Why a Lack of Transparency is Killing the Potential of Programmatic Buying

Ad Tech Industry, Ad Tech Processes

Why a Lack of Transparency is Killing the Potential of Programmatic Buying

April 30, 2015 by
Chief Executive Officer

The online display-advertising industry has been completely revolutionized in recent years. At the heart of this revolution lies technology, and in particular, the introduction and rise of programmatic media buying.

But it hasn’t been without shortcomings.

Ad fraud is taking an estimated $6 billion from advertisers each year, privacy and brand safety are ongoing concerns, inventory quality is always being questioned, and ad agencies are working hard to claw back profits and clients that have been lost to ad-tech companies.

  • Another issue wreaking havoc in the ecosystem and having a counterproductive effect is transparency, or rather, a lack thereof, and according to a recent AOL study*, it is an issue that brand executives place as the number-one challenge facing programmatic buying.

    *7 Things You Need to Know About Programmatic Right Now – AOL Platforms, AOL, 2014.

    Non-Transparent Programmatic Media Buying

    Back in the day when the movement of media between the advertiser and publisher was a purely direct process, both parties knew how much the media was being sold and purchased for. While this direct process is still occurring today, the benefits offered by technology platforms (DSPs, SSPs, DMPs, etc.) are leading to an increase in programmatic media buying, for both remnant and premium inventory.

  • However, even though these platforms are providing advertisers and publishers with an easier and more optimized way of buying and selling media, they have essentially become the middlemen and are making the true cost of media harder to identify.

    When an advertiser makes a media purchase with their agency, they are often unaware of just how many hands their budget passes through, and how many commissions are paid to the intermediaries and technology platforms before it reaches the user. It is not uncommon for an ad to pass through five different parties before it reaches the publisher. That’s up to five middlemen all taking different commissions and charging their own fees.

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    programmatic-buying-process

    The programmatic process: An advertiser hires a media agency, the media agency sends the buy to the agency trading desk, the trading desk manages the campaign on a DSP, the DSP connects to an Ad Exchange which combines the inventory with third-party data from the DMP, the inventory on the ad exchange is supplied by the ad network (SSP), and then, finally, the ad is passed on to the publisher.

  • Intermediary Commissions and Fees

    Knowing exactly how much commission each technology platform takes (DSP, Ad Exchange, SSP) is extremely hard to calculate, and even if this information is passed on to the advertiser, it can be more difficult to validate and confirm.

    The commissions paid to DSPs, for example, vary greatly, but industry experts estimate the figure to be anywhere from a miniscule 5% to a massive 50%, with the average sitting around 20%.

    In the current programmatic system, advertisers are only informed about the price of the media in relation to the quantity (e.g. $10 for 1000 impressions – CPM), but they have no way of finding out what percentage of that will be taken by the technology platform and what percentage the publisher will actually receive.

  • The combination of commissions means that advertisers purchasing inventory for a CPM of $5 will see up to 75% of that eaten up by intermediaries and technology platforms, with only 25% going to the publishers. To put that into context, if the advertiser pays a price of $5 CPM, they are only receiving ad space valued at $1.25 CPM.

    This not only means that advertisers are not getting what they pay for, but also means that publishers are not receiving the right price for their inventory.

    As you can imagine, this difference is by no means trivial and can severely affect the performance of an ad. However, this disparity is rarely disclosed to advertiser and publishers.

    In addition to the main platforms and intermediaries, advertisers may also pay for third-party data (e.g. behavioural, contextual, and verification data) from a Data Management Platform (DMP). While the cost of the data is usually known to the advertiser, the DSP may add some hidden margins to its price.

    The transparency issue came to a head recently when The Guardian newspaper sued the Rubicon Project for failing to disclose fees earned from advertisers that appeared on The Guardian’s site. There is no doubt that more stories like this will come out in the near future unless the transparency is addressed.

    Impact on the Online Display-Advertising Ecosystem

    This lack of transparency is having damaging effects on the reputation of programmatic buying and causing those involved in the process to distrust other parties in the ecosystem.

  • However, one of the most worrying signs is the fact that advertisers and publishers are becoming even more hesitant to invest in programmatic, as they are unable to accurately calculate the ROI. Also, a lack of transparency causes advertisers to feel ripped off by the very same technology platforms that are supposed to help maximize their ROI and optimize their media spend.

    Where Do We Go From Here?

    There is no doubt the lack of transparency is an issue that needs immediate attention. One way to start is to educate advertisers on the inner workings of various technology platforms and train them on how they operate.

    Also, clear guidelines need to be introduced and aligned with business rules and practices. This means getting tough on technology vendors and putting pressure on them to become more transparent with their pricing, creating solutions that will guarantee pricing transparency for the whole ecosystem.

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