Note: This article has been revised from the original to clarify some of the language and to note that Rubicon's real-time bidding takes place in 80 milliseconds, not one millisecond.
Rubicon Project’s stock has been staging a comeback recently, nearly doubling its price from about a year ago to trade near $17 a share. The company’s value has been lifted, in part, by renewed stock market interest in its core business: programmatic advertising technology. But what is programmatic advertising?
Chief Executive Frank Addante explained the basics of programmatic and why it has come to dominate the online advertising world, even as it remains a largely opaque corner of the market to the general public.
Question: What is online programmatic advertising?
Answer: I actually don’t like to use the word programmatic because it’s confusing and because it really doesn’t describe what’s happening in the marketplace. The word I use is automation. Unfortunately, the advertising industry comes up with all these complicated words for what is really automation.
Imagine what it was like to book a flight before it was automated. You had to pick up a phone to call an airline, where you’d wait on hold to get an agent. You do this over and over again until you found the flight you were looking for. If you look at the ad market that is exactly what the market looks like without automation; it’s just crazy.
If you look at any market where billions of dollars exchange hands between hundreds of thousands of buyers, those markets, for the most part, have become automated.
So what’s the advantage of automation?
Automating an entire workflow, obviously that reduces a lot of operating costs.
As a publisher, you may have relationships with 200 advertisers, but through the Rubicon platform alone there are over 100,000 advertisers. You are now connected to 100,000, instead of 200, so it increases your market potential.
And for buyers it now enables them to spend money across a larger section of the Internet and allows them to reach their audiences in a highly efficient method.
And automated ad buying breaks down into three subsets: real-time, static and direct orders?
How is real-time bidding different from static bidding?
It’s like eBay “Buy-it-Now” vs. a traditional auction.
Real-time bidding is like a traditional auction.
Yes. When a real-time auction is conducted, maybe 10,000 advertisers (automatically) will bid for one placement before an advertisement is loaded. There are literally thousands of decisions that are made every single time an ad is loaded. The factors can include what time of day is it, where is the user located … what are the words that are on the page and how many advertisements has the user seen before in the past 24 hours. This all happens in a millisecond.
And static bidding is the Buy-it-Now approach?
Right. For static bidding, think of that like a standing order. You would place a static bid, for example, to order 50,000 impressions for female sports enthusiasts in New York at a certain price.
And direct orders create a private marketplace within the online advertising “exchange”?
It’s like doing business directly with the Wall Street Journal, either through an online portal, self-service platform or still calling a Wall Street Journal sales rep, but the order is processed through our technology platform.
What type of ad selling won’t be automated in real-time?
I would say that anything that is highly customized probably won’t be automated (in real-time). Everything else is ripe for automation, which is the majority of the market. And let’s not confuse premium with customized. Redesigning a home page or an application for one sponsorship opportunity, that is highly customizable.
Most advertising is standardized and has to be standardized because there’s so much work that goes into the development of creating campaigns. If it’s all customized then it becomes really expensive to make creative advertising buys.
What are some up-and-coming innovations in programmatic we should look out for?
Native advertising: native is just a fancy word for the advertising that is sitting within the content (similar to an advertorial). I think the integration between content and advertising is something that is performing really well. That’s in the short-term.
In the long term, we’re moving faster and faster down this path where advertising is becoming more intimate because devices are becoming more intimate: a television hangs on your wall, a desktop is one foot away, a phone is in your pocket, a smartwatch is on your wrist and a (digital) contact lens is in your eye.
We have to put the consumer at the center of their advertising experience. We have to put the customer in control. That is something the advertising industry has to move towards, a consumer-centric view of the world.
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