4 Questions To Help You Outsmart Black Box Providers

rancohen“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 Ran Cohen, co-founder and president of Upfront Digital Media.

Unlike many traditional media channels, digital advertising’s claim to fame was once its unique ability to provide full measurability and accountability for a marketer’s media spending.

When digital failed to live up to that promise, some industry players took certain liberties to demonstrate measurability. As savvy marketers start demanding greater transparency and control, the free ride once enjoyed by some ad-tech vendors will come to an end.

In search of greater control, some advertisers began opting out of agency trading desks in favor of private trading desks. Equipped with similar technological capabilities, these private trading desks provided the desired levels of clarity around the business terms and conditions for a marketer’s media spending. At the same time, marketers started questioning the motives of ad networks and other ad-tech vendors who avoided full-disclosure for pricing, quality, volume and other critical ad-buying elements. This opaque behavior inspired the term “black-box provider.”

The biggest area of contention and the root of the problem is the business practice of arbitrage. Simply put, a black-box provider sells ad inventory to a media buyer before sourcing the goods at the lowest possible market price, pocketing the difference as profit. The deal implies the use of high-quality publishers for premium inventory placements. In reality, a different mixed set of publishers is used, with different ad placements deployed.

From a vendor’s perspective, this arbitrage model encourages high price quotes for the buyer when the price actually paid is quite low. To keep the high price quotes, the black-box provider promises quality on all fronts because brand marketers associate quality inventory with attracting and engaging the quality consumers they want to reach. Here, quality is defined as the type of content near where ads will appear, the location on the page where the ad is placed and additional value-add capabilities, such as rich media, special reports and high reach.

To keep the paid price low, compromises must be made but most are unknown to the buyer. For instance, the provider will offer a list of targeted publishers supporting the media buy but this very large list of publishers – sometimes in the thousands – will include a mix of high-quality and low-quality inventory without detailing the weighted distribution. This creates a false sense of security about quality inventory because in many cases, the majority of the campaign runs on lesser-known, low-value publishers.

Another example involves the quality of the ad placement itself. Many black-box providers source the inventory through ad exchanges and the average viewability of a run-of-site campaign on exchanges is 20%. This means that the remaining 80% of the media buy is wasted on impressions no one saw.

In both examples, the black-box provider creates a false sense of transparency about quality inventory, ad placement and audience reach. Marketers think they are paying a fair price for desired inventory and campaign execution, while black-box providers profit from low prices, high margins and the marketers’ ignorance.

To protect their media investments, savvy marketers must ask ad-tech vendors four key questions:

1. What is your profit margin on the business I am running with you?

2. Which publishers will be part of the program and what is their expected distribution? A screen shot of premium publishers without supporting numbers that illustrate campaign distribution is no longer acceptable.

3. Of the impressions served, how many will actually run in good locations? This will determine how many ads will be displayed in prime locations actually viewed by consumers.

4. Of the consumers exposed to the message, how many are relevant? A simple age and gender report is no longer enough to ensure that a marketer’s target audience is engaged.

It is in the advertiser’s best interest if they can get these questions answered up front before the deal is transacted.

As willing industry participants, we must hold ourselves accountable for deploying fair trade methods across the broader ad-tech ecosystem. We must advocate for greater levels of transparency that allow for good business practices benefitting all parties. This will ultimately help brand marketers justify moving more brand dollars online.

Follow Upfront Digital Media (@thinkupfront) and AdExchanger (@adexchanger) on Twitter.

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