Rise of Programmatic Ad Buying

Last week, Yahoo announced that it had purchased BrightRoll, a technology platform that facilitates the programmatic purchasing of digital video ad inventory.  BrightRoll aggregates digital ad inventory from a wide variety of content publishers and then in real-time it analyzes user data to identify key characteristics of the person who is watching the video.  It takes these characteristics, and matches them against what types of customers a brand wants to see its advertising, and then matches the proper ad with the user.  This real-time, intelligent, ad placement is becoming increasingly common in the digital advertising realm.

Yahoo was particularly interested in this business because they have been struggling with in generating ad sales revenue from their owned and operated platforms.  In fact, while the digital ad industry is growing quickly, Yahoo has experienced year-over-year declines in its display ad business.  One way to offset this trend, is to begin to monetize advertising sold on other platforms, which this transaction facilitates.  This acquisition by Yahoo actually mirrors that of one of its major competitors, AOL, which acquired programmatic video ad tech company adap.tv over a year ago.  These acquisitions are meant to give these major digital content publishers an alternate revenue source, and allow them to create a non-labor intensive revenue stream.  By using the technology solutions to intelligently place the ads in real-time, Yahoo and AOL are taking a leading position in this increasingly valuable business segment.

The question coming out of this will be how does a company differentiate their programmatic ad technology solutions versus those of a competitor.  The obvious answer is that pricing will be key, but neither company is incentivized to engage in a price war to the bottom.  As a result, I think two key differentiators will be the sophistication of the targeting algorithms and the breadth of third party publishers' inventory that is placed in each marketplace.  At this point it is unclear which of these two companies is better positioned in this regard, but it will be interesting to see how things play out in the months ahead.