THE PROGRAMMATIC PULSE

THE PROGRAMMATIC PULSE

How did the programmatic market close out 2017, and what are the key topics for 2018?

PULSE REPORT

INTRODUCTION Accordant Media was acquired by Dentsu Aegis Network in September 2016. Since then the quarterly Pulse Report has not been issued. We have been urged by several peers, clients, and stakeholders in the industry to bring back The Pulse Report, and this issue will be the first in a new quarterly series. Compiled by Accordant Media’s analytics team based on our ongoing exchange-traded media data, this quarter’s Programmatic Market Pulse updates our buyer’s perspective of the changing real-time media landscape, with insights for buyers and sellers alike. This report is the first of its kind, based solely on Accordant Media’s proprietary bid stream based datasets. During Q4 2017, Accordant Media’s Audience Targeting System ATS™ buying system evaluated ad impressions reaching hundreds of thousands of sites globally spanning display, video, social, and mobile inventory on behalf of leading in-house marketing teams and Dentsu Aegis Network agencies. Since the data in this issue is a 3-month look back (Q4 2017), we will not be able to provide YoY comparisons and annual trend curves – this will be part of coming issues. We hope marketers will continue to find our quarterly assessments of the current buying opportunities within the programmatic media landscape a useful benchmark to gauge their own level of participation in an important, dynamic component of digital media.

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Q4 2017 Headlines There has been steady growth across the globe with distribution relatively stable. The US is the leader by a stretch, but other markets are slowly starting to take on a larger share compared to a year ago. In the US, supply and demand are stable, while matching up overall (stable CPMs), the market brings up interesting disparities across different verticals, ad formats, and geographies. Shopping, Travel, Food, and Auto all saw a sharp excess of demand compared to supply with much higher price points without the supply to match up. Video saw a relatively stable CPM over the quarter with already high prices, but the volume went up steadily most of the way through. This was very different from display, which had greater volatility in prices but stable volume. Geographic distribution of prices shed some light on potential upcoming growth prospects in terms of the ad markets, and therefore the overall revenue opportunities for clients. Q4 is always interesting with the holidays and how the market responds to major events. We see the impact of Thanksgiving, college application deadlines, travel planning, and the last holiday week of the year, and how each of these has an impact on different inventory.

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GLOBAL MARKET SHARE 45.31%

Global Market Shares

5.02% 4.00%

USA

Great Britain

France

3.77%

3.49%

3.29%

2.58%

2.28%

2.15%

2.10%

Germany

Canada

Brazil

Spain

Italy

Japan

India

The programmatic Global Market Share across the world has the US market significantly ahead at 45%. Two factors behind this high volume, apart from a historical advantage, are the increased traffic in the US in Q4, given the shopping season, and the greater adoption of programmatic media vs. traditional direct buying. Great Britain has held its 2nd ranking, from a year ago this time, while France has seen a surge, moving it from the 10th spot up to 3rd. Brazil stays in as the largest market amongst the emerging economies but has dropped from the 3rd largest programmatic market to 6th, while India has moved up from the 11th to 10th, making it into the top 10. Japan stays in the top 10, being the only APAC country at the top (with the exception of China). The other European countries along with Canada have held steady with a slight across-the-board rise in market share.

PULSE REPORT

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INDUSTRY VERTICALS

Indexed Volume & CPM by Vertical in Q4 2017 Volume

CPM

500 400 300 200 100

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Comparing volume (supply) and CPM (demand) by industry verticals (above), we see a disconnect between the two. This is indicative of the context based targeting still prevalent in the industry. Those are potentially high performing contexts, especially in Q4 given the holidays, however, there is a lack of correction combining audience targeting along with the right contexts. Looking at some of the higher volume verticals through the course of Q4 (below), the spikes come in at different points. Education is the first to spike up, with a gradual rise peaking the week before Thanksgiving, after which it sees a steady decline in volume. Shopping, not surprisingly sees its peak during the week of Thanksgiving which is accompanied by Food & Drink, which also spikes around the last week of the year. The Auto industry typically has lower volumes late in the year, but given annual quotas, there is a big push to drive sales, which pushes up CPM and competition. This is exaggerated by the fact that a lot of Auto ads are driven to Auto specific contexts. With vertical specific demandsupply relationships, having efficient supply paths to connect to that demand can play a significant role. Indexed Volume by Vertical in Q4 2017 200 180 160

News

140

Arts & Entertainment

120

Sports

100

Shopping

80

Food & Drink

60

Education

40

Health

20 0 1-Oct

8-Oct 15-Oct 22-Oct 29-Oct 5-Nov 12-Nov 19-Nov 26-Nov 3-Dec1 0-Dec 17-Dec 24-Dec

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AD FORMATS Volume by Ad Format in Q4

Display

Native

Video

CPM by Ad Format in Q4 PC

Display

Phone

Native

Tablet

Video

Looking at volume and CPM trends, Q4 presents a unique story for each ad format specific. The overall volume of display is downward trending over time as users spend more time offline as they get closer to the end of the year, barring a slight uptick around Thanksgiving. This is in sharp contrast with the volatile CPMs that rise leading to both holiday weekends, showing a sharp increase in demand which is not in sync with the supply. Display also has more deal-making with programmatic guarantees and PMPs. Video sees an inverse of the display trend with flat or slightly downward trending CPM but a large increase in volume. The CPM for Video is already high across the year and a large part of the Q4 push ends up via Direct Buying, thereby matching supply with demand to keep the prices steady. Native has a story similar to video, but the overall volumes there are much smaller today with only 2% of the overall volume (compared to 87% for Display and 11% for Video).

PULSE REPORT

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VOLUME BY DEVICE TYPE

Ad Format Volume by Device Type in Q4 2017 3%

3%

6%

47%

49% 57%

50%

48% 37%

Banner

Video

Native PC

Phone

Tablet

The share of the programmatic market on mobile phones has equaled the PC market. Tablets retain a small share, but that is partially due to the fact that a lot of tablets end up being counted as PCs (Windows 10 based). Phone was a growing segment a year ago, but not quite on par with desktop. The relative share is consistent across ad format with native actually showing a stronger presence on mobile phones.

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US MARKET MAPS Volume

The size of digital markets across the US look very similar to the population size based maps. This implies that the online presence and impression density is fairly uniform across the country. Not surprisingly, the California and New York markets come out the strongest with other urban centers following them.

CPM

The story becomes more colorful as we look at the CPM, or demand, side of the equation. Just as verticals like travel and auto expected larger revenues in Q4 and therefore had demand outweigh the supply, similar to local markets, higher CPMs suggest an increased revenue for advertisers compared to what the supply volumes might suggest. We do see a broad trend of smaller markets with higher CPMs suggesting an “inflation” of prices with expected growth from these markets, especially in terms of ROI. These two maps are a good predictor of where growth is to be expected over the next 12-18 months.

Reader Spotlight Programmatic has gone through rapid developments and changes over the years, and 2018 promises to be a year of quality, safety, and transparency. Below are what we predict will be trending topics this year and what will be on our radar for 2018. We will explore these 4 topics in more detail in the coming Pulse Reports: Supply Path Optimization Fraud & Viewability Block Chain GDPR

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SUPPLY PATH OPTIMIZATION

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The last couple of years have been tumultuous for programmatic, and recurring brand safety issues on major platforms such as YouTube, and the resulting spending pullbacks from notable marketers have become regular events. As a result, marketers are asking for high levels of Viewability and refuse to pay for Non-Human Traffic. The current infrastructure of the Programmatic space has struggled to combat this, granted there has been taken some much needed, and vital steps like ads.txt, TAG and TrustX, but there is still a lot of work to be done to clean out this somewhat murky supply path. 2018 will be the year where we will see a lot of new products in the market, which leverages direct publisher relationships and the power of scaled buying. This will effectively cut out the traditional sales side platforms, and the reason for doing this is twofold. First and foremost this part of the path is not very transparent, and a lot of value gets lost exactly here. We have noted that somewhere between 10% and 35% is usual take-rates on standard SSP’s. Secondly, by doing this, the supply path is under control, cleaner, and the potential for creating 100% transparent offerings persists.

FRAUD & VIEWABILITY

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The last couple of years have brought intense scrutiny on reducing ad fraud and increasing viewability. That is not going to change in 2018, but we will have additional tools to help us like Ads.txt and viewability algorithms. Ads.txt is a txt file named ads.txt that is placed on the primary domain of a website. This file will let us know who is authorized to sell inventory from that website. Use of Ads.txt will help us avoid inventory associated with domain spoofing and inventory arbitrage which will aid us in minimizing the purchase of invalid traffic. Accordant Media’s ATS™ will add viewability options to our custom algorithmic models. In today’s marketplace, many data providers offer probabilistic contextual segments around various viewability scores or targets. No data provider can guarantee an impression is viewable since viewability is primarily based on a user’s browser behavior at a given moment in time. Like these data providers, we have created models around predicted viewability; however, we can also blend

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viewability with the likelihood to convert through our custom algorithms. This is another tool for us to use when trying to increase the viewability of a campaign. Ads.txt and viewability algorithms are just a couple of new tools at our disposal. As we work with our partners on the buy side and the sell side as well as 3rd party measurement partners like Comscore, DoubleVerify, and IAS, we will continue to find new ways to reduce fraud (invalid traffic) and increase viewability throughout the year.

BLOCK CHAIN

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Each year, the Ad-tech industry seems to coalesce around a new ‘buzzword of the year.’ Years past featured buzzwords like Header-bidding, Ads.txt, Ad-fraud, Deal ID, & Audience Addressability. For 2018, the early momentum points toward “Blockchain” becoming the topic that is generating the most significant interest. Although the current supply of Blockchain-enabled ad-tech solutions is vastly exceeding the demand, we do recognize the growth potential (and value) of this emerging sector. It is very likely to disrupt our industry, especially as companies begin to recoup efficiencies, and consumer experience continues to drive digital transformation. Currently, Blockchain is a technology solution in search of the right industry usecases to solve. To this end, we are tracking emerging offerings, which seem to fall within the following four sub-categories: Data Management: Improved efficiency around housing, sharing, and leveraging data. An added degree of privacy, safety, fraud-prevention, and targeting sophistication. 1

Media Buying/Selling: Some companies are trying to rebuild the ad-tech ecosystem, on the blockchain. Could have up-front and arbitrage implications. Should bring additional transparency, as well. These offerings will likely take longer to gain tractions but should have the ability to support integrated tech & features (ie; measurement, contracts, etc.) 2

3 Mitigating Middlemen: Elements like Distributed Ledger Technology allow companies to use the Blockchain as the middleman that can execute actions, records, and remittance

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based on established “rules” or “triggers.” Smart-contracts might be the area where Blockchain will see the most significant growth - initially. New Measurement, Currency, & Value Models Blockchain tech allows the market to establish new norms and value where legacy technology could not. This includes the deriving value from performance indicators like attention and potentially democratizing consumer data. 4

Ultimately, blockchain technology will provide marketers with solutions to improve the transparency, efficiency, auditability, and immutability within an increasingly disaggregated industry that can otherwise be opaque.

GDPR

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There has been a lot of writing, commenting, debating and mischief-making about GDPR which comes into effect in Europe in May of this year. As we get closer to the implementation date we can expect the focus on GDPR to intensify with increasing interest as the new regime beds in over the next 12-18 months. With a drive to increase transparency around data collection, use, and retention, marketers would be wise to recognize that the GDPR is an evolution of European existing privacy practices, not a revolution as some commentators have been quick to claim. The noise around the GDPR is already causing consumers to think about how organizations use their data and subsequently how they view brands. Organizations will need to be alert to the correlation between data use and brand trust. Abusing consumer data can be as damaging as a security breach, though poor security alone can be a brand killer with a lasting impact on those businesses and individuals caught up in a data incident. With this in mind, harsher penalties are just one enforcement mechanism under the GDPR that organizations will want to be aware of as May draws increasingly closer. Data protection is about more than data security, though. It’s about having a robust and tested organizational framework for information management that spans the entire data life-cycle from capture to ultimately, destruction. The better we understand how we use data, the way it flows across our networks and who else has access to it, the better equipped we will be to utilize the power of data to innovate the way brands are built. Savvy businesses will see the GDPR as a smarter way to innovate in the digital economy and an opportunity to gain an edge on their competitors through increasing brand trust, rather than a threat they hope will go away.

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