Programmatic Buying Models: The Waterfall

Now that you know what Programmatic is (because you obviously read the first article in this series), you might be wondering — what type of inventory can we buy?

Reminder:

Programmatic ad buying: using software and technology to identify, bid on, and purchase digital advertising in an automated fashion versus engaging in manual negotiations.

Inventory: The actual space on the page where the ads will be displayed — the publisher sells the space on the website as inventory.

Demand-Side Platforms (DSPs) enable advertisers to buy ad impressions and help determine how much to bid for each impression opportunity.

The first buying model is Open Auction, also known as open exchange, open marketplace, OX, OMP and a few other acronyms. An open exchange is arguably the most competitive and “fair” way of buying. It takes all available inventory from publishers and creates a marketplace for all buyers to programmatically bid on. Impressions are available to all buyers (or bidders) and they will enter an auction to with the highest bidder winning that impression.

• Scale: Very broad. No predetermined relationships are needed to bid on inventory. Buyers have access to many publishers through an ad exchange relationship.
• Cost: Determined by an open real-time bidding auction where the ad exchange determines the winning bidder based on the highest bid submitted.
• Publishers: A mix, including premium, long tail, and new publishers. DSP technology determines which publisher’s inventory is best for advertisers to bid on.
• Relationship with the publisher: You do not need to work directly with publishers to access their inventory.
• Audience: Open exchange inventory works well to add scale to potential audiences and expand reach for maximum impact.
• Accessibility: The buyer being able to set all settings in the DSP.

Private Auctions and Preferred deals fall under Private Exchange or Private Marketiplace deals, this means that there is one publisher only — limiting the inventory — but there can be multiple buyers. This also means that inventory available tends to be more premium than that of the open auction.

Private Auction is also known as a invite-only auction, private marketplaces (PMPs), private access, or closed auction.

PMPs are customised, invitation-only marketplaces where groups of premium publishers make their inventory packages available to a select group of buyers. The buyer negotiates access to inventory with the PMP ahead of time to create and agree on the terms of the relationship. Once the relationship is established, buyers work with an exchange to purchase inventory programmatically. Normally a floor price is agreed on e.g. A minimum CPM of 10 GBP, buyers are still in an auction so their final CPM might be above that, but they are paying for the premium inventory and have identified the publisher as a strategic partner so it makes sense to pay more than you would on the open exchange.

• Scale: It depends on the group of publishers associated with a PMP deal and the ad inventory packages included.
• Cost: Pricing parameters are set by publishers and agreed upon by the buyer.
• Relationship with the publisher: In most cases, buyers work directly with publishers to access the inventory. Publishers know who is buying their inventory packages and can use this information to give first-look privileges.
• Audience: The specific viewers of the publishers website within the PMP terms.
• Transparency: Both buyers and publishers have greater transparency into the transaction. Buyers have a clear understanding of what inventory packages they are buying and the price range.
• Exclusiveness: PMPs enable buyers to get access to exclusive and premium inventory.
• Accessibility: Some deal settings sit on the publisher side, with the buyer being able to set some additional settings in the DSP.

Preferred Deals are also known as unreserved fixed rate, first right of refusal, or private access.

They are made between a publisher and a specific buyer for a fixed-price CPM, usually focused on reaching a specific audience.

• Scale: Dependent upon the capacity of the publisher.
• Cost: Buyers pay a fixed price, which is predetermined.
• Relationship with the publisher: The DSP works directly with the publisher to negotiate deal terms and gain access to inventory.
• Audience: The audience is very narrowly-defined and publisher-specific.
• Exclusiveness: Publishers give the buyer priority and exclusive access to inventory before it is made available to everyone else and open auction.
• Accessibility: Most deal settings sit on the publisher side, with the buyer being able to set some settings in the DSP

Now that we have covered Open Exchange and PMP buying models, lets talk about Programmatic Guaranteed (PG) deals.

Programmatic Guaranteed deals are the programmatic market’s equivalent to a direct buy, it works in a really similar way but you can track performance through the DSP you use instead of asking the Publisher for daily excel reports.

PG deals are made between a publisher and a specific buyer for a fixed-price CPM, where impressions are guaranteed — you will serve all impressions in the agreed time frame.

• Scale: Dependent upon the capacity of the publisher.
• Cost: Buyers pay a fixed price, which is predetermined.
• Relationship with the publisher: You can either use the DSP to negotiate the deal terms but normally you will email or call the publisher to set up the deal and push it through to the DSP.
• Audience: The audience is very narrowly-defined and publisher-specific.
• Exclusiveness: Publishers give the buyer priority and exclusive access to inventory before it is made available to everyone else, this is even more exclusive than the PMP inventory.
• Accessibility: The deal settings all sit on the publisher side, you cannot make any changes and must trust that the publisher has applied all negotiated terms.

Now I know what you are thinking — we have spoken about buying models, but not about the waterfall — why does the waterfall matter?

A waterfall is a really great way of imagining how these buy types work together:

As we go up the waterfall, we see that price, priority and predictability increases, PG deals are a lot more expensive than the open exchange — but it also comes with the predictability that we will spend out budgets in full on premium inventory. The open exchange is cheaper than a PG deal and comes with increased control on the DSP side, but no guarantee that we will spend our budget on premium ad slots.

When looking at it from a publisher’s perspective the waterfall becomes even more apparent and explains how they release inventory:

Reservation buys are also known as a Direct buy or a Tag-based deal. This is inventory that is bought directly from the publisher. There is committed spend and for a guaranteed impression volume. This is not done programmatically and requires tags to be exchanged with the publisher to track performance and serve creatives. It is like a PG deal but with no visibility of the deal on your DSP.

Traditionally inventory that was not sold at direct Reservation level would funnel down to the Guaranteed and Preferred levels, unsold from that would filter to the PMP level and any unsold inventory would then be up for auction through the open exchange. Thus creating a waterfall effect.

Due to this it can be argued that inventory gets less and less premium as we go down the waterfall as people who get first look will buy up the best spots.

Key Points:

• Programmatic Guaranteed (PG) — This is inventory that is bought directly from the publisher. There is committed spend and for a guaranteed impression volume. This is like Reservation type buys but is bought programmatically. Because it is set up programmatically, there is no need to exchange tags or handle invoices. You can also target or exclude first party audiences lists.
• Private Marketplace Deals (PMPs) — These are private auctions which are set up with one publisher. There are only a select number of buyers that take part in the auction. By using PMPs it helps access premium inventory that may not be as easily available in an open auction. PMPs can refer to Preferred deals or Private Auction deals. Private Auctions deals are often referred to as PMPs (making things extra confusing).
• Open Auction — Buying is open to everyone on the Open Exchange via an Open Auction, where inventory is bid on in real time.