Working in the ad tech ecosystem, our company Adoppler is deeply immersed in the realities of the programmatic field. During the last period of interaction with the clients we have accumulated a great experience that we want to share.
The following market insight is based on our studies and on a number of reliable sources that shed light on the current market situation.
Traditional marketing model as we used to know it has changed. It can be proven by cascading marketing evolution, which represents the shift in marketing channels. Evolution moves from outbound marketing to digital or inbound marketing.
The next stage of marketing evolution embodies the ad tech and martech convergence. Here marketers have to evaluate each advertising technology from the perspective of their priority in supply, buy, measure, and optimization of advertising. This is essential to ensure better brand customer experiences (CX). The engine that drives this trend is multichannel marketing. As seen from the diagram below, to date the programmatic channel is an integral part of the marketing strategies for lots of brands.
The digital era with multichannel marketing on the top has left a significant mark on the companies’ approach to gain foothold in the market. As seen from the diagram below, multichannel marketing was important to 10% of the companies in 2017, and strengthened its positions in 2018 with the result of 12%.
At the same time, customer experience optimization with cross-team approach restores its top positions. In 2017 it was recognized as the key area by 18% of the respondent companies and in 2018 this number rose to 21%. Trends are changing, and today content marketing (16% and 15%) along with data-driven marketing (17% and 16%) are slightly losing their positions, making a free way for new trends such as multichannel marketing. Nevertheless, companies still continue to reap the benefits of content and data-driven approach to marketing as the most exciting opportunities for company growth.
Illustration 1. Significant areas for companies’ positioning in 2017-2018.
PROGRAMMATIC MAKES A PLAY
Despite the fact that programmatic advertising is a newcomer in comparison with traditional non-paid marketing and SMM, its importance is gradually increasing each year. This is due to its non-time-consuming, targeted and bulk method of digital advertising conducted by means of real-time bidding (RTB), private marketplace (PMP), and programmatic direct (automated guaranteed and programmatic guaranteed).
The diagram below shows that programmatic media buying has saved its competitive potential in the advertising ecosystem. In 2017 the ad budget spending for video advertising was 37%, for display - 10% and for native - 15%. In 2018 video advertising and native advertising numbers have risen to 38% and 16%, but still lag behind the organic search (38% and 39%). Display advertising is gradually losing its position in 2018 with the result expressed in only 7%. (See illustration 2)
Illustration 2. Ad budget spending for advertising in 2017-2018.
According to projections, programmatic advertising has great chances to enhance its position in the next five years.
CHALLENGES AND SOLUTIONS
Based on the marketing evolution and the current role of programmatic advertising as its part, it is high time to investigate programmatic from the inside.
Programmatic media buying was initially provided by marketing agencies. However, nowadays the situation has transformed drastically. Agencies are facing challenges because brands try to move programmatic advertising in-house and would like agencies to operate their tech stack on the traditional low-cost hourly model.
There are two main reasons to explain this phenomenon: lack of transparency and brand safety. Research indicates that 80% of respondents (middle and big size brands) declared that there is a lack of transparency in programmatic advertising, while only a small part of them (14%) agreed they have some understanding of their ad budget spending, and only 6% strongly disagreed that there are any issues with transparency in programmatic advertising.
Illustration 3. Do brands agree with the lack of transparency in programmatic?
The lack of transparency has roots in the understanding of programmatic. Programmatic still seems to be a “black box” for brands: in a long-tail supply chain with the army of middlemen they lose track of their ad budget spending. Brand safety, in its turn, is associated with the increasing level of ad fraud, which affects customer experience and level of viewability.
As a result, brands lose their trust in agencies and try to run their media buying by themselves. It seems their goal is to limit their spend with agencies to ad operations outsourcing. Survey shows that more than a third of respondents (36%) say they have ‘medium’ or ‘quite low’ levels of trust to their digital media agencies, while more than a quarter (27%) say media agencies do not act in their best interest.
Illustration 4. Advertisers level of trust in their digital media agency.
Despite the concerns, there is light at the end of the tunnel. Control over the programmatic channel is a pretty controversial issue. A switch to in-house buying causes its own challenges and limitations. On the one hand, ad tech talents who can operate media buying for brands, are scarce on the market. On the other hand, publishers would love to work with brands directly, but there is a risk that publishers will take advantage of brands’ inexperience in the field.
Illustration 5. Are brands going to entrust programmatic buying to agencies?
Based on the studies above, some companies prefer to operate media buying in-house (30%) and reject agencies as a service provider. Such companies are mostly driven by the desire for control over how their money's spent and control over customer data. They are trying to cut off third-party relationships in the supply chain by all means. Thus, as some big brands take more responsibility over their digital media executions, agencies are being relegated to the margins of ad tech ecosystem.
At the same time a higher rate of in-house newcomers are mostly considering to switch back to the agency services (50%) which can, for sure, play into the hands of agencies. Agencies must embrace the new environment of brand oversight by adding value and helping brands through this transition, rather than fighting for that control back.