Cleaning up the programmatic mess in digital advertising

Online advertising as a whole is growing – up 12.5% according to the IAB UK – with display advertising coming in at 24% share. This number, while still very a robust £1.30 billion, is less than half the size of the search market. Search is much larger because it works to drive response-based transactions and is highly automated. The business of advertising technology – tools and solutions that help facilitate the transactions of online advertising, to make display more like search – is booming. Billions of dollars have been invested over the past decade in things like ad exchanges, supply and demand-side platforms, and real-time bidding, which all comprise the broader category of programmatic trading.

The goal of programmatic trading is to use technology to help agencies and marketers buy media more efficiently and effectively, help the publishers (websites) sell more and at higher rates, and attract more brand dollars to the space in the process.

However, when looking at the results that programmatic has brought to the space in 2013, things aren't consistently positive. And for publishers in particular, some of the collateral effects are growing more alarming by the day. Ironically, it is publishers who can play a key role in righting the ship as well. But first, let's review how this situation came to be.

A decade ago, the first advertising exchanges were created. Similar to stock exchanges, ad exchanges facilitate the buying and selling of online media via technology. Exchanges serve to automate and optimise what was formerly – and largely still is – an entirely manual process between media buyers and sellers, and do so at significant scale. The promise of ad exchanges fuelled significant M&A activity – most notably the acquisitions of Right Media and DoubleClick by Yahoo and Google, respectively – and VC investment in platforms that provided exchange-based tools to buyers and sellers. These powerful tools allow publishers to tap into the aggregated demand of thousands of buyers, creating larger sell-through – albeit at generally very low rates, or CPMs.

The liquidity provided by exchanges and platforms fuelled a boom in ad-supported websites, since having a salesforce was no longer a requirement for building a business. It also created the ability for any seller of media to add more and more display ads to their pages – since most any ad space had a buyer, as long as the price was right.

And that's where things took a turn for the worse.

Along with all of the good that programmatic advertising technology has provided – automation, efficiency, the ability to use data to power transactions – there have been significant drawbacks. The biggest negative is that the market is literally flooded with ad inventory. Five trillion display ads were served in 2012 alone, according to measurement company comScore – that's thousands for each internet consumer, and far more supply than demand.

This oversupply of ad inventory – fuelled by the programmatic era – is not only exceeding publishers' ability to sell, it is arguably leading digital advertising into a dark age. A web page can have up to six, seven, or more ads on it. Some of them are so far down the page that they are literally never seen by consumers. Others are lost in a sea of content and ad clutter, with users tuning them out completely – a phenomenon known as banner blindness.

Agencies and advertisers, now armed with programmatic buying technology, are finding that they are able to target and buy audiences across exchanges at very low costs, oftentimes bypassing publisher sales teams to do so. Data-driven, performance-based advertising is growing, while brands – offered cluttered pages that lack canvases and tools to tell interactive stories – are unimpressed.

It's time for everyone – particularly the premium publisher, who has at best marginally benefited, but arguably been more harmed by programmatic trading to date – to take a hard look at the situation. Consider taking the opposite approach.

First, reduce the number of ads on the page. Start by getting rid of those that are never in view – the fuel of low-yield exchange inventory. Clean up the clutter.

Next, adopt different, larger, brand-friendly formats. While standard-sized display ads do have a place for driving reach and efficiency, brands want to tell a story. Look at the larger display formats called Rising Stars that are being promoted by the Interactive Advertising Bureau (IAB). Focus on audience engagement, rather than the oft-misleading metric of clicks.

Programmatic technology has brought many benefits to the space and will play a larger role in the future. But right now, it's fuelling the commoditisation of display advertising and hurting the industry instead of supporting it. To fix this problem, we need equal innovation in formats, creative, and design. A $100 billion global market hangs in the balance.

Eric Franchi is co-founder of Undertone.

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