[Column] Sebastiaan Moesman: Why transparency and sustainability in programmatic matter now, more than ever

As we look back at a decade of programmatic advertising, it has been and continues to be an inspiring time to be in digital advertising. That’s true even though this year specifically, we’re witnessing the industry struggling with several long-standing issues around sustainability that have finally broken the surface. It’s inspiring because by addressing those issues together, we’ll pave the way for future growth in our industry. And so, as we enter 2018, we’ll reach a turning point where long-term sustainability ultimately aligns with short-term business goals.

Moving to a more mature, sustainable industry 

A decade in ad tech is a long time. It’s long enough for us to have seen the soaring expectations of the bright shiny programmatic future, and the lows of disillusionment in an industry still fraught with remnant-era and fraudulent practices. These are all natural ups and downs of any tech product lifecycle, and now we’re witnessing the start of a move towards a stable, mature industry.

Many big players in our industry, on supply-side, demand-side, and even government, have started recognizing this – from the U.S. government confronting Twitter and Facebook about fake news and responsibilities, to Proctor & Gamble’s challenge to the entire digital ecosystem, to GroupM’s hard line on viewability, to the Guardian’s lawsuit against a major programmatic player. The message is clear; things need to change, and they need to change fast. And many players have started implementing measures that move the industry to a more sustainable future, including opening up black boxes, demanding viewability metrics, building MRC accredited reporting, fighting fraud, policing inventory and revising processes and regulations.

Within this chaotic domain of outcry, accusations, proposals and solutions, we see transparency and consolidation as the two biggest drivers of true sustainability in programmatic advertising.

When transparency equals revenue

One trend that will contribute to a more sustainable industry is the realization that transparent business practices can have a serious and positive impact on the bottom line. Two interesting examples of the idea that transparency does equal revenue are the implementation of Ads.txt and the adoption of the first-price auction.

In the case of Ads.txt, we see buyers and sellers taking a clear position on who they will continue trading with. The link between transparency and revenue couldn’t be clearer: content providers who refuse to implement fraud-busting mechanisms will be doing so at their own cost. If we can assume that the current marketplace is still riddled with fraudulent inventory, then serious anti-fraud, viewability and data disclosure programmes will eliminate a significant part of the total market, pushing dollars towards the remaining clean, responsible inventory owners.

Another example that shows a direct link between transparency and revenue is the adoption of the first-price auction. In a first-price auction, the bid price from an advertiser is, similar to a classic IO buy, fixed. This increases advertiser’s chances of winning the impression (especially in header bidding environments) while the clearing of the impression through technical partners leaves far less room for blurry business models. That’s because in the end, both advertiser and publisher will know the bid price so they can easily isolate and monitor fees from facilitating partners.

When advertisers can get more impressions for a more predictable and transparent price, that will make programmatic a more attractive buying mechanism, meaning publishers embracing first-price auctions will enjoy new and or larger budgets.

In both examples, we see that when buy and sell-side can rely on a safe zone of trading, volumes of spend in that safe zone will go up. 

A slimmed down value chain: fewer parties, more confidence

Consolidation is also a sign that the industry is maturing and moving closer to a structure that will support more trust and, as a result, increased budgets to programmatic. In 2017, we saw an increase in mergers and acquisition in terms of both ad tech vendors and content providers and this trend is only set to continue. There are three reasons why consolidation in our industry will support more programmatic in the future.

Firstly, in terms of the ad tech value chain, fewer ad tech vendors means fewer middle men taking a piece of the pie. For content providers that translates into a better overview of the exact added value each player brings to the market. For the industry it means less budget going to fees and more liquidity circulating throughout the entire ecosystem. Increasing the share of media dollars that ultimately get to publishers also increases the value advertisers get from their campaigns.

Secondly, with the increasing number of media alliances, the marketplace is also simplifying. Simplification is key, and consolidation obviously facilitates that. For advertisers, dealing with alliances of publishers makes it simpler to have alternatives to buying from the duopoly of digital. That strengthens everyone’s position and propels integrity in the industry because for those that compete, a lot is at stake. Taking responsibility for what you’re selling or buying then becomes increasingly important to keep your position as an accepted part in the marketplace.

Lastly, fewer parties involved in the ad ecosystem will also simplify integrations and enable more automation between different players. Several studies have already proven the obvious; it’s not efficient to integrate and work with a hundred partners. Getting down to a number that’s small but not so small as to allow any single player to dominate and dictate the market will go a long way towards efficiently building deep and trustworthy connections.

All in all, consolidation will stimulate quality, responsibility, liquidity and automation in programmatic trading.

The future is now

The forces of increased transparency and consolidation are working together to bring about the end of the kinds of remnant-era practices that started over a decade ago. Their impact will ultimately give rise to sustainable practices that support great programmatic performance within a safe trading zone. Once that’s in place, advertisers will get the confidence to move larger volumes and budgets through programmatic trading.  But access to those budgets will not be for the many. If you’re in our industry, you will have to worry about sustainable business now or you’ll be out of business soon.

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Sebastiaan Moesman, CEO of Improve Digital.

www.improvedigital.com