The rapid adoption of programmatic buying in the digital ad space has already begun to threaten bloggers’ incomes. Many successful bloggers who rely heavily upon blog networks such as BlogHer, Federated Media, and Glam have likely experienced a steady decrease in CPM the past couple years. While many experts attribute this to a simple supply and demand issue (which may be true for years past), a more recent shift in the market place toward programmatic [automated] buying is the larger threat.

To fully understand the threat, we need to better understand how the digital advertising landscape was forged. Only then can we equip ourselves with the knowledge and tools that will help us overcome the rapidly falling CPMs.

The History of Digital Advertising

The digital landscape was founded upon very traditional advertising methods – that is, find a brand safe environment whose primary audience matches the target audience of the advertiser. For example, let’s say Macy’s Department Stores aims to target women living in the United States who are between the ages of 18-49 and living in households earning a minimum of $100,000 annually. As part of their television advertising, they would be wise to consider a nationwide television ad that airs during the NBC show Parenthood, who shares a similar audience. For print it may have been full page ad in Better Housekeeping.  Is everyone that watches Parenthood and subscribes/buys Better Housekeeping a female, aged 18-49, with an annual household income of $100,000+? No. Any money spent on advertising that reached husbands, fathers, and children watching Parenthood or reading Better Housekeeping could be considered a “bonus” if you’re an optimist, but, unfortunately are unanimously referred to as “waste” in this industry.

I give the above example only to emphasize that traditional advertising mediums are perceived to be less efficient than digital. I still believe that traditional advertising dollars can be well-spent, but even John Wanamaker recognized the inefficiencies of advertising back in the late 1800’s when he stated, “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

In its early years, the “World-Wide Web” simply adopted the same methodologies as traditional advertising mediums. Digital advertisers would buy ad space on a website that shared their same demographic and let their ad run for a length of time. To no surprise, site traffic began to influence advertising rates causing advertisers to pay more for sites with higher traffic. But when site traffic fell and advertisers were stuck paying their negotiated flat rate, the CPM model was  introduced to allow pricing independence to the ebbs and flows of traffic.

Soon thereafter ad size and location became influential in the pricing model with digital advertisers paying more for larger ads that appeared at the top of the page, and less for small ad units father down the page that required scrolling. As more advertisers adopted the web, a digital gold rush began and the dot com bubble resulted from 1997 to early 2000. Since even large publishers only sell a fraction of their ad inventory, they’d sell the rest at fire-sale rates (ofttimes at greater than 90% discounts), because hey, some money is better than no money, right?

Advertisers eventually discovered they could buy the same inventory for a fraction of the cost from an ad network and immediately began shifting budgets away from publishers. It was also about this time that Google was heavily investigating a small company by the name of Applied Semantics (formerly Oingo) that had developed technology that would allow advertisers the ability to contextually target their ads based on the page’s content. Google promptly acquired the company in 2003 and Google AdSense was born. Just two years later, AdSense accounted for an estimated ~15% of Google’s 1.465 billion annual revenues, or roughly ~220 million.

The success of Google AdSense didn’t go unnoticed. Most major publishers immediately followed suit and began forming their own “networks” with exclusive rights to inventory. Exclusivity always fractures a marketplace and, boy, had the Internet become fractured. Hundreds of ad networks emerged in the following years, each with their own pricing structure, ad formats, ad sizes, and technologies. In 2007, a group of senior sales executives from some of the largest ad networks joined a board under the supervision of the IAB (Interactive Advertising Bureau). This new board would bring standardization to the very fractured digital marketplace and begin to restore order to a rapidly growing digital ecosystem.

Digital Advertising Today

Fast forward to today. Many networks remain; but due to the IAB’s standardization, technology and audiences are all that separate them. Networks who continue to rely on direct and/or niche audience sales are struggling, while networks who have invested in technology are thriving.

The reason for this shift is the aforementioned programmatic buying. Digital advertising has always carried more potential than traditional advertising, but the technology is finally to the point where digital advertisers can harness that potential. Programmatic buying allows advertisers to buy media from a single source and gain the reach and frequency of multiple networks. Coupled with tracking pixels, behavioral, contextual, and demographic targeting, they can reach whomever they seek.

Real time bidding is another new technology and has become a vital component of programmatic buying. Real time bidding pits all advertisers who share a desired audience or consumer against each other where the highest bidder wins the impression. In most cases the winning bid is just $0.01 higher than the next highest bid, keeping media costs down and performance high.

Programmatic buying is a dream come true for advertisers, but lower rates and mass aggregated audiences spell trouble for publishers – particularly small to medium-sized bloggers.

Digital advertisers want all the control, they just don’t want to have to pull as many levers or make as many phone calls or emails. Programmatic buying via exchanges and bid desks offer advertisers a single portal with access to [in most cases] 70% or greater of all the Internet’s inventory.  With just few clicks, advertisers can filter their audience by gender, age, geography, interests, household income, and a plethora of other pre-filtered targeting profiles – all assembled using browser history, social profiles, and any other data the user has allowed their browser to track. It’s literally that easy. How accurate is it? Accurate enough for advertisers to trust and rely upon – and it’ll only get more accurate.

Some publishers have attempted to retain their higher CPMs by arguing that their content is worth more than what the networks are paying, but ultimately the added expenses and time costs involved with managing your own sales team creep up and the networks start to again look very appealing. So instead of trying to protect a higher CPM, publishers should rather embrace the concept of programmatic buying and let the market dictate the value of their inventory.

We’ve discussed the history of digital advertising and where its at today, so how can publishers protect themselves as programmatic buying continues to be adopted by more and more advertisers? Stay tuned…