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Programmatic Advertising To Gobble Up Even More Ad Budgets - Report

This article is more than 9 years old.

The use of data-driven software to automate online advertising, already a fast-growing phenomenon known as programmatic buying, is on the cusp of taking over the way most digital ad budgets are spent.

That's according to a new survey of more than 400 marketers, ad agencies, publishers, and ad tech firms released this morning by AdExchanger, a publishing and now research company focused on tech-driven digital advertising. Compared with the traditional (and rapidly declining) method of people arranging ad deals with individual publishers by phone, fax, email, or perhaps even three-martini lunches, programmatic methods allow for more efficient spending on highly targeted audiences across a wide variety of media.

Right now, the majority of marketers are managing at least 20% of their ad spend programmatically, but almost two-thirds plan to spend double that much this way over the next 12 months. And a quarter of marketers plan to spend at least 80% of their budgets programmatically. "Marketers are already spending a lot on programmatic media and expecting strong growth," Joanna O'Connell, AdExchanger's director of research and a former Forrester marketing analyst, said in an interview.

Agencies are stepping it up even more. Currently more than two-thirds of agencies use automated ad buying for at least 20% of their budget, and more than a third are up to at least 60%. Almost half plan to get to 60% by 2015.

Those are pretty impressive stats. There's a caveat, says O'Connell: These are self-reported numbers, and many of the marketers and agencies responding are likely more on the leading edge of new ad technologies than most. A lot of marketers, agencies, and publishers remain wary that the technologies for various reasons, so the reality in 2015 may or may not meet the intentions. "But you can glean the level of excitement" about programmatic, she says.

Programmatic buying is used by marketers for banner or display ads more than any other ad type, with 96% of marketers using programmatic to buy display. (You could argue that search is really programmatic and it's certainly automated, but unlike display, it always has been, and it's usually done separately.) But they're also using it for video (73%), mobile (64%), social such as Facebook (55%), and even Connected (that is, Internet-connected) TV (16%). O'Connell says it may not be too awfully long before buyers of traditional TV ads think about using the method, as ABC recently suggested.

Direct marketers, those that want to elicit an immediate sale or at least generate a sales lead, still dominate the use of programmatic buying, but O'Connell says brand marketers traditionally interested in image advertising have gradually gotten onboard. "In the last couple years, you're seeing more and more brands spending through programmatic," she says.

Most of the ads are bought and sold through open ad exchanges such as those run by Google and Yahoo , which act as a sort of stock exchange for ad space. Some 60% of marketer ad budgets go through these exchanges, according to AdExchanger.

But marketers and agencies want more control over where and how the ads are run, because too often ads run on dodgy sites or aren't even viewed by real people because they appear far down on a page or even are counted as being viewed even though an automated "bot" was the only entity to see them. Indeed, even a fifth of publishers themselves cite a lack of quality ad space as the key obstacle for the further growth of programmatic buying. "There's an appetite for more quality inventory," O'Connell notes.

So marketers are looking to private marketplaces as well as arranging guaranteed placements programmatically, the latter to date dominated by people-brokered deals. Marketers in the survey expect to spend almost half their programmatic budgets in private marketplaces and guaranteed buys in the next year.

There's a lot more in the 69-page report on the varying ways marketers, agencies, and publishers are dealing with the disruption programmatic buying has wrought. While programmatic has clearly hit its hockey stick period of growth, there's still a lot missing from the programmatic algorithm, the report concludes:

"In the coming year, we expect to see continued diversity in deal types, a wider range of programmatically available ad formats, ongoing shake-ups in the form and structure of agency/client engagements (and compensation models) and a renewed focus on the value of smart, meaningful, beautiful creative, which largely has been neglected from the programmatic conversation."