A Forrester Consulting

Thought Leadership Paper

Commissioned By Index Exchange

November 2014

Greater Transparency Is Critical To Programmatic Success For Publishers As Programmatic Gains Traction With Marketers, Publishers Require More Information And Sophisticated Tools To Thrive

Table Of Contents Executive Summary ........................................................................................... 1

Programmatic Is Gaining Traction ................................................................... 2

Lack Of Transparency Creates Obstacles Across The Ecosystem ............ 4

Publishers Have Scarce Insights And Resources ......................................... 5

What Transparency Looks Like For Publishers ............................................. 5

Key Recommendations ..................................................................................... 6

Appendix A: Methodology ................................................................................ 7

Appendix B: Supplemental Material ................................................................ 7

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Executive Summary In the 20 years since the first banner ad ran, the vast majority of ad tech innovation has been on behalf of advertisers, leaving publishers scrambling to keep up. Key among these innovations is programmatic buying, the stated buying process preference today among highly influential first-mover advertisers with large budgets. Smart publishers equipped with the right tools and information, and the bandwidth to take advantage of them, have an opportunity to thrive in programmatic environments. Identifying the right tools and accessing the pertinent information remain a challenge.

In July 2014, Index Exchange commissioned Forrester Consulting to evaluate the state of programmatic selling among publishers. Forrester developed a hypothesis that tested the assertion that the lack of transparency in programmatic environments and the sophistication of buyer systems  limit  publishers’  ability  to  monetize  their  inventory to their greatest advantage.

In conducting 13 in-depth interviews with senior publishing executives responsible for generating revenue through ad sales, Forrester found that these companies are keenly aware of the challenges that the lack of transparency forces upon them and the toll it takes on their revenues, marketer performance, and the ecosystem as a whole.

KEY FINDINGS

Forrester’s  study  yielded  four key findings:

› Lack of transparency costs publishers much-needed revenue. Marketers judge campaign success or lack thereof based on publisher performance against a set of criteria.  They  typically  don’t  share  those  criteria  with  the  publisher. Without that essential insight, publishers cannot adjust campaign execution strategies to achieve the necessary goals, which often results in diminished performance. And the result of that is lower CPMs the next time around.

› Lack of transparency also results in less than optimal performance for marketers. Marketers set out to be as effective and efficient as possible. They aim for success with every initiative. But because they deny publishers’ critical insight into campaign goals that would influence execution strategies, the result is often underperformance, which does not serve the marketers’  best interests.

› Transparency is in the best interests of marketers and publishers alike. When publishers are armed with complete knowledge of marketer goals, they can adjust ad campaign execution strategies to deliver the best performance to marketers.

› The rapid pace of ad tech innovation presents an ongoing challenge to publishers to stay informed and abreast of the latest trends and developments. A regular diet of industry-related reading, conference attendance, and conversation with vendors/partners helps executives across the spectrum stay up to date.

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Programmatic Is Gaining Traction Publishers that want to thrive today and in the future need to grasp and maximize the opportunities that programmatic selling offers because, as a share of total digital advertising, programmatic is growing at a significant pace. Forrester predicts that the digital advertising market is expected to experience an 11% compounded annual growth rate between 2014 and 2019. Display advertising will keep pace with that overall market growth rate and account for close to $38 billion in 2019 (see Figure 1).

Today, programmatic accounts for 27% of display on a volume basis; it is expected that by 2019, 40% will be exchange-sold, which includes both the open auction and the full array of private marketplace transactions (see Figure 2).

There are several diverse drivers of this evolving landscape, but all are grounded in an emerging understanding of the changing patterns of consumers.  Today’s  “always-on”  consumers expect to access information and entertainment on their preferred devices whenever they choose. This presents an opportunity for publishers to create content that attracts consumers, and to enable the context in which marketers engage with their customers and prospects across platforms. Drivers of programmatic include:

› Clarity on consumer expectations, leading to device-specific experiences. Consumers have a variety of devices at their disposal and use them for specific purposes. And they are migrating away from desktops in favor of mobile devices. Publishers and marketers alike are gaining insights into consumer expectations on a device-specific basis and creating products that answer consumer needs and interests.

› Brand budget migration to digital. Brand marketers have been reluctant to commit to digital, preferring instead to focus on television. But the enhanced targeting capabilities that digital offers and the continuing decline of television’s  scale  will  combine  to  convince  brand  marketers to allocate greater portions of their advertising budgets to digital and, within that, to programmatic.

› The promise of personalized messaging. The ability to apply data to media buying and selling to achieve true one-to-one, personalized marketing that simply cannot be executed in any nondigital platform will compel marketers to experiment, test, and learn, and will inevitably lead to greater digital ad budgets.

FIGURE 1 Digital Marketing In The US Is Expected To Grow By 12% By 2019

Note: all numbers rounded down Source: “US Digital Marketing Forecast, 2014 To 2019,”  Forrester  Research,  Inc.,  November 4, 2014

Digitalmarketing

spend(US$ millions)

Social mediaEmail marketing

Displayadvertising

Search marketing

Total

2014 2015 2016 2017 2018 2019 CAGR

Social mediaDisplay advertising

Search marketing

$7,518 $9,736 $11,724 $13,511 $15,359 $17,342$19,801 $23,680 $27,916 $31,281 $34,477 $37,574$27,899 $31,622 $34,995 $38,470 $41,890 $45,386

18%8%

13%10%12%$57,285 $67,305 $77,101 $85,928 $94,593 $103,370

Percentage of allad spend 24% 27% 30% 32% 33% 35%

Email marketing $2,067 $2,266 $2,466 $2,665 $2,865 $3,067

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PUBLISHERS VIEW THEIR AD SALES BUSINESSES HOLISTICALLY

Publishers, who once considered real-time bidding as synonymous with a race to the bottom and business-endangering erosion of CPMs, are today viewing their inventory holistically. They are examining their markets, mining their first-party data, packaging and pricing their inventory to create scarcity, taking advantage of private marketplace opportunities, and generally designing their offerings to maximize their revenue.

The majority follow a classic waterfall strategy, reaping the bulk of their revenue through direct sales, which can account for as little as 40% and as much as 80% of overall inventory at high-demand times of the year (like the fourth quarter). They then create private marketplace opportunities and use real-time bidding to monetize the remainder. Some more innovative publishers, through conversations with their advertising customers and observation of their unique business patterns, have identified anomalies in their customer base and are testing alternative structures in response to their particular marketplace demands. The lesson learned is that while classic patterns have emerged because they suit the needs of most marketplaces, smart publishers are keenly observing their market structures and responding appropriately.

“Allocation  is  determined  by  three  core things: The first is sponsorships with 100% share of voice and guaranteed audience targeting. The second is private marketplace, where the choosiest get the most choice at a high CPM. And the third is standard direct, driven by fill in the marketplace.” — Programmatic sales executive at a national publisher

TAP INTO NEW OPPORTUNITIES

Publishers that have evolved and position programmatic as part of their overall advertising offerings find that it opens up new streams of previously untapped revenue. One local market  publishing  executive  explained:  “It’s  tapping  into  resources  that  we  don’t  usually  have  access  to.  It’s  a  tremendous opportunity to access a demand source outside our area that  sees  appeal  in  our  audience.”

Another elaborated on the concept that programmatic expands  their  advertising  customer  base:  “Yes,  definitely.  We’re  working  with  a  number  of advertisers that have never worked with us directly for content reasons or audience

FIGURE 2 Exchange-Traded Spending Will Account For 40% Of Desktop Online Display By 2019

Source: “Forrester Research Online Display Advertising Forecast, 2014 To 2019 (US), Q3 2014 Update,” Forrester Research, Inc., September 19, 2014

$0

$2,000

$4,000

$6,000

$8,000

$10,000

0%

8%

16%

24%

32%

40%Exchange-traded spendingAs a percentage of desktoponline displayadvertising

2010 2011 2012 2013 2014(F) 2015(F) 2016(F) 2017(F) 2018(F) 2019(F)

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reasons, but who have had success through programmatic channels.”

“We’re stealing  dollars  from  search.” — National publishing executive

A  third  was  even  more  specific:  “Prior to programmatic, we relied more on whether our ad partners had a good month. Ad networks were all about the effectiveness of sales teams. It drove our success. Now, allocating across exchanges,  we  have  access  to  all  of  buyers’  budgets; the environment has opened up. CPMs have been heading up since  2012  because  we  have  access  to  that  demand.”

AND DEPLOY MULTIPLE RESOURCES

Multiple platforms and a variety of offerings create complexity. Publishers are finding it best to move beyond reliance on a single sell-side platform (SSP) or exchange, and are contracting with multiple vendors, setting up competitive environments, and tapping into the widest possible array of demand sources. And that is the case for both national and local market publishers.

As one local market publishing executive explained: “We’re  big believers that the bulk of the opportunity is local direct. That being said, [multiple vendors offer us] a significant opportunity to optimize revenue. We  have  a  plan,  so  we’re  putting [all the vendors] on the table and examining the flow. It’s  a  trial  and  error  approach.  I  let  performance  dictate  how  I  turn  the  dials  up  and  down.”

But while complexity and variety may create remunerative competitive environments, they do come with a price, as one executive with a national publisher noted. “Variety  creates obstacles in workflow and setup that can outweigh the  benefits,”  he  explained.

Lack Of Transparency Creates Obstacles Across The Ecosystem The past five years, since the inception of real-time bidding, have been a whirlwind of innovation, the vast majority of which has been on behalf of the buyer and at the expense of the seller. The result has been an asymmetry of information favoring the buy side over the sell side, which, in turn, has resulted in a lack of transparency in programmatic trading that does not serve the best purposes of either the

buyer or the seller. Publishers charged with executing ad campaigns  without  full  knowledge  of  the  campaign’s  goals  are denied the opportunity to manipulate execution strategy to deliver optimum performance to the buyer. Buyers punish underperforming publishers by paying the lowest possible CPM, costing publishers much-needed revenue. And marketers watch as campaigns fail to achieve their maximum results.

Some publishers adopt a philosophical approach, grateful for the business they have. A senior executive explained: “I  am 70% comfortable with what transparency we have. Thirty percent not knowing what they bid . . . there are some key pieces still left  out.  I  think  it’s  improving,  but  we  still  have  a long way to go. As a publisher there are still a lot of things I  want  to  know.”  

“The  demand  side  has  way  more  information. They have a bazooka and we  have  a  knife.” — Senior national-level publishing executive

Others are more frustrated that the lack of trust and transparency results in an inability on the part of publishers to contribute with data and/or strategy to the delivery of successful campaigns. When asked whether buyers and platforms were transparent, this publishing executive took a more  militant  stand:  “Absolutely  not!  For  targeting,  any  buy-side transactions, we never know what they are doing. They blame  us  when  they  can’t  see.  It’s  easier  for  them  to  get  data rather than pay us to include what they want in our targets.  We’d  all  have  an  easier  time  if  they  would  just  tell us what  they  are  looking  for.”

“If  we  don’t  perform  and  we  really  don’t  know  why,  we  aren’t  given  an  opportunity to improve packages or targeting.” — National publishing executive

There are some elements of the ecosystem that may actually benefit from the transparency asymmetry, according to publishers polled. But that era may be coming

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to an end as the influx of brand dollars exerts a positive influence, according to one national  publisher:  “Trading  desks benefit from a lack of transparency. But brands are starting to demand specifics as to what they are actually buying.”

Publishers Have Scarce Insights And Resources Specifics are hard to come by, even when it comes to staying informed and up to speed  on  what’s  new  in  the  market,  what’s  working  and  what  isn’t,  and who’s  enjoying  success  and  who  isn’t.  Publishers  find  that  they  are  on  their  own when it comes to staying informed. One publisher explained  it  this  way:  “A  lot  of  it  is reading and staying up to date. With my title, a lot of ad tech vendors come my way. I’d  say  90%  of  the  time,  I  learn  a  little  with  every  conversation.  I  pass  on  information  as  I  get  it.”

Vendors that have risen to partner status and are endowed with a view across a broad swath of the ecosystem should be a wealth of information, and they should share this information freely with their publisher clients. However, publishers  report  that,  more  often  than  not,  that  isn’t  the  case. While the vendors have the information and insight, they  aren’t  sharing  it  proactively.  One  publishing  executive  described  the  situation  this  way:  “I  pride  myself  at  trying  to  be informed. And  I’m  a  computer  scientist,  so  I  can  dive  deep.  Unfortunately,  I  don’t  get  enough  from  my  partners.  At  a  meeting  last  week,  I  said,  ‘You  are  not  doing  a  good  job  of  keeping us informed about your technology, never mind the rest  of  the  ecosystem.’  I  don’t think they owe me anything, but they kind of owe it to themselves to keep me better informed. “[They  could  provide  me  with]  new pricing technologies or something else that might help me optimize revenue.”  Since  optimizing  publisher  revenue  is  in  the  best  interests of vendors that operate on a rev-share basis, the lack of information sharing remains a mystery.

What Transparency Looks Like For Publishers What  would  transparency  look  like  from  a  publisher’s  perspective? How would it change behavior and, more importantly, results?

The publishers Forrester spoke with all asserted that they are as transparent as necessary, offering up all the information  “an  agency  might  require.”  One  publishing  executive  described  what  would  be  most  helpful:  “As  a  

seller,  I’m  looking for transparency on the buy side. The more I can see what an advertiser is doing, the better I can make  decisions  around  how  to  manage  our  inventory.”

Another explained that transparency around campaign goals could change how publishers conduct the campaign. “It’s  in  the  interest  of  both  sides  to  share  as  much  information as they can. The buyer needs to know if they can reach their audience. And the publisher needs to know they  can  offer  the  right  thing.”

“If people showed their hand more, we could work together to find the right match. It opens up doors to talk about other opportunities to work with the buyer. To get creative. To get them to be more of a partner.” — Local market publishing executive

And  still  another  noted:  “We,  as  a  publisher,  are  being as transparent  as  we  can  be.  It  depends  on  what  they’re  showing us. There needs to be better transparency in the middle so both sides understand how to work together better.”

But  it’s  not  just  the  publishers  that are penalized. One publisher noted that he’d  be  happy  to  offer  financial  incentives, if only he had some insight into who would benefit:  “I  would  naturally  give  a  [big  buyer]  a  discount,  but  I’m  shooting  in  the  dark.  The  lack  of  transparency  is  hurting  them  and  me.  It’s  a  missed  opportunity  for everyone, advertisers  included.”

The bottom line, according to another publisher, is that the lack  of  transparency  affects  advertiser  bottom  lines:  “If  they  shared  more,  they  might  get  a  better  ROI.”

So  why  doesn’t  it  happen? What prevents open sharing of information? The publishers Forrester spoke with have clear opinions.  One  explained:  “It  starts  with  the  buyer  but  is  largely agency-focused. They operate behind closed doors and have added layers. Agencies control the dollars and need to make the market more  comfortable.  If  they  don’t,  I  believe demand-side platforms (DSPs) will start to take more in-house.”

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Key Recommendations Change is inevitable. The black box approach to the process of buying and selling digital advertising is a vicious circle of suspicion and distrust and is not serving the best interests of either advertisers or publishers. The lack of transparency on the part of buyers means that the publisher is ill-equipped to adjust campaign strategy to deliver the best results to advertisers. The result is inefficiency and a lower ROI. The lack of transparency costs publishers money because  they’re  judged  and  can  charge on the basis of their effectiveness in delivering results to advertisers. Without the  necessary  upfront  targeting  and  goal  information,  publishers  don’t  have  the  necessary  tools  to  tailor  campaigns  and drive success for their advertisers and for themselves. The ecosystem suffers because inefficiencies and even suspicion abound.

All participants need to decide if they will be change agents or obstruct the path to the future. Will they embrace transparency or cling to the old ways that benefit only a few at best? When brand marketers invest in digital at a significant  level,  and  there  are  few  ad  tech  participants  who  aren’t  eagerly  awaiting  those  brand  budgets,  they  will  impose their expectations of transparency across the ecosystem. The winners will be those participants who have led the way to a clean and well-lit digital advertising environment. Take these steps and you will be in the vanguard:

› Publishers: Reach out and build relationships on a one-to-one basis with your marketers. Overcoming distrust requires face-to-face conversations with those marketers who are or could become your best customers. Make sure that your salespeople are knowledgeable and can discuss the pros and cons of transparency, and then charge them with converting your customers into full-transparency advocates.

› Marketers: Insist that your targeting criteria and KPIs are shared with your vendors and publishers. You may meet resistance along the way, but it is in the best interests of the success of your ad campaigns and your overall ROI that your targeting and campaign KPIs are shared with all your publishing partners. They will use that information to customize their execution strategies to deliver the best results.

› Publisher vendors: Aggregate the insights you amass across your practice and all that you hear and learn in your transactions across the ecosystem, and share it with your clients. It’s  in  your  best  interests  that your publisher clients conduct their business in the smartest possible fashion and maximize their revenues. They will be better equipped to make informed decisions about pricing, partnering, and new product development if you help to keep them fully up to speed and on top of industry innovation, trends, and taboos. Admit it: You haven’t  been  very  good  at  sharing  up  until  now. Change your ways and reap the rewards.

› Marketer vendors and agencies: Abandon resistance. Recognize the inevitable, adjust your business practices, and enforce transparency that will lead to greater success for your marketer clients. Their satisfaction will build their allegiance to your services, and you will find yourself on the right side of ad tech history.

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Appendix A: Methodology In this study, Forrester interviewed 13 digital content provider organizations in the US to evaluate publishers’  views  on  transparency in programmatic. Survey participants included decision-makers in digital publishing and programmatic selling for digital. Questions provided to the participants asked basic background questions about their digital inventory, how they manage and sell it, what SSP vendors they work with, and their view on transparency in programmatic. The study began in August 2014 and was completed in October 2014.

Appendix B: Supplemental Material

RELATED FORRESTER RESEARCH

“US Digital Marketing Forecast, 2014 To 2019,”  Forrester  Research,  Inc.,  November 4, 2014

“Programmatic  Selling  Drives  Publishers’ Revenues,”  Forrester  Research, Inc., October 15, 2014

“The  Digital  Media  Buying  Playbook,”  Forrester  Research,  Inc.