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IAB Gathers to Discuss the Challenges of Programmatic Advertising

On December 10, 2014 IAB invited sales leaders, programmatic experts and heads of finance and revenue to the Ad Lab in New York City to tackle a number of questions related to the strategic, organizational and financial aspects of programmatic. It was also an opportunity for a room full of like-minded people to collaborate and understand this recent industry shift towards programmatic, and how that is affecting, and will affect, their current roles in sales and financial management.

Programmatic advertising can be complicated, but IAB gives it a simple definition: it’s the automation of buying and selling advertising, which ultimately facilitates efficiency and effectiveness for advertisers. The definition may be straightforward, but the management and implementation of programmatic advertising is anything but simple.

The event tackled three challenges facing programmatic advertising. The first was the limited understanding and misunderstanding of what programmatic advertising is and how it works. The second was market perceptions of programmatic including concerns over transparency, fraud, and trust. Third are the challenges to sales and finance teams, including sales team structure, compensation, perceived impact on CPMs, and fears of automation leading to job losses.

What is programmatic?

Patrick Dolan, Executive Vice President and COO of IAB, welcomed the first ever collaborative mix of CFO and Sales Executives Councils by giving an update on present and future events. IAB, he says, is currently working hard to develop workshops to help financial minds deal with programmatic changes.

Carl Kalapesi, IAB’s Vice President of Industry Initiatives, encouraged everyone to participate in this frank discussion. He briefly summarized the process of programmatic advertising, showing the panel a video to abridge the complicated process of programmatic. Kalapesi made the clear distinction that programmatic is more than just real-time bidding (RTB), which is itself only a key subset of programmatic advertising. He outlined the four main types of programmatic transactions: open auction allows the most freedom, usually with no direct relationship between publisher and buyer; invitation only (private) auctions are where publishers restrict participation through selected buyers expected to bid on inventory; unreserved fixed rate (preferred deal) happens typically through an exchange but has an unreserved inventory at pre-negotiated, fixed pricing; and automated guaranteed (programmatic guaranteed) which most resembles a traditional direct digital buy where a reserved inventory and fixed pricing deal is negotiated between the buyer and seller.

Programmatic is an extremely complicated and multi-faceted industry. Kalapesi and the congregated IAB members are aware of the confusion and it presents an array of operational, financial, strategic, and organizational challenges for the industry’s leadership. They’re confused over terminology, transparency, and how to manage a divided sales team with, what appears to some as, competing priorities. They have price and vendor misconceptions, and are concerned about ad fraud and trust.

Market perceptions of programmatic

Dan Salmon, Equity Research Analyst at BMO, continued the dialogue and discussed how the market views programmatic. If 2008 was the year interest in digital media was initially sparked, it wasn’t until 2013 that publishers got serious about programmatic buying. By Q4 2013 every company had a programmatic strategy. Moving into 2014, he said, there were a few major themes that emerged.

First, there was the push for transparency over inventory to ensure quality. Second, was the fact that Facebook doubled down on its programmatic capabilities by acquiring Atlas and LiveRail in addition to launching its own Audience Network. Finally, there’s the trend of the consolidation of video ad companies through mergers and acquisitions, like the aforementioned Facebook and LiveRail. Salmon also talked about his 5-step plan for evaluating an ad tech business, stressing the need for understanding the mix of people, data and technology:

  1. Is the business publisher-owned or independent?
  2. How much spend flows through the business?
  3. How does the business generate its take rate?
  4. How much money comes from the sell side vs. the buy side?
  5. What is the percentage of revenue by publisher, ad format and device?

Salmon revealed to the group how he advises ad tech investors and showed the recent financial trends of programmatic and ad tech companies. They are starting to see differences in ad tech stock performance between “born and bred” programmatic companies and late acquirers- and more educated investors are starting to invest more in the “born and bred” entities.

After talking on programmatic trends like the push of programmatic to TV and the growth of ad spend dedicated to digital, the panel tackled the issues of transparency, education and the long-term survival of ad tech companies.

Finding Solutions

To address solutions to these challenges, programmatic experts Jeremy Steinberg SVP of Ad Sales at The Weather Company and Lori Dente Group VP of Finance at Time Inc. came in to share their suggestions.

The collaborative group tackled questions like “How do we build a programmatic sales force?” and “Does programmatic sales kill direct sales?” Steinberg, who oversees both the national and programmatic sales teams at The Weather Company, suggests the answer to both questions starts with alignment and having the same strategic vision. While some company representatives admit their sales forces are divided between a direct sales team and a programmatic sales team, others choose to have a united team selling both products.

Countering the idea of the death of direct sales, Steinberg and the rest of the group agreed that people will always play an important role in the process. Direct sales will continue to be vital to most sales strategies, but employees need to be more educated to address and guide advertisers, who are becoming more knowledgeable on programmatic.

An attending IAB member shared that, as a sales director, she too once separated her team by product, similar to Steinberg. “But then I lost my mind, and now I have a single sales force, dealing with both direct transactions and programmatic. I had most of them go through IAB education classes and seminars to prepare themselves.”

Both Steinberg and Dente admit, however, that compensation gets tricky when dealing with programmatic sales. How does one handle compensation in complicated situations such as when a sales person negotiates a deal with an advertiser directly, who then ultimately decides to transact programmatically? Does the direct sales person or the programmatic seller get rewarded? They advise others to do as they do, and constantly evaluate their compensation procedures. Many in the room mentioned that they are in the process of evolving their compensation models for 2015, and all agreed that it’s difficult to pay two high-salaried employees for the closure of one programmatic sale.

In addition to the difficulties of sales management in a programmatic world, these leaders are forced to deal with a handful of blurred lines on a daily basis. Inventory reservation, manual reporting, budgeting and forecasting have been complicated by the introduction of automated digital ad sales.

IAB continues to research and develop insights so that financial and sales leaders can acquire the knowledge to find solutions to the many challenges of programmatic advertising.