The hottest buzzword in digital advertising today just might be “programmatic.” Why?

Because experts throughout the advertising industry are saying programmatic is a huge game-changer. How huge? Advisory firm eMarketer forecasts that programmatic advertising will grow to more than $32 billion by 2017.

If you’re unfamiliar with the term, programmatic advertising is a technology-enabled method for selling and buying digital media. The technology facilitates a transaction- such as Google Adwords- where you sign-up and bid on advertising. Significantly, it also automates the workflows supporting the ad buying process. You can see AdExchangers definition of the term as applied to display advertising here.

Why is programmatic important?

The promise of programmatic for publishers is twofold: to drive efficiency by reducing transaction costs; and to lift sales by increasing demand. Not surprisingly, advertisers are also drawn to the cost benefits of automation. Their legacy business process of paper-based workflows- involving RFPs, faxed Insertion Orders and manual payments- is cumbersome and expensive. Thanks to programmatic, it is also now unnecessary. Advertisers benefit further from the ability to segment and target their ad buys more precisely, thus eliminating “waste” and improving return on ad spend (ROAS).

How will programmatic apply to performance advertising?

Performance advertising- the multi-billion dollar sector that includes the ever-growing channels of affiliate marketing, CPA networks, internet lead generation, and direct strategic partnerships — has for too long been stuck in the “dark ages” of manual workflows as well. Most performance companies still use paper insertion orders, invoices, and checks- with monthly or weekly reconciliation against archaic tracking systems. One would expect such a tech-savvy group of professionals to find a better way to operate. But surprisingly, things have been slow to evolve.

At the smaller end of the spectrum – within the “affiliate networks” that often power smaller relationships – things are somewhat better. Advertisers can buy in a marginally automated fashion from the affiliate networks, but there has been limited technological innovation since the late 90’s, and workflows remain sub-optimal. Worse yet, when it comes to the high-dollar, direct relationships that constitute the majority of performance spending today, the lack of automation is stark.

Consider the huge time drain to key in orders manually, to email advertising creatives and insertion order drafts back and forth, and to compare clicks and conversions- and resolve discrepancies- using manual spreadsheets. Clearly, it is vital to the future of performance advertising for this workflow to become automated.

As this occurs, improved efficiency will lower operating costs and improve margin. Negotiating and implementing deal terms will be streamlined as rules and decision engines are encoded into software. Additionally, advertisers will have the instant ability to adjust their price, or “bid”, for certain placements, affiliate partners, sub-affiliates and sources, based on ROAS goals and real-time data, rather than on arbitrary pricing.

At first glance, this sweeping innovation would appear to mainly benefit advertisers. But the reality is they will end up paying more for each ad buy– and be happy to do so- because their RESULTS will improve, per dollar spent, through more precise ad buying.

Advertisers will be able to quickly see what is and is not working (wrong partner, wrong placement, wrong timing, wrong audience). This will enable them to pay less for an under-performing buy, or eliminate it all together, while boosting spend on what is actually working.

The result of this coming wave of innovation – through the arrival of programmatic advertising – is that more income and margin will remain for any player wise enough to employ it. This includes advertisers, larger publishers, media companies, smaller affiliates and even networks.

It is time the performance industry follows the lead of our display cousins and starts taking advantage of the massive potential of programmatic.