Programmatic advertising channels are rapidly becoming the most important medium for US advertisers and the world at large. In 2019, US advertisers are expected to spend nearly $60 billion on programmatic advertising. And that number is expected to grow: by 2021, almost 88% of all US digital display ad dollars will transact programmatically.
There are constant changes to the industry as programmatic advertising matures, which makes it important for advertisers to stay up to date on the latest developments. This post offers a guide to programmatic advertising and the trends shaping the industry in 2019 and beyond.
What is programmatic advertising?
There is still a lot of confusion about what programmatic advertising is and is not. But the term programmatic simply refers to advertising that utilizes software and data to decide which ads to buy and how much to pay for them. In programmatic advertising, machines take the place of people who traditionally performed this job manually. This type of advertising can apply to a number of different channels; from display to digital out-of-home and television.
Before there was programmatic advertising, buying ads was a time-consuming process performed manually by people. Media buyers would negotiate, make purchases and create change orders with salespeople. Once confirmed, the publisher would take over running the campaign. This required the buyer to relinquish control to the publisher.
How does programmatic advertising work?
Programmatic advertising is bought and sold in an automated manner. Software algorithms evaluate user analytics to help the system determine what ad content is relevant to a particular user. Some of the data used in this process includes:
- User Behavior
- Engagement level
- Social Engagement
- Time per visit
What are the benefits of programmatic advertising?
- Programmatic technology reduces human error by taking over some of the menial tasks performed by a media buyer.
- This shift allows marketers and sellers to spend more of their time planning sophisticated, strategic campaigns rather than getting bogged down in the granular details.
- Sophisticated data analysis helps buyers to identify the best use of their advertising budgets
- Programmatic leverages user analytics to determine what content is most relevant to a user at any given time.
- Advertising creative can dynamically change as factors like location, device, weather, time, and demographics shift.
- Programmatic advertising learns about customers as they roam online, enabling marketers to create specific messaging for different target audiences.
- As campaigns progress, programmatic technology can provide real-time feedback to advertisers. This allows marketers to optimize creative quickly as the software learns more about what is resonating with the campaign’s audience.
- The majority of programmatic ad buys are priced by CPM (cost per 1,000 impressions).
- Programmatic ads are typically a fraction of the cost of a direct buy. On average, programmatic CPM’s are within the $0.50 to $2 range, versus the average $10 CPM of a direct buy.
- Approximately 58% of programmatic media buys are ‘guaranteed,’ meaning that both the buyer and seller agree to a fixed number of impressions and cost for those impressions before the campaign goes live.
What to Expect in 2019 and Beyond
Programmatic Advertising + Artificial Intelligence
Artificial Intelligence (AI) is a key component of programmatic advertising, most notably for its ability to aid in real-time auctions and dynamic content optimization. Last year, IBM Watson demonstrated its ability to reduce cost-per-click (CPC) by focusing on these aspects of campaigns. IBM is already using Watson for buying media in both the US and the UK, with the highest results show a stunning 71% reduced CPC.
Additionally, AI is being used for remarketing and lookalike modeling to connect the most relevant prospects with content that is relevant and personalized. It also helps in media buying by predicting the likelihood of a customer responding to an ad and bidding on that opportunity accordingly.
“Technology is making programmatic advertising work harder for brands… Artificial Intelligence promises to unlock new understanding of customers as people, as well as improving the optimization of the trading process.”
– Jonathan Barnard, Zenith’s Head of Forecasting and Director of Global Intelligence
While traditionally programmatic advertising has been focused on digital channels, there is a new push to bridge the gap between TV and online advertising. By 2021, PWC predicts that programmatic TV advertising will represent approximately one-third of all TV ad revenue.
The term “Programmatic TV” refers to any TV ad inventory that can be bought and sold on an audience basis. It flips the industry standard, which historically relied on show ratings to determine desirable audiences for ads.
There are new ad format types for connected TVs, including unskippable and immersive 15- and 30-second video ads. Connected TVs also allow for greater precision in targeting based on more accurate consumer data. TV media companies are experimenting with new ad formats as well; Hulu announced this year that they would begin showing ads when a consumer pressed the ‘pause’ button.
Bringing Advertising In-House
As brands get more comfortable with programmatic advertising, there is an increased desire to own and operate their own data. This is largely motivated by the opportunity to gain more value from their advertising spend, the ability for more transparency and greater control over campaign placement (Choozle). According to Econsultancy’s 2019 survey, 22% of marketing respondents reported using a mixed programmatic trading model, with 29% running with solely in-house operations.
The shift to in-house advertising is a bit slow. Econsultancy’s survey also found that 43% still report running their ads entirely with an agency. The primary reason for this is a difficulty finding the right talent.
Blockchain Will Combat Ad Fraud
The programmatic AdTech industry has had ongoing issues of transparency and ad fraud. In 2018 alone, advertisers lost $19 billion to fraudulent activities.
In response, advertisers are adopting Blockchain products in an effort to reduce fraud. Blockchain has shown success in tackling ad fraud by removing domain spoofing, verifying the legitimacy of publishers, and allowing transactions using cryptocurrencies. For example, Toyota began insisting that the businesses facilitating its programmatic buys adopt its blockchain to spot any inconsistencies between bids.
However, advertisers have been slow to adopt Blockchain. Only 11% of the 300 US agency and marketing professionals polled by Advertiser Perceptions had ever completed a transaction using blockchain.
Rise of Voice-Activated Advertising
Over 56 million in-home smart speakers shipped in 2018, which presents a big opportunity for advertisers. As voice-activated technology becomes more mass market, brands are looking to these devices as a new way to engage an active group of listeners.
This type of ad placement is still in its infancy, but voice-activated technology providers such as Google, Amazon, and Apple are developing ways to monetize their product lines by implementing audio ads on voice search devices. Success in this medium will depend on both brands and technology providers creating innovative ways to connect with audiences without disrupting the user experience. Brands should consider issues like tone of voice when experimenting with voice-activated advertising.
Expansion of 5G
By the year 2025, there will be approximately 1.1 billion 5G connections. As the speed of online transactions increases, advertisers will have a greater ability to serve high-resolution ads to their target audiences. New interactive advertising formats and higher-quality video ads will continue to increase, especially on mobile devices.
Video is expected to benefit the most from 5G. According to eMarketer, mobile video is already the primary driver of digital video ad revenue growth. 5G will enable users to stream larger, higher-quality videos on their mobile devices at a faster pace than ever before. This will likely drive continued growth of video use in advertising. It is expected that video traffic will account for 82% of all traffic by 2022.
Is programmatic the future of advertising?
The short answer is yes, most likely.
Currently, four out of every five digital display ad dollars in the U.S. are bought programmatically. Advertisers are attracted to the automation and efficiency of programmatic, as well as the ability to continually serve relevant, personalized content.
According to the 2019 Zenith Programmatic Marketing Forecast report, growth of programmatic may be slower than initially expected (due to factors like the GDPR), but the technology will still become the default trading for all types of media. With momentum continuing to grow around the shift to programmatic, it’s critical that marketers gain an understanding of the technology today. Is your organization up to date on the latest developments in programmatic advertising?
To take a deeper dive into the future of advertising, check out one of our upcoming social media strategy conferences.