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What programmatic models mean for the digital industry

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The traditional advertising model is slow and cumbersome, filled with pitches, negotiations, and confusing value assessments, writes Kayleigh Alexandra. Programmatic marketing is infinitely sharper. Using vast swathes of rich analytics data to buy, sell and fill advertising spaces, automated processes can create tightly-targeted campaigns that deliver clearer and superior levels of ROI.

As we look back on the progress made between the first DoubleClick network in 1996 and the current array of complex ad exchanges, we might wonder what exactly the rise of programmatic advertising models means in the digital landscape — so that’s just what we’re going to look at.

How programmatic models work

Programmatic ad buying is all about making ad space a tagged commodity that can be sorted, sold and distributed in accordance with buyer requirements. It functions through virtual auction houses of sorts called ad exchangesthat take bids based on set parameters and find the most suitable places and prices for specific ads.

While analytics software was becoming more advanced, social media networks, ecommerce retailers and smartphone ecosystems were making user accounts more sophisticated and increasing their level of accessibility, and these two things inevitably converged to provide advertisers with the ability to achieve an unprecedented level of granularity.

Facing diminishing returns

Today, the programmatic industry is in an interesting position. While automated advertising is more popular and convenient than ever before, the level of niche targeting is struggling to offset the diminishing returns of the broader online advertising model. Banner ads converted very well when they were first introduced, but UX standards were lower and people were less cynical at the time — today, ads are viewed as the enemy, things to be fought or avoided.

Through platforms such as YouTube and Facebook, video advertising has become a very popular option, but even that is mainly about exposure in a return to the old-fashioned model of TV commercials or billboards. Actual click-through traffic is a tough sell at the best of times. But it isn’t just the ads themselves that have faced public hostility, as we’ll see next.

GDPR and the privacy backlash

GDPR, or the General Data Protection Regulation, went into effect in the EU on May 25th 2018, and brought with it a great deal of exposure for the issues it addresses: the storage and use of user data, and the corresponding need for transparency and accountability. Seemingly overnight, huge numbers of people had their eyes opened to just how much of their personal data was being used to target them through advertising.

Huge businesses invested heavily in updating their policies to avoid falling foul of the new restrictions, and there was—and is—much confusion about where responsibility lies. Despite not technically being responsible for the data stored or processed by its sellers (merely helping them set up their retail sitesand providing the hosting), ecommerce giant Shopify notably felt it necessary to release a complex whitepaperdetailing all the minor complexities of the merchant/seller dynamic.

And, as you no doubt noticed, companies everywhere flooded inboxes with pleading emailsabout continuing newsletter and marketing distribution, worried about the prospect of being unable to use their existing user databases for much longer.

While it isn’t fair to say that programmatic marketing is solely responsible for the formation of the GDPR, it seems fairly clear that there wouldn’t have been a need for such formal restrictions had there not been major concerns about how data was being used.

A smart concept executed poorly

In theory, there’s nothing particularly objectionable about programmatic advertising. Marketers can save money and work more efficiently through only serving their ads to people who might be interested in them, and media consumers can actually get non-spammy ads relevant to their interests. It’s a solid model.

The problem, though, is in the current execution. There’s a strong analogy to be drawn with the circumstances that led to the most recent financial crash. Just as subprime loan derivatives were repacked and misrepresented in order to squeeze more money from them, ad space is packaged and sold in the secrecy of ad exchangeswith no clear accountability or explanation of where any given piece of data is coming from, how accurate it is, or whether the value being provided is actually better than could be achieved manually.

This then ties in with blockchain technologyand the prospect of readily-accessible decentralized networks, because it could be the future of programmatic advertising. Kind Adsmay well be a sign of things to come, with a new kind of transparent programmatic marketing steadily gaining ground and starting to rehabilitate the currently-questionable public image of advertising.

Still in its infancy, programmatic advertising is certainly suffering its fair share of teething problems — but the concept is a strong one. In the long term, it has the potential to make the digital industry better for everyone through increasing ad relevance, but it will only achieve that potential when it matures and delivers meaningful transparency.

Author

Kayleigh Alexandra is a content writer for Micro Startups — a site dedicated to giving through growth hacking. Visit the blog for your latest dose of startup, entrepreneur, and charity insights from top experts around the globe. Follow us on Twitter @getmicrostarted.

Image credit: Max Pixel

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