exchanges.

Traditionally, digital ad inventory has been purchased directly from publishers. Most advertisers leverage the relationship of a media agency such as WPP’s GroupM, Omnicom’s OMD, Publicis’s Vivaki, or Interpublic’s Mediabrands to act as an agent to negotiate buys with publishers. These agencies work to negotiate with publishers that they believe deliver relevant content to the appropriate audience that the advertiser wishes to target through their campaign. Depending on the budget of the advertisers and overall negotiating power of the agent, direct buys taking place in this fashion cost on average $7-20 per thousand (CPM) impressions. More importantly, these impressions are purchased in bulk upfront, while the publisher is generally held to the KPI of delivering in full.

The advent of programmatic ad buying has completely disrupted this model. Savvy advertisers have greatly reduced the amount of money spent in upfront deals and have put their budget into programmatic buying. Partnering with a Demand Side Platform (DSP), which acts like the “stock broker,” advertisers are able to access ad exchanges and ultimately automate the purchasing process.

By setting algorithmic parameters based on the value of specific audiences to the advertiser, DSP’s optimize spend by purchasing advertisements based on the consumer that will see the impression rather than the site the ad will appear on. This targeting is based on cookie tracking and data captured that provides inferences on the consumer based on sites they have visited or logged onto prior to coming to a site where a piece of inventory may be available through an exchange. Inventory purchased via online exchanges currently see an average $1-3 CPM.

At 70%+ reduction of CPM’s, the cost efficiency of programmatic buying is clearly evident. However, this efficiency comes with risks, and requires procurement to play an increasingly important role in sourcing, monitoring, and compensating suppliers supporting marketing in this space. DSP’s, ad networks, ad exchanges, data providers, analytics companies, and ad agencies are all integral partners in this equation. Each supplier must be vetted for their ability to provide optimal services for the needs of a particular advertiser. In addition, specific KPIs must be outlined to ensure performance is in line with an advertiser’s expectations. Finally, compensation models must be constructed to encourage good behavior and ensure transparency of costs throughout the entire purchasing cycle.

The partners, strategies, and tactics are constantly changing in the world of programmatic buying. Procurement personnel must integrate themselves with marketing and be committed to learning the intricacies of the space in order to be viewed as a trusted counterpart and driver of operational efficiencies for the marketing department.

For more interesting thinking on procurement, visit the GEP Knowledge Portal.

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