Programmatic buying, the future of advertising

  • Is programmatic buying the future of advertising?
  • How mobile advertising gained prominence?
  • Marketing agenda ‘mobile first to the only mobile
  • Although still in its initial stages, why programmatic media buying and selling is extremely significant


The global advertising revenue in 2015 was $494.2 billion and is reported to be around $532 billion (Source: IHS Markit) in 2016. This revenue comprises the combined revenue of all the marketing mediums such as digital, print, TV, radio, etc.

The United States, which is the biggest media spender contributed around $179.4 billion (35%) to the advertising pie in 2016, out of this $72.5 billion was spent on digital advertising (mobile, desktop, tablets, etc.)

This was followed by China, which is the second biggest and together both the US and China account for 52% of the market share in advertisement revenue. Moreover, among this, the share of digital advertisement has increased from 19% (2011) to 36% (2016) and according to several large media companies, the digital advertisement will outnumber all forms of media by 2021.

Furthermore, mobile advertising (a sub-segment of digital) gained prominence fueled by a boom in the internet economy, social networking and online shopping. This is evident from the chart below. In 2016, mobile surpassed non-mobile advertisement revenue for the very first time in the United States. Although overall digital ad revenue grew at a CAGR of 18%, mobile grew at a whopping CAGR of 87% in the past five years. There is a shift in the marketing agenda from mobile first to the only mobile through the increase in commitment of brands towards the medium. Secondly, this is needed to keep pace with the contemporary demands of on the go consumers.

The industry was further stirred by another marketing shift from in person ad buying to programmatic media buying and selling and availability of enriched consumer data analytics to optimize ad spending as well as consumer targeting. Programmatic media planning involves buying and selling digital advertising (ad) inventory through the use of software online. This process, which was earlier conducted by human negotiators was revolutionized by the wave of automation similar to financial markets in the 1980s. Presently, advertisers buy ad space from publishers on ad exchanges in a real-time bidding environment and cater to a potential customer. Programmatic buying enables advertisers to target ads to its audiences on a given set of criteria such as demographics, prior browsing behaviour, time of the day, etc. instead of running large, multi-million-dollar campaigns, thereby, improving their ROIs (Return On Investment).

In addition, an ad exchange is a complex mechanism, where advertisers’ demand side platforms (DSPs) interact with publishers’ supply side platforms (SSPs) and in between there is a layer of data management platforms (DMPs), this helps advertisers target their customers more specifically by leveraging third party consumer data.

Work flow of programmatic transaction: When a person accesses a website/application, which has space for ads, its ad server sends information about the user (audience segment based on web behavior, etc.) and the context of the site or web page being loaded to SSP, this intimates DSP that it has a visitor, then DSP along with DMP’s preset algorithms ascertain the lucrativeness of the visitor and bid accordingly and the highest bidders’ ad is shown on the page. All this occurs in milliseconds without any noticeable lag in the page’s loading time.

Additionally, few of the world’s largest ad spenders such as Procter & Gamble, Philips, Fidelity Investment, Dell, IBM and HP have set up in-house media trading desks to ascertain capacity and numerous brands are planning the same for the future. However, media agencies still dominate this space and a sizable number of marketers still prefer media agencies for their ad campaigns, but the growing trend of in-house media buying has opened a vast array of potential customers for consumer data analytics companies along with ad technology firms.

Likewise, as ad tech companies provide a platform the marketers need to set up in-house ad buying, the consumer data analytics companies such as comScore, Nielsen, Ipsos, GfK, etc. provide data management platforms. These supplement marketers first party data to specifically target potential customers, optimize ad spending and store and track the vast amount of data related to an ad campaign, customers to run analytics for upcoming campaigns.

Notwithstanding, the growth in the world GDP, which is hovering around 3% for the past six years ending 2016, internet advertising growth has been robust. A meagre global demand has created opportunities for consumer data analytics companies. This is due to increased ad expenditure by brands to retain and acquire customers. Noticeably, there has been an increase in the M&A activities in consumer analytics space to equip firms with upcoming technologies. 

The revenue of certain prominent consumer data analytics companies outpaced GDP growth by zooming in at a CAGR of 4.6% during 2009-15. However, the rise of programmatic opened a whole new latitude for the companies in the segment. 

Notes: comScore official data is available up to 2014 due to delay in reporting caused by Rentrak acquisition in 2015. 2015 revenue is estimated.
Nielsen acquired Arbitron and Harris Interactive in 2013, eXelate in 2015.
Ipsos acquired Synovate in 2011.
Adobe Analytics and Google Analytics do not disclose separate data for such services
GfK and IPSOS revenues showing a decline after 2014 due to the weakening of Euro against USD.

While still in its initial stages, programmatic media buying and selling is extremely efficient in terms of pairing rich audience data with ad inventory and targeting. According to eMarketer (an internet research firm), the United States programmatic digital display ad spending reached $22.1 billion (2016) by taking a jump of 39.7% over the preceding year and represents about 67% of the total digital display ad spending.

Although a majority of programmatic buying is taking place in developed markets, emerging markets are slowly catching up. A lack of availability of rich consumer data and complexity of programmatic has led to the present sluggish growth in emerging economies, however, effective customers targeting and an optimum cost function of programmatic are increasingly drawing marketers towards the space.

Therefore, with increasing internet penetration in emerging markets and a double-digit growth (11.1% CAGR for 2016-20 globally as per the PWC) in internet advertising led by continuous momentum in high speed affordable smart phones, the demand for consumer data analytics is only set to rise further.

Also Read:- The downfall of PC manufacturers

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