Programmatic advertising, the ad buying method that was designed to introduce greater efficiencies into digital advertising is not all it’s cracked up to be, writes Brendan Hughes.
Programmatic advertising is supposed to be a powerful way to improve the efficiency and effectiveness of digital marketing spend. However, it seems that baked into the complexity of the programmatic ecosystem are some rather startling inefficiencies.
In the past an advertiser paid a fixed amount of money to purchase ad impressions with a specific publisher or network. Today an advertiser can bid in real time to get the best price for an ad impression to get their marketing message in front of a very specific audience segment. This is a radical gear change in digital ad purchasing where marketers are increasingly becoming traders in a global ad marketplace, commonly referred to as the Open Exchange.
In order to make this marketplace work smoothly there are quite a lot of moving parts required and several new steps between advertiser and publisher website. And this is precisely where inefficiencies arise. Typically, each new step is highly technical and, being such, has given rise to specialist businesses which facilitate the trade.
Non-linear transactions
Each party in the trade takes their percentage commission or fee for their part. That’s all fine given that the overall ad purchase is more cost effective. Right? Unfortunately not, as what was previously a very linear and transparent transaction between advertiser and publisher has become a multi-layered and intransparent series of complex trades. It seems that no one is quite clear on who is charging what and for what service.
A recent example in our own business shocked me. A local Irish business in the leisure sector was working with an agency to purchase ad impressions programmatically on the Open Exchange across a number of platforms including Independent.ie. Sitting together with the brand and their agency to share learnings we discovered that for every €1.00 the advertiser believed they were spending to advertise on Independent.ie, less than €0.40 was actually being received by us.
Who is getting the other €0.60 and for what service? The problem is that no one is clear on where the bulk of the advertiser’s spend is ending up. Some party or parties other than the advertiser or the publisher is gaining more out of this new supply chain than either of the two principle parties.
Secret Commissions
There are two rather murky places where we can start to look. Firstly it seems that some of the intermediaries are charging at both ends of the trade. For example, Guardian News & Media has brought this onto the agenda recently via a lawsuit against Rubicon Project. The Guardian became rather irate when it discovered that Rubicon was allegedly taking “secret commissions” from buyers of the Guardian’s inventory. They believe that this type of double-charge was not explicit in their contract partnership agreement.
The figures at stake here are rather large with Guardian suggesting a figure of £1.2m potentially withheld by the vendor. Rubicon’s defence is that although it did charge buyers an additional fee to cover its own service costs and didn’t pass that back to the Guardian, it was legally entitled to do so.
To explain how this works by example, in such a scenario, for every successful €1 bid for an ad slot on the publisher website, the publisher will contractually pay the SSP (Supply-Side Platform) who managed the bid a commission of, say, €0.25. However it is not transparent to the publisher that the advertiser actually paid say €1.15 to the SSP, with that additional €0.15 being the commission payable by the advertiser to the same SSP. So the 25% commission that the publisher might have been willing to pay, in this example turns out to be much closer to an effective commission of 40%. That’s a big margin for just one party to take out of the ecosystem for a simple trade.
“In order to make this marketplace work smoothly there are quite a lot of moving parts required and several new steps between advertiser and publisher website.”
Bigger Margins
A second place to look for the lost margin is closer to home in the form of the media agency that purportedly represents the advertiser’s interests in the evermore complicated advertising marketplace. The old business model saw this trusted intermediary charge a retainer or a fixed percentage of media spend in lieu of garnering the best value available for the brand. That agency revenue model is failing and it seems some agencies are starting to play the margin game.
Major Irish agencies now appear to be bulk-buying ad inventory at knock-down rates and then selling that on with margin to their clients. There is little transparency it for clients on how much margin the agency trading desk is achieving for itself. When one hears of agencies bonusing executives for shifting to “100% programmatic” one could not be blamed in assuming that these are the agencies have figured out there is far more margin for them in this new type of ad game than there ever was in the old game.
With a programmatic ad buy, the advertiser’s impression is that they are getting better value for money today than they were a couple of years ago. However in some cases not only is more of their spend going to intermediaries in the transaction, the quality of the product they are purchasing is significantly inferior. Since the advertiser is buying on the open market they are essentially only getting access to remnant inventory on publisher sites. The viewability of the impressions purchased by the particular leisure business mentioned earlier is less than half what they could expect with a first-look direct transaction.
It is bizarre that Irish advertisers and publishers have allowed an ecosystem to emerge which strips value out of the market handing it over to unknown third parties who are offering unclear value to either party. It is outrageous that, in a local market like ours, that the illusion of complexity is being used to introduce an opaqueness that masks massive margin gain by parasites in the transaction.
Programmatic ad purchasing is a powerful tool and thankfully there are ways to cut out the middlemen to achieve good quality inventory targeting relevant audiences at a fair price. Ask your agency or advertising partner to get you access to a private programmatic marketplace (PMP) or a programmatic guaranteed deal. Premium trustworthy publishers can offer this type of flexible cost-effective purchasing mechanism in our market. Most of all, insist that your agency stop buying remnant inventory on the open exchange, unless they can reassure you of where every cent is going and the quality of the inventory they are acquiring for you.
Brendan Hughes, Group Chief Digital Officer at Independent News & Media
First published in Irish Marketing Journal (IMJ June 2017)© to order back issues please call 016611660
