Xaxis warns against open exchanges and hails value of humans in ad trading process

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    Caspar Schlickum, speaking at Future TV Advertising Forum in December

    The television industry should learn the lessons of the ‘digital’ advertising industry and make sure that it applies programmatic technology to the execution of campaigns, like which advertisement is served where and to whom, and not to the trading process, meaning the media transactions that determine who gets the right to advertise against inventory and what they pay. This is the view of Caspar Schlickum, CEO at Xaxis EMEA, the programmatic media buying unit for WPP (the world’s largest communications services group offering advertising, branding and consumer insight services). Xaxis operates what it claims is the largest programmatic media and technology platform in the world and its European CEO believes trading should maintain human relationships between the publishers selling inventory and the agencies buying it, something that points away from the open auction process and real-time bidding (RTB).

    “RTB is one way to trade media but so are private marketplaces and programmatic direct, an environment where publishers and agencies still sit together and decide what will be bought and when,” Schlickum explains. “There is no reason why you cannot use programmatic to execute campaigns while still maintaining the media relationships we have today, and you will end up with a result that is just as good, [as if you used open exchanges without any human interaction] if not better. It is much more effective to deploy programmatic technology for the execution rather than the economic transaction of buying inventory.”

    Xaxis will focus on private marketplaces in 2015 and move away from real-time bidding, although the company will not be avoiding RTB and open exchanges altogether. One of the trading solutions it offers, programmatic direct, is a mix between direct and programmatic deals. “In a programmatic direct transaction, buyers and sellers still pre-negotiate terms of a deal, but the ad delivery is automated so marketers can target specific audiences, which is one of the main draws of programmatic,” the company explains.

    Schlickum has highlighted the reasons why a real-time auction cannot be applied to media buying with the same confidence as when it is used for trading other non-storable assets like electricity, where the best time to sell is always now and neither five minutes ago or in five minutes time. He points out how in the electricity market, suppliers (power stations, equivalent to publishers with inventory in the media world) make their electricity available and distributors (equivalent to agencies in the digital media world) bid for that electricity. Price fluctuates according to supply and demand and if a power station goes out of action for maintenance it causes a spike in prices. 

    The principle of real-time bidding has been applied to digital inventory including display advertising but  Schlickum points out that with electricity there is no such thing as a good or bad supplier, as electricity is all the same (if you discount companies who trade on their ‘green’ generation credentials). Power stations do not care who they sell to and distributors do not care who they buy from and there is no relationship between seller and buyer in the trading process. 

    With media, the quality of inventory does vary, however, determined by a range of factors that increasingly includes the viewability of the advertisements and the likelihood of fraud (where advertisers do not get the placements, visibility or audiences they were paying for). “Our clients [advertising buyers] care very deeply about their media schedule and therefore where the ‘electricity’ [their hoped-for advertising inventory] is coming from, and unlike electricity generators, publishers care very deeply about who is buying their inventory. They would rather show luxury cars than gambling websites.”

    Viewability and fraud are the biggest issues determining the quality of the inventory today and real-time bidding, despite presenting opportunities for increased efficiency, makes it more likely that buyers will be caught out, Schlickum reckons. “Viewability and fraud issues are much worse today because of open exchanges where buyers and sellers do not care who they are dealing with,” he adds. At Future TV Advertising Forum in December he cited an experiment by Financial Times (the UK’s leading business and finance newspaper) where it spent £10,000 trying to buy its own digital inventory in open exchanges, finding that only 18% of the budget resulted in a real FT placement. 

    Though it is display advertising that is in the headlines for fraud, there is now a growing focus on how the video industry can avoid the pitfalls seen in digital publishing as it looks to harness programmatic technology. That is why  Schlickum is keen to distinguish between the trading element of programmatic and the execution function, and then distinguish between real-time bidding and open exchanges and other forms of trading that still have a place for human interaction.

    He argues that maintaining human relationships in the trading process will ensure accountability and circumvent fraud. “We know that publishers will not give us inventory that is fraudulent because we are sat across the table from them.”

    Schlickum defines ‘programmatic’ as the application of technology to the media management process”, something that encompasses how you handle and use data and inventory, automated ordering, valuations of inventory, the purchase of impressions, and the technologies used to serve ads and dynamically determine what creative is served, among other things. And while programmatic can have a big impact on digital advertising, “there is no magic optimization button and we cannot just rely on technology to do all the trading for us.”

    “I have a love-hate relationship with the word ‘programmatic’,” Schlickum adds. “It offers  the promise of better targeted media and more efficiency and effectiveness, which is very exciting, but it is also looked upon as the answer to everything, and a reason to move away from an industry that is very much based upon people to a magic button that you can push after which we can all go home.”

    He is adamant that advertising will remain a people-based industry and argues that “the role of people in this industry is as important, if not more important, than it was.” But new kinds of people are coming into the industry: Data analysts and data scientists who would otherwise be working at investment banks like Goldman Sachs or CERN, the European Organization for Nuclear Research. “These [programmatic] technologies do not run themselves but require very high skills but different skillsets to what has been employed in our industry,” he observes.

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