Programmatic What? A Comparison of Programmatic Buying and the Stock Market

Author: Kyle Brierley

Buzzword #1 in media is “programmatic,” followed closely by “big data” and “cloud”-“insert anything here.” This point is arguable, but if you’ve got the time or energy to be debating the hottest topic in marketing – you’re probably not in the weeds of marketing.

Programmatic is an adjective used to describe a decision making algorithm based on machine learning. It not only streamlines transactions, but allows simple economic theory to exist. Programmatic buying is actually very simple, and is almost identical to the stock market. The value of each share is determined by the law scarcity, and more importantly by a simple supply/demand curve. The same laws exist for media inventory.

The higher the scarcity = the higher the value = the higher the price

The current state of the market allows publishers to maintain the value of their inventory, and marketers to efficiently buy their target audience. Let's start with the basics. 

Programmatic Language 101

Programmatic: Automated. Describes decisions made by machine learning based on criteria. Think Excel functions, or simple “if, then” logic, as a basic example.

RTB: Real Time Bidding. Technology that powers the instantaneous transaction of media and let's you buy inventory based on "if then" laws that are typically build into platforms as optimization models.

Ad Exchange: Marketplace. This is, like NASDAQ or NYSE, where the inventory is bought and sold. Basic supply & demand theories apply here - think Efficient Market Hypothesis.

Publisher: Seller. Ad inventory (supply) exists on the publisher’s site, which they are selling programmatically through the Exchanges for Buyers to bid on.

Marketer: Buyer. Purchasers or bidders (demand) of the inventory Publishers are selling. Their bids and purchases happen in the Exchanges.

Programmatic Flow

For this and the example below, keep in mind that the “bidding” is not like the eBay auction format, it’s more like the “buy now” format. If you bid at or above the market value of the inventory, the purchase happens instantly.

1. Publisher Sales: Business.com has (to make it easy) 100,000 total impressions for sale, which we make available in the exchange for auction at a starting bid of $10.
2. Ad Exchange: Inventory is now listed publicly for auction. The starting bid is $10, which buyers can now see and bid on.
3. Marketer Buys: Marketer (brand or agency) bids $10.50, is the only bidder, and wins the impressions (100% win rate).
4. RTB: Transaction happens instantly: Exchange tells both buyer and seller’s ad tech the transaction is complete, marketers ad tech serves creative (display ad), which is pulled onto publisher site, to the anonymous users, for 100,000 impressions.
5. $$$: Publisher makes $10.50, Marketer spends $10.50 (net any transaction fees).

How Programmatic Looks in the Stock Market

1. Company goes public (Publisher), and can now sell their 1 share (100,000 impressions) on NASDAQ (Ad Exchange). Their IPO share price (Floor CPM) is $10 per share.
2. NASDAQ (Ad Exchange) now lists available shares (impressions) for auction to potential share holders (Marketers).
3. Buyer bids $10.50, is the only bidder, and wins the shares.
4. You get the point.

Now that you understand the basics and can at least talk the lingo, next I'll go into what the supply, demand and technology looks like with programmatic and how the pendulum swings...