The Programmatic Path to Profit for Publishers

The Programmatic Path to Profit for Publishers

          
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The Programmatic Path to Profit for Publishers

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  • More revenue now. Faster growth in the future. A stronger position in the marketplace. How can more digital publishers seize these opportunities?

    Programmatic, or automated, spending on display advertising (desktop and mobile) is a $9 billion market that is expanding at almost 30 percent a year. Spending is expected to exceed $30 billion in 2019. Growth in programmatic revenue for all types of publishers—from print to e-commerce companies—is outpacing traditional direct sales of desktop and mobile advertising across display and video, and market forecasts point to programmatic overtaking direct sales globally between 2017 and 2019. The development of “programmatic guaranteed” is further blurring the line between direct and programmatic channels. (See the sidebar “The Evolving Definitions of Direct and Programmatic Sales”; for definitions of terms used in this report, see the glossary in the Appendix.)

    The Evolving Definitions of Direct and Programmatic Sales

    In “direct” or “traditional” sales, agencies and advertisers buy an agreed-upon volume of impressions, or ad views, for an agreed-upon price directly from the publisher, and the publisher then manually sets up the delivery of these impressions. In line with the terminology used by most publishers, we refer to such transactions as “direct sales” throughout this report. But as traditional direct and programmatic channels converge, how will the industry’s definition of “direct” evolve?

    “Programmatic” sales use technology to automate the selling and delivery process. They can involve auctions or fixed prices. The sales model can be entirely automated, with buyer never communicating directly with seller, or buyers and sellers can have an ongoing business relationship and negotiate deals that are then executed automatically.

    Currently, the vast majority of programmatic sales outside of social media are bought on an impression-by-impression basis. However, many predict the further rise of programmatic guaranteed, with buyer and seller agreeing on a certain volume of impressions—much like direct sales today—but with the sale and delivery processes more automated. This will further blur the distinction between direct and programmatic sales, and a new nomenclature may become necessary.

    Yet new research by The Boston Consulting Group shows that many publishers are failing to capture this opportunity. One reason is that they do not approach it strategically. They treat programmatic advertising as an incremental rather than a core source of sales, and they leave increasing amounts of revenue on the table as a result. Another reason is that they do not organize themselves to realize the maximum value from their programmatic efforts. Our study found that less than 25 percent of the programmatic team’s time is spent on value-creating activities and that publishers use nowhere near the full range of technology tools that can increase programmatic sales and profit margins.

    As the marketplace evolves and outmoded distinctions lose meaning, best-in-class publishers increasingly view programmatic advertising as core to their businesses. These companies continue to increase traditional direct sales and total CPMs. They also leverage programmatic technology to outperform the market and improve overall profitability. One publisher in our study has built programmatic revenue to more than 50 percent of its digital revenue while increasing direct sales and total CPMs. These outperforming companies employ increasingly well-defined approaches to achieve their success. Much more than others, they do so by taking the following measures:

    • Deploying a cross-channel data-driven sales strategy that encompasses both traditional direct and programmatic sales and is tailored to the publisher’s market position and market dynamics
    • Understanding how and why advertisers value different inventory and audiences, and leveraging technology and data to match audiences to buyers and achieve higher prices
    • Assembling the right technology, both as an efficient way to access demand and as a decision engine to maximize revenue
    • Developing the right capabilities (particularly in sales and yield management) and realigning their organizations and incentives to support a cross-channel strategy and programmatic sales goals

    BCG’s study of profitability in programmatic advertising involved 25 digital publishers, including print and digital-only publishers, broadcasters, e-commerce companies, and Web portals, based in Europe, North America, and the Middle East. We examined opportunities to increase digital revenue as well as improve profit margins through more value-oriented and efficient operations. (See the sidebar “About This Report.”)

    ABOUT THIS REPORT

    The programmatic trading of advertising inventory is a fast-growing market, but some digital publishers decline to play, and others do not play to win. Two previous BCG reports investigated whether programmatic improves operational efficiency and campaign effectiveness and performance on the “buy side” of the advertising equation—that is, how advertisers and their agencies are navigating the brave new technology-driven world of ad targeting and placement. (See Improving Engagement and Performance in Digital Advertising, BCG Focus, September 2014, and Efficiency and Effectiveness in Digital Advertising, BCG Focus, May 2013.)

    This report examines similar questions on the “sell side,” in particular, why publishers are not doing more to embrace the substantial opportunity that programmatic sales represent. The report was commissioned by Google and the findings outlined herein were discussed with Google executives, but BCG is responsible for the analysis and conclusions.

    In our study, BCG worked with more than 25 digital publishers (which participated anonymously) spanning multiple segments (content publishers, broadcasters, e-commerce, and portals) and focusing on both broad content (such as news and entertainment) and specialist content (such as travel or technology). The study involved in-depth operational workshops to understand the details of programmatic sales and operations and where these create value. We used the lean-management method of value stream mapping to visualize and measure both sales and operations processes and conducted interviews and analyses around the key drivers of revenue. Our research also included interviews with senior decision makers and operational staff to identify best practices and key means of generating revenue. We used data analysis to quantify the latter.

    Our source for market size and growth rate figures was Magna Global Intelligence.

    Our research clearly indicates that publishers that lack an aggressive cross-channel strategy, including a strong programmatic capability, leave money on the table today and risk loss of revenue, commoditization of inventory, and lower market share in the future. On the other hand, those that position themselves to deliver value to their advertisers in the programmatic market will both increase revenues in the near term and have a significant and growing advantage over their competitors as the digital market expands and evolves.
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