Direct deals vs programmatic

There are two basic ways to sell an ad. You can pick up the phone, agree a price with a brand and sign a contract. Or you can let software put each impression up for sale, one at a time, to whoever pays most in that instant. For most of advertising history, only the first existed. Today the second handles the majority of digital display, but the smartest publishers use both.

Direct selling is like a restaurant taking a booking for a wedding party months ahead at a fixed menu price. Programmatic is like the same restaurant filling its remaining tables every evening with walk-ins, with prices changing depending on how hungry the crowd is.

Direct-sold: the handshake

In direct-sold advertising, a publisher's sales team negotiates with an advertiser or agency. They agree on placements, dates, number of impressions and a fixed price, written up in an insertion order, or IO. The publisher's ad-ops team then loads the campaign into its ad server, which is responsible for pacing: spreading delivery evenly so the campaign neither runs out early nor falls short.

Direct deals are great for premium placements: the homepage takeover on a Japanese news portal on the day of a big product launch, or a sponsorship of a cricket live-score page during the IPL. The advertiser gets certainty, and the publisher gets a guaranteed, usually higher price.

The leftovers problem

No publisher sells all of its inventory directly. Whatever is left over is called remnant inventory. The share that is sold at all is the sell-through rate. For years, remnant space was dumped onto ad networks at low prices, often through a waterfall: the ad server offered the impression to network A at a fixed price, and if A passed, to network B at a lower price, and so on down the chain.

The waterfall was slow and wasteful. Network C at the bottom might have been willing to pay more than network A for this particular user, but it never got the chance to bid because the order was fixed in advance, based on average historical prices.

Programmatic: selling one impression at a time

Programmatic advertising means the buying and selling decision is made by software. The most famous form is real-time bidding (RTB): each impression is auctioned in roughly a tenth of a second while the page loads. Buyers look at the context and whatever data is available about the user, and bid what that specific impression is worth to them.

Programmatic took over because it solved real problems. Buyers could target precisely and reach thousands of sites from one screen. Publishers got competition for every impression instead of fixed-order leftovers. And small publishers in Brazil or Indonesia could suddenly earn money from global brands they would never have met in person.

It is a spectrum, not a switch

"Direct" and "programmatic" are not opposites. Modern deals mix a negotiated relationship with automated delivery. The industry sorts them by two questions: is the volume guaranteed, and is the price fixed?

Where the money goes differs too

In a direct deal, the advertiser often pays the publisher (or its agency pays) with few companies in between. In programmatic, the budget passes through a DSP, possibly a data provider, one or more SSPs and exchanges, and verification vendors. Each takes a share. A large UK study by ISBA and PwC found that on average only about half of programmatic spend reached publishers.