Eyes Wide Shut: The Pitfalls of Programmatic Blindness

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We all recall with frustration our failed swings at the birthday piñata, and then the triumphant scrambling for sweets when we finally connected with the papier-mâché dragon. In the early days of ad exchange buying, marketers had similar experiences as they blindly reached for inventory through programmatic buying on ad exchanges, without knowing the details of the inventory they were bidding on.

Some aversion to transparency in the exchange-based media sales world is understandable: Publishers have long-feared the cannibalization of their own direct sales efforts and would provide no insight into the identity of the audience or the domain on which the opportunity lived. Buyers want this data to help them decide whether to purchase and how much to bid on the ad slot. But they too carry their own secrets: They do not want to expose their “max valuation” to the supplier.

Because an exchange or marketplace should be, by definition, a neutral facilitator of media sales transactions between inventory owners and marketing platforms, it needs to have a view on transparency that differs from those of its partners on either side of the marketplace. Because it is clearing the transactions, it holds the keys to auction dynamics, which can yield huge benefits if exposed to players in the marketplace.

Blindness in the market is inefficient

Imagine the Parisian homeowner who is looking to offload his condo in the hot real estate market. Because the seller can’t reach all prospective buyers, and foreign home hunters can’t visit the home directly, the unit is listed through an agent. What if this agent has the data required to make a purchase decision, but doesn’t expose this to the buy-side other than say general location of the home and the color of the shutters? No buyer would ever blindly purchase a property without detailed information. If he does, he’ll offer far less in a hedge to cover the unknown. The seller who doesn’t have real estate sales data to properly price his property might balk at listing his condo.

This scenario has played out many times in the advertising world. As exchange-based media trading becomes ubiquitous across various channels, including display, mobile, video and more recently, television, lack of pricing transparency is holding back spend in this otherwise efficient market.

Visibility into auction dynamics is something that the middleman marketplace has access to and has an obligation to provide. By exposing this information through marketplace product tools, it can disseminate this insight to buyers and sellers, making for a win-win offering.

Marketplaces can help spill the beans

Fast-forward to an ad exchange where the bidding landscape is exposed to sellers. This would allow them to understand the relationship between the bidding activity and the close rates on their segmented tranches of inventory. Might they then tweak their sales strategy by modifying advertiser blocks or changing bid floors, which are now limiting their upside?

In this same world, buyers would gain insight into aggregate bid ranges and clearing prices, sliced across audience and content. They’ll be empowered to adjust their bidding strategies to reduce wastage and drive effective performance for their marketing plan.

This is not an all-or nothing operation. Do publishers need to know which buyers are bidding and what the aggregate bid range looks like? Yes. Do they need to know how much individual buyers are bidding? No. Do buyers benefit from insight into the competing bids? Yes. Do buyers need to know exactly who they’re competing against and how exactly those individual marketers are valuing the inventory? No.

However advantageous these solutions might be, they don’t happen overnight. But marketplaces, which have visibility into all of this data, can make these dreams a reality over time, with a product that summarizes and details auction results at appropriate levels of granularity. While, at present, this level of transparency is but a twinkle in the eyes of buyers and sellers, the creation of it will pioneer a shift in the ways that programmatic media buying will be transacted.

Show me yours, and I’ll show you mine

As advertising marketplaces begin to provide data transparency, publishers will put higher volumes and qualities of their inventory into these exchanges and buyers will respond with more dollars.

Understandably, buyers and sellers will sometimes be unwilling to provide transparency. But they should be aware that in order to get transparency, they must also provide it.

Transparency will improve the market for all

Markets both ingest information and generate it. The lack of information by either side is a self-defeating prophecy: Buyers will submit minimum bids, and sellers will either withhold valuable inventory or overprice. Simply stated by Gresham’s law, “Bad money drives out good.”  In ad exchanges where buyers are underpaying, publishers will take their prime cattle to a different market.

More transparency in auction pricing and bidding patterns will also create a stronger, more liquid market. Access to auction pricing detail does not allow suppliers and marketers to operate on autopilot. The intelligence of the supply and buy-side platforms that empower the publishers and marketers, respectively, will still be necessary in the programmatic buying world, but access to this data is imperative. All will benefit as more players in the space recognize the benefits of transparency. At least then we’ll be swinging at the piñata with an eye patch rather than a blindfold.

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