Taking programmatic advertising from black box to glass house

Industry press and reports suggest the dissatisfaction can be broken into two parts:

1. Advertisers want more cost and media transparency, but their ad tech and trading desk partners are reluctant to give it.
2. Advertisers want to activate more first-party data, but they are reluctant to let it outside the brand walls.

A clearer picture

When advertisers go inside by taking programmatic ad tech in house, they see a transparent surrounding, exposing all new customer insights and giving them unheralded control of their data and campaign performance.

The argument to bring ad tech in house is increasingly validated by six fundamental reasons:

1. Competitive advantage: Lock in better supply to find increasingly better audiences
2. Transparency: Guarantee 100 percent total and absolute cost and media transparency
3. Data: Activate more first-party data and experiment with strategic data sets
4. Higher win rates: Much higher RTB bidding, leading to much higher win rates for users the advertiser wants to reach
5. Brand trust: The advertiser gets 100 percent total and absolute control over striking a balance between data privacy and meeting the customer need.
6. Savings: The financial payoff of investing in in-house programmatic is massive

The financial investment payoff is really big

CEOs and their respective CFOs always look for investments with outsized payoffs, and with in-house ad tech that payoff is clear.

Interestingly, the key model driver is an assumption that largely goes unverified today precisely because most ad-tech vendors and trading desks don’t reveal their fully loaded fees. You’ll see how this plays out using the following calculation.

The first piece of information the model needs is an estimate on the margins you pay your ad-tech managed service vendor. These fees can range from 40 percent to 80 percent or more, but no individual advertiser really knows for sure. Not knowing and not being able to know sits at the heart of advertiser dissatisfaction. In any case, let’s say you’re paying 50 percent margins.

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The next few model drivers are known variables. For example, you know you buy 200 million impressions per month via RTB and direct supply relationships. You also know the average publisher CPM in your target markets is around $1.50. You know other model assumptions with a strong degree of confidence, like average reach and retargeting CTR and post-click and post-view conversions.

When an advertiser decides to build an in-house discipline, the key ingredients are the actual technology platform used (tools) plus the strategic optimization talent who push the buttons on the platform (people). Using the current media buying example of 200 million impressions per month, you estimate the need for two or three operator-strategists.

Going in house is highly scalable. The marginal people cost of buying additional impressions regresses to near zero quite fast. The in-house scale advantage might looking something like this:

Your in-house platform provider charges you $0.01 CPM for ad serving (or you can use your own ad server) and $0.10 for RTB auction fees, both of which are pure pass-thru costs with zero margins on top.

It’s all in the math

If you do the math, the savings in this case would be $1 million annually, which only includes current spend levels, not including the hard-to-value cost savings of productivity.

There is a long list of areas to apply these really big savings:

• The first is to do nothing and put it straight to the bottom line.
• The marketer could also buy 25 percent more impressions and extend their reach and gain more audience.
• The marketer can also reduce their CPA in a material way.
• Another alternative is the increase bid prices and win rates, because the competition will not be able to reach these bid levels in a profitable way.
• The CFO can take the money to make deeper in-house investments.

Privileged assets, capabilities, and relationships

Every brand has the chance to build and maintain a privileged relationship with its customers. Part of this privilege in the online world is taking full responsibility and accountability for user-generated data maintained and protected by the advertiser. The reason why owning this privilege is so important for those taking the long view with programmatic investments is because it creates enduring value. As long as third parties are used to “owning” this relationship, the advertiser is essentially paying others for an asset it already owns.

In order to build reliable pathways to better relationships with customers, advertisers not only need a user-friendly and sophisticated technology partner, but also they need total talent, training, and troubleshooting support from that same partner. Up until today, only the ad-tech vendor and trading desk have had a privileged capability to really make programmatic display work in the most efficient way.

Come inside

Above: Tom Triscari

The path to the glass house is much easier and more certain than some advertisers may realize. It simply takes a little courage to change. Once inside, advertisers can reap the rewards of transparency, performance control and control of their data and the ability to activate it, all the while becoming more profitable and more efficient.

Yieldr CEO Tom Triscari is the former director of Sales Operations, Planning & Strategy at Yahoo! and director of Publisher Marketplace & Business Intelligence for Criteo and Professor of Digital Media at ESADE’s MBA program.