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The Struggle

Two objectives.
One trade-off.
Shift value.

 

The Struggle

“The Struggle” is a trade-off between Pacing Ad Budget and buying the highest Ad Quality programmatic ads in return.


On one hand, the entire programmatic supply chain is typically incentivized to spend all the ad budget on time. Although practitioners usually refer to this objective as "pacing," you'll also hear people say things like "the campaign is not scaling," which then leads to other dramatic proclamations, such as "we need to heavy up." 


​On the other hand, the buyer — or an agent of the buyer — can aim to buy the best ad quality, but they will likely struggle to spend earmarked budgets on time. This dilemma, which is composed of two fundamental constraints, shows why programmatic advertising boils down to a fundamental trade-off. 

Programmatic is a Trade-off Curve

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All trade-offs have consequences, which is precisely why the field known as microeconomics studies how individuals (e.g., media buyers) and firms (e.g., supply chain actors) make decisions in a world of scarcity (e.g., quality ad inventory).

When it comes to programmatic advertising, high-quality inventory on offer in ad exchanges is a scarce good while lower quality "remnant" inventory is usually quite abundant.  Given this dynamic, not only does each supply chain actor grapple with the struggle, but they must also try to make themselves as well-off as possible. 

 "The Struggle" examines how programmatic buyers make decisions in a world bound by these constraints. When buyers choose one objective, they have to give up something else.  And naturally, when trade-offs are made, an opportunity cost arises.  This is precisely why economics is known as the "dismal science."  When you decide to take one course of action over another — like prioritizing budget pacing over buying quality ad placements — there is a residual cost that cannot be escaped. 

When buyers sacrifice ad quality in exchange for budget pacing, they must also be willing to bear a cost. For example, opportunity costs such as advertiser skepticism over buying practices, buyer-agent trust, and a host of related ad quality optics become quite real.  All the while, programmatic's potential as an advertising tool is stunted in favor of its utility as an "easy button" spending tool. 
 

Two Constraints

Constraint #1

Ability to "Pace" Ad Budget

A buyer can either spend all the budget or struggle to spend the budget.

Easy

Constraint #2

Buy the Best Ad Quality

Buy the best ad quality or take the "easy button" approach to buy low ad quality.

Hard

What is the best ad quality?

When it comes to programmatic inventory bought in 100-millisecond auctions, each impression has to pass through a kind of minefield of ad quality hurdles before it can capture a consumer's attention. Imagine the following scenario that happens billions of times every day...

Your DSP wins an auctioned impression.

Is the user behind the ad impression a human or bot?

bot

human

Is the as served on a legit site?

legit

fraud

Did the ad actually render on the page or in the app?

No

Yes

Was the ad viewable?

No

Yes

Only after making it through this gauntlet of ad quality probabilities will an impression then have a chance at capturing a consumer's attention.

The Chances of Programmatic Success

The Trailer

 

The Purpose of Advertising

As you can imagine, making it through this minefield unscathed is certainly not easy, particularly when programmatic suppliers have a disincentive to share relevant ad quality information with buyers before bidding takes place.   

And when you further imagine buying millions and billions of impressions, isn't it reasonable to ask yourself, "How many impressions never even have a chance of making it through the minefield and turning into what David Ogilvy or Mary Wells Lawrence would call an advertisement?”

If we could somehow channel these advertising legends or ask their modern creative contemporaries what they think about using programmatic as an advertising tool, I think they would agree with this simple logic: you can't get incremental gains from advertising unless the ads capture attention, and you can't capture any attention whatsoever if you buy low-quality ads.

Ad Quality

if you increase your chances of buying high ad quality.

Attention

then you increase your chances of buying attention.

Incremental Lift

then you increase your chances of incremental gains.

Point A

With these reasonable foundations under our feet, let's go back and dissect the trade-off curve at three Points: A, B, and C. 

Let's start at Point A in the trade-off curve.  In this case, the buyer decides to relax the need to buy high-quality ads, making it easier to pace media budgets on schedule. The more buyers spend, the more fees the supply chain earns.

Like everything else in life, this decision has a big opportunity cost. The buyer will likely forgo the chance of capturing consumer attention and forfeit the chance of realizing incremental gains. With this choice, there is little hope of realizing positive ROI.  

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Point B

At Point B, the buyer takes the opposite approach and aims for the best ad quality. However, this buyer will face an opportunity cost as earmarked budgets struggle to pace in line with the media plan.  

​For example, let's say the "easy button" approach allows you to buy 10 ads with a given budget amount. You buy all 10 ads and receive a range of ad quality, from low to high. The high-quality ads translate into meaningful advertising that leads to attention, while the low-quality ads have no chance of achieving the desired outcome.

Had you only bid on the best quality in programmatic auctions and passed on all the other so-called "bid opportunities," you only would have been able to buy 5 ads, leaving half the budget unspent. That's "The Struggle" in a nutshell.

Point C "Programmatic Magic"

What if there was a magical way for your supply chain to spend all the budget as planned while also creating the perception of ad quality?  In such a scenario, advertisers could be mesmerized by programmatic and keep allocating more ad budget into the dark arts of automated bidding. 

 

How would such a scheme work? As long as three key conditions are met, the illusion will continue to dazzle and mesmerize buyers into digging out more money from their pockets. 

Condition #1: Set low ad quality standards. When everyone else can be convinced to do the same, a community of low standards becomes universally accepted. As the old joke says, "A limbo dancer walked into a bar...and got disqualified!”

 

Condition #2: Use the wrong — but accredited — verification vendor that charges based on high-volume ad spending to measure ad fraud, brand safety, and viewability.  The more they can provide an overwhelming array of mostly meaningless metrics in beautiful dashboards, the easier it will be for buyers to confuse low standards with high standards. 

 

Condition #3: Various supply chain actors must also be willing to play a "throat the choke" role.  For example, if something goes wrong with the first two conditions, the risk of facing client angst is low enough to accept the risk and reap the reward. On the off chance that things go horribly wrong, somebody will create a task force and eventually find another throat to choke in the supply chain. In the end, low standards remain in play. 

 

Unfortunately, as various supply chain actors stay fat and happy on low standards, there is still very little chance of capturing consumer attention and getting a positive return on investment. 

Lemon Market

"The Struggle" is a metaphor for a very real scenario described in economics as a Lemon Market

 

In programmatic advertising terms, a lemon market is a situation where buyers don't get enough good information about potential ad quality before assessing bid opportunities, causing them to overpay in auctions. For instance, let's say you're willing to pay a $10 CPM for the ideal ad impression. It's ideal because you're certain that a real human being in your target audience will be able to view the ad in an appropriate content environment. Let's also imagine it costs you 25% in fees to participate in programmatic buying. 

 

When you get the bid opportunity, sellers also provide certain information that says this particular impression has a 50% chance of being viewable, the content where it will be served has a 50% chance of being inappropriate for your brand, and there is a 50% chance that a bot generated the impression. 

 

Since 50% x 50% x 50% turns into a 12.5% chance of buying your ideal impression, you smartly end up bidding $1.25 instead of $10. At this point, you've never been happier to be so completely indifferent to the outcome. If you win, you get a below-average impression, but at least you paid what it was worth to you. If you lose, you're equally well off because you did not overpay to win a $10 bid.

 

If you thought you were happy already, you get absolutely giddy with joy when you pay just $0.33 on your $1.25 bid, instead of $2.50 in fees on a $10 bid (but only if you win). 

 

​The flipside brings us back to trade-offs. When you only bid on the intrinsic value (what the impression is actually worth to you given the information you have), you'll very likely end up with a budget gap. Your overpriced bids will not be competitive against other bidders who are willing to overpay, which means it will take longer than planned to spend earmarked budget. But at least your competitors are buying the junk instead of you. 

Solution

Lemonade Projects is in business to solve "The Struggle" for our clients. Our innovation program is designed to configure, execute and manage various campaign experiments to turn this “unreal magic” into provable and material gains.  

​We deliver a service model and a systematic approach that adds value one experiment at a time.

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Unlike legacy approaches whose business models and natural profit motives restrict them to prioritizing budget pacing, we take a contrarian approach by finding ways to get the best programmatic ad quality outcomes. As we ramp up experiments across a mix of future-forward competencies, we shift our client's "satisfaction curve" toward increasingly better advertising outcomes.

As our clients find more high-quality wins where other buyers are either not looking or not allowed to look, we increase our ability to pace larger budgets one experiment at a time. As our clients approach the sixth-month mark in the program, they now know what is possible. They have a system of well-designed use cases aligned with technology partners that promote advertising innovation and true client enlightenment.