“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 Jay Friedman, president and partner at Goodway Group.
Bravo, ISBA!
Investigating the ad tech supply chain isn’t new, but I don’t recall seeing an investigation with so much cooperation and diligence in matching impressions from one part of the supply chain to another. We should applaud and encourage these kinds of efforts as an industry.
The main takeaway in the ISBA Programmatic Supply Chain Transparency Study is that 15% of an advertiser’s total funds are unaccounted for. This should be a cause for concern, further investigation and action, but not panic.
Yet panic seems to be exactly how the industry has reacted, focusing instead on the percentage of marketers’ total outlay that reaches publishers.
Fixing the narrative
In email marketing, an advertiser spends 100% of its budget on creative, copywriting and technology costs. The ISPs that transmit the emails and the “publishers” – Gmail, Yahoo, etc. in this case – receive nothing. No outrage.
Those selling their homes only receive 57% of the buyer’s ultimate outlay when the total cost of the loan is factored in. Banana growers receive 8-12%. Calm prevails.
But in programmatic, a digital publisher may set a floor price of $10 CPM for an ad unit. The bid comes through at $10.25 CPM, and the publisher receives $10.25 CPM. Outrage. Amazing.
The fixed narrative? Publishers are receiving 100% of working media dollars. Marketers choose to spend additional money enhancing that media with technology to create addressability, price discovery and cross-channel insights previously unavailable. This turns broadly targeted media spending into more precisely targeted investment when done right.
The ISBA study found that 15% of the supply chain is unaccounted for. With 51% going to publishers, this leaves 49% going to these enhancements. That means the unaccounted-for spend would represent a whopping 30% of the marketer dollars flowing to enhancements – definitely a cause for concern.
Closing the 30% gap
Can the gap ever be eliminated entirely?
In buying linear TV, buyers and stations/networks typically agree to a projected rating but allow for plus or minus 10% without requiring future action. A buyer could purchase 100 rating points, receive 90 and ¯\_(ツ)_/¯.
In retail, shrinkage is considered a part of business because it’s known there is a point of diminishing returns. To pursue further reduction would require more security investment than the loss of goods unaccounted for.
Not being able to account for every penny is not unique to programmatic. Using these examples as high and low bookends for what’s acceptable, I think industry bodies could certainly come to an agreement on where that diminishing-returns threshold is.
But, why wait? We’ve walked marketers through establishing their own thresholds, usually around 5%, and then focus on extracting the most possible value from their advertising.
Yes, there are discrepancies for currency conversion, ad serving and blocked ads. Yet there is no way that those add up to 30% of the technology enhancement spend.
Here is my advice to marketers and agencies on optimizing cost and shrinking the 30%:
- “If I was a brand, for something this complicated, I would want the very best team working on my account, and I would be prepared to pay accordingly,” says Sam Tomlinson, partner at PwC and lead analyst for the ISBA report, on the Time For A Reset. I’ll leave that there.
- Demand full transparency from everyone in the supply chain. When people make a fair profit, they tend to be very forward with financial information.
- Don’t accept excuses from vendors in the supply chain about opacity. Demand-side platforms, supply-side platforms (SSPs) and publishers will all tell you that your own data is protected by some legal agreement and how it links between the three can’t be shared. Don’t buy it. Get everyone in a room and the information will come out.
- Perform heavy supply-path optimization and negotiate your own SSP deals. I recommend aggressively removing nonessential SSPs and negotiating your rate directly with those you do work with.
- Spend the money to fund someone’s time to do the ongoing follow-up and connection investigation. This is a machine, and connections you thought were functional will break. But only spend to the point of diminishing returns.
Focus on value creation
For decades, marketing has focused on cost reduction. I believe this is the case because it has been so difficult to accurately measure results that cost was the easiest part of value creation to optimize. That’s no longer the case. The equation to use is:
Value creation = optimization x (outcomes – cost)
Extracting the maximum value out of a business transaction requires two optimizations. Purchasing costs must be optimized (not minimized, as we’ve seen the “cost” of bad inventory), and successful outcomes must be maximized within the appropriate guardrails.
The ISBA report is more about connecting each link in the supply chain and accounting for the costs. This is clearly important and a worthwhile effort, but only if a marketer also focuses equally on optimizing their return on investment.
I firmly believe every marketer can funnel 100% of media dollars to publishers, at a fair price, with plenty of money left over to enhance that spend with smart, transparent and efficient technology. Focusing on both variables within the value creation equation is where smart marketers win now and going forward.
Follow Jay Friedman (@jaymfriedman) and AdExchanger (@adexchanger) on Twitter.
