Ad Tech Isn’t Overpriced

“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Andrew Shebbeare, co-founder and chief product officer at Essence.

One can’t fail to notice the headlines about big brands taking their money back to traditional channels, grumbling that the programmatic revolution wasn’t all it was cracked up to be.

A common complaint is that an excessive share of budgets is diverted from working media to line the pockets of people and platforms in the strata of the digital supply chain. Agencies are in the mix, but the lion’s share goes to technology.

Ad servers, data management platforms, demand-side platforms (DSPs), exchanges, supply-side platforms, brand safety and fraud solutions, external measurement, rich-media platforms and more can add up to 50 cents for every dollar of platform-based ad spend. Sometimes these costs are visible to the buy side, sometimes they are not.

I won’t pretend that every single one of these investments is sound, but I will argue that in aggregate they represent extraordinary value for marketers and media owners alike.

The value argument for buyers

It is my consistent experience that digital marketers who skimp on technology get burned by an information disadvantage, putting themselves at the mercy of fraudsters. Fake impressions and conversions are tough to eradicate completely even with the most advanced arsenal but running media without any of these defenses attracts fraudsters like moths to a flame.

It’s not only outright fraud that presents risk. While there are plenty of upstanding performance networks out there, there are also some that exploit brands that don’t use granular tracking and independent validation, gaming the system without technically breaking the rules.

My favorite tricks include deliberately obfuscating a mix of prospecting and remarketing to hide low-value impression tonnage, cookie-bombing audiences to take credit for their eventual signup and stalking new device owners to claim credit for reinstalled apps. Advertisers who place their trust in media vendors or all-too-basic first-party tracking to report sales and delivery expose themselves to downside far greater than the false economy in talent and tools.

The suffering extends to audiences too. Without visibility or control over frequency, advertisers unwittingly subject their prospects – and existing customers – to repetitive and irrelevant messages from every direction. Without proper delivery metrics, it’s easy for brands to market to customers in the wrong country or language. In my experience, central reporting and governance can improve media efficiency gains upward of 10%.

Some may counter that “if the performance stacks up, who cares?” I would caution that without external validation, there’s a very good chance that performance isn’t real. Without proper tools in place, marketers are likely overattributing sales, leaving makegood value on the table, speaking too often to too few of the wrong prospects and making themselves a target for bad actors.

Others say, “I turned off my digital and my volume didn’t go down.” When I hear this I find proof in all the theories above, and invariably find that too little attention had been paid to measuring and maximizing the quality and incremental impact of advertising activity.

The value argument for sellers

It’s easy to grumble that funds meant for hardworking publishers creating valuable content are being diverted into the coffers of ad tech leeches. I have a lot of sympathy for the pressured publisher community, but I also have a different take on value creation and distribution.

EMarketer reports from 2017 point to rising CPMs in programmatic, fueled by greater competition, greater emphasis on quality and the growth in header bidding. Across the digital channels, ad spend is growing faster than time spent – up to five times faster in the case of US digital video, despite the growth in time spent in ad-free environments. This is due to the new economics of quality, personalization and optimization made possible by data and technology.

Neat proof of the role technology plays in supporting CPMs comes from a surprising place: Apple’s rejection of third-party tracking on Safari. Apple’s Intelligent Tracking Prevention limits the ability to target and track at scale, and since it went into effect, negating much, though not all, of the value of ad tech, CPMs on iOS devices in Safari have halved.

Value doesn’t mean cheap

Building ad tech is expensive. The cost of entry now approaches $50 million even for builders of point solutions, whereas building a competitive full-stack offering would run into the hundreds of millions and take years. Ad tech independents are hardly raking in the money – ask Rocket Fuel, Turn or Pubmatic. The economics of these businesses are tough on a standalone basis.

End-to-end transaction costs in programmatic are perhaps 50 times higher than in global commodities markets. But the latter are 20 times older, 500 times bigger by spend and several orders of magnitude smaller in transactions processed, according to McKinsey & Co.

On a small(ish) base, with shifting and complex standards, the cost of ad tech looks high. Prices will come down over time as maturation, scale and consolidation work their course. I suspect some prices will move faster than others. I find the cost of video ad serving and DSP fees, for example, seem particularly ripe for reductions.

Writing on the way home after an inspiring work visit to India, I should finally acknowledge the particular challenge faced by marketers in developing markets, where ad-serving costs alone represent a disproportionate chunk of digital budgets, priced as they are on a global rate card that ignores the gulf in media costs between the most advanced and fastest-growing global markets.

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This post was syndicated from Ad Exchanger.