“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 Brett Wilson, co-founder and CEO at TubeMogul.
In the wake of the subprime mortgage crisis, public attention centered on a single question: How the hell did that happen?
Years later, we can take away one clear lesson: When company incentives and risks do not align with their customers, there is trouble ahead. Now a similar phenomenon is happening in the digital advertising industry. The results imperil the gains from using technology to make advertising more relevant and effective.
Ad networks have long been the most obviously conflicted players in the digital advertising ecosystem. They were conceived to fulfill a simple market need: Package the long tail of the Internet by buying unsold ad inventory from publishers, then resell it as a bundle to advertisers.
The problem with that structure is that it makes money from dueling sides of the business, leaving no one side fully happy. Premium publishers like national news sites want to maximize their ad revenues, but are often bundled and sold for the same price as lower-quality sites with user-generated content. Brand advertisers want to persuade an audience for the lowest price possible, but if their partner has a vested interest in where an ad runs, they may not get the best ROI.
Take ad servers, for instance. Ad servers are meant to be neutral players in the system. Their simple purpose is to facilitate business between publishers and advertisers by delivering ads and providing easily understood performance metrics on ads delivered, viewability and more. In an ideal world, they maintain their neutrality by assuring that their interests never align with either side of the transaction.
But now we’re seeing a new model for consolidated ad tech businesses looking for new revenue opportunities on every side of the transaction. In many cases, ad networks now also own ad servers, which is where problems arise. Perhaps unsurprisingly, one prominent ad server’s viewability metrics tend to favor their own ad network’s sites when independent reporting might call that into question. To borrow an analogy from the subprime crisis, that would be like Goldman Sachs rating all of its own securities rather than relying on a ratings agency’s independent numbers. It’s worth noting that even when ratings agencies were “independent,” their ratings were often inflated and contributed to the crisis.
It doesn’t stop with ad servers. Many data-management companies (DMP), which you would expect to be agnostic holders of brands’ data, also have ad networks. Some will only let a brand use its data if they are buying from the company’s ad network.
It is worth taking a step back to pause and think about how we got here. In advertising’s early days, the market was straightforward. An advertising agency would buy directly from a handful of networks, such as ABC and NBC, either on an upfront basis or later through spot markets. The incentives of each party were clear. Publishers wanted to make more money and advertisers wanted to reduce costs, and the two met somewhere in the middle. Nielsen, an objective third party, handled measurement.
A simple way for advertisers and publishers to protect themselves is to restore this balance to the ecosystem by only using vendors who stand purely on either the buy or sell side of the equation. Start every meeting with a potential partner with a simple question: Who pays you? Following the money and understanding the incentives of every technology partner could save marketers millions.