NOT Taking Programmatic In-House Is Short-sighted

Blog post   •   Sep 04, 2014 11:24 CEST

By Tom Triscari, CEO

This post originally appeared on AdExchanger

When an advertiser’s CEO, CFO and CMO meet to discuss their programmatic marketing strategy and budget, they increasingly talk about whether to take an in-house approach. Some argue such an approach is short-sighted. 

I believe the opposite. The answer is often simple. Just do the math.

If you buy a lot of full-funnel display and pay 50% margins today (note: ad tech vendors and trading desks cannot disclose margins) but could pay 15% or less for in-house ad tech and pay the going market rate for a small team of campaign DMP engineers and optimizers, you end up generating massive savings. The savings can be used to augment or even create a big competitive advantage.

Some early adopter advertisers have already moved past talking and are actually doing it. When we see companies like Accenture move into the business, we know something big is changing. Early adoption is very smart; when done correctly, under a C-level mandate like P&G’s, the competitive edge gained can be an enduring one.

In-House Advantages

The simplest way to describe taking programmatic ad tech in house is to say that in the future, most advertisers will run their own in-house trading desk or put it on the consideration table. Those that go in-house have the potential to reap extra advantages and gain a market edge by virtue of owning a new competency and absorbing it into their DNA.

The argument to bring ad tech is increasingly validated. This conversation takes place because of six fundamental reasons:

  1. The sooner trading takes place in-house, the sooner the marketer can lock in better supply to find increasingly better audiences.
  2. Taking programmatic display in-house guarantees the advertiser gets 100% total and absolute cost and media transparency.
  3. The sooner trading takes place in-house, the sooner the marketer can activate more first-party data and experiment with strategic data sets.
  4. Taking programmatic display in-house allows for much higher RTB bidding, leading to much higher win rates for users the advertiser wants to reach.
  5. Taking programmatic display in-house guarantees the advertiser gets 100% total and absolute control over striking a balance between data privacy and meeting customer needs with respective product and service.
  6. The financial payoff of investing in in-house programmatic is massive, while talent acquisition, competency development and goal implementation can be easier than people realize.

Get the Job Done

When advertisers take control of programmatic display, they want to get the job done. As long as they have a sensible plan with a passionate and transparent partner, the job to be done becomes relatively easy. One of the more important questions to think about: Why do so many advertisers feel so compelled to pursue in-house ad tech? Looking at this modified display landscape, it's becomes easy to see the big unmet need.

For every dollar spent on getting an impression in front of a user, cumulative fees or “taxes” account for 75 cents while the actual media only costs 25 cents. While some of the fees are necessary pass-through cost, such as auction fees and ad serving, other fees, including DSP vendor or trading desk arbitrage, account for the largest tax.

It's important to note that the pass-through costs have favorable marginal cost aspects as the advertiser display spending grows in tandem with overall demand for display executions. These costs quickly become inconsequential as the amount of purchased impressions grows. The in-house staff are also very scalable because an advertiser with two people running 200 million impressions per month today does not need extra staff as they double or even triple display spending over time.

News reports, research and blog posts over the past few months further illustrate the unmet need and advertiser dissatisfaction. Since April, when there little few in-house discussion, we’ve seen the pace pick up to the point where big media outlets like The Wall Street Journal are following the story and equity analysts are factoring this threat and opportunity into valuation models.

The dissatisfaction has two facets. Advertisers want more cost and media transparency, but their ad tech and trading desk partners are reluctant to give it. Advertisers also want to activate more first-party data, but they are reluctant to let it outside the brand walls.