Programmatic: Becoming the strategic technology foundation of mobile advertising

By Victor Milligan

Technology has always been critical for high-volume transaction markets, whether that is stock markets, credit cards, or even search advertising. It is now critical for mobile advertising.  The common value is the ability to achieve efficiency at scale while enabling transparency and decisioning at the impression level. This combined value is a core reason why programmatic technology has quickly taken shape.

But it is valuable to get underneath the term “programmatic” and talk about the capabilities in the market:

 ï‚·         RTB, which automates transactions via real-time auctions

 ï‚·         Programmatic guaranteed, where buyers and sellers agree to a specific deal (Deal ID) or a broader relationship (programmatic guaranteed) “off network” but transact on the exchange.

The combination of RTB and programmatic guaranteed is important, as it creates a range of technology that can support a publisher’s direct and indirect channels— and enable different buying options by programmatic buyers. Forecasts affirm the critical role of programmatic and its fit for mobile advertising, and more broadly for digital advertising. Programmatic will grow to support 50% of total mobile ad spend by

2017.

In fact, one way to think of programmatic is as less of an option and more of a common underpinning for mobile advertising altogether. This point was highlighted at the Nexage Forum, where an executive from a media company stated that we will have matured as an industry when we do not use the word programmatic market anymore; we simply say “market” where programmatic is part and parcel of every transaction.

RTB: Dominating share of spend

RTB has led the charge for programmatic. The strength of RTB growth is in great part due to the mutual value delivered to both buyers and publishers:

ï‚·         Buyers gain superior targeting capabilities in a mobile data model where the exchange integrates and delivers 1st and 3rd party data.

ï‚·         Publishers are able to consolidate their indirect channel through a single ad tech stack and take advantage of rapidly growing programmatic spend.

We are seeing significant RTB growth on the Nexage Exchange, as bid volumes have grown more than 500% in 2013 (so far) and RTB’s share of spend on the Nexage Exchange has grown from 26% in January 2013 to more than 60% in October 2013. Bid density, a core measure of liquidity, has also grown more than 200% in 2013.

These results outpace the larger programmatic trend in the market and reveal three interrelated dynamics: 1) tremendous increase in supply available through RTB; 2) a broad base of programmatic buyers—including online-native DSPs, mobile-native DSPs, and ad networks that have transitioned to RTB—continue to ramp up their business; and 3) those buyers are showing a high preference for premium audience available on the Nexage Exchange. We expect RTB share of spend to continue to grow as buyers expand their businesses and agencies move more money to programmatic budgets.

Private exchanges: Taking flight in the premium segment

The name “private exchange” is a bit of a misnomer, as it implies a single monolithic product. Instead, private exchanges are a configurable set of functionality that is tuned to the specific publisher’s preferences and needs.

As such, private exchanges come in many forms, and differ by how publishers select buyers, create and apply business rules (e.g., brand safety), and whether they are exclusive or first look-based. Premium publishers are able to design private exchanges that best meet their needs, and adapt them as the market and their priorities change.

We expect private exchange share of spend to grow substantially because of the combination of publisher-designed controls and superior performance.

Nexage Private Exchanges are realizing significant growth: revenue grew 569% in Q3, driven by the combination of CPM and volume growth (CPMs grew more than 140%). This performance sends a powerful signal to publishers; with the right design, they are able to enjoy high levels of liquidity while setting rules that best meet their needs.

Auction Analytics: Revealing the strategic value of transparency

Analytics are becoming an increasingly important tool to gain visibility to performance, and to best understand the levers to continuously improve performance. This is especially important for markets in rapid growth, like programmatic, where business leaders need detailed views of how the technology works. One important area is, of course, the targeting algorithms that make billions of decisions a day to drive optimal campaign performance.

Nexage provides a range of auction- and bid-level analytics to help both publishers and buyers understand and advance their businesses. Publishers are able to understand actual demand patterns for their sites and, based on that information, better package inventory and set floors.

Buyers are able to understand their bid behavior for different sites and various audience attributes to optimize their algorithm (and even see where the algorithm’s logic is different than their business intention).

One analytic output that enables more transparency are bid histograms where we are able to isolate the bid behavior for a site (many buyers) or buyers (many sites) to give them a view of how bidding is taking shape. The most significant trend is that the broad-based growth in programmatic buying is driving up bid volumes and bid density, which measures the extent of competition per auction.

Conclusion

In the world of digital advertising there are two dominant trends, the dramatic increase in mobile ad spend and the role of programmatic in supporting that ad spend. The two trends together tell a clear and profound story: mobile is rapidly becoming a strategic channel for advertisers and programmatic is rapidly becoming the technical foundation for the majority of transactions.

The analytics in this report signal that this trend is well underway, and the trends are creating some important markers in the industry:

ï‚·         Agency (via trading desks) and buyer preference to buy programmatically is changing the landscape and increasingly motivating publishers to move more and more premium inventory to programmatic.

ï‚·         Publishers are increasingly using private exchange functionality to drive their business forward.

ï‚·         Analytics are enabling both publishers and buyers to see clearly and adapt to a rapidly changing and growing market.

So beyond the “up and to the right” growth charts, the larger point may be that mobile advertising is changing—or better stated—progressing. Value drivers such as premium inventory, mobile data, programmatic spend, and technology are place and promise to have a decided impact on 2014…and the shape of the industry going forward.

About the author

Victor Milligan is the CMO of Nexage where he leads all marketing and analytic functions. Prior to Nexage, Victor was the CMO and Chief Strategy Officer (CSO) of Lavastorm Analytics, where he successfully repositioned Lavastorm into the operational intelligence space and put them on a growth trajectory in the vibrant analytic market. Before joining Lavastorm, Victor was a Senior Managing Partner at Gartner, leading their global industries team, and cut his cloth at BoozAllen where he consulted to telecom and mobile companies in the US and across the globe.

About the company

Nexage is the leading mobile advertising exchange, creating a highly efficient and liquid market for buyers and sellers alike. The Nexage Exchange creates mutual value: it enables publishers and developers to accelerate their revenue growth; it enables DSPs, ad networks, and real-time buyers to target and buy the audience they need when they need it to deliver successful campaigns.

http://www.nexage.com/

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