“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 Ahmet Arslan, founder at Adnboost.
When programmatic advertising was first introduced, it was met with much anticipation and enthusiasm from those within the digital advertising industry. The automation process was seen as a more efficient and effective way of reaching targeted audiences.
Various problems have emerged from this automation, including studies that show that most digital ad viewers are not even human. Many advertisers are not entirely satisfied with their campaign results, while publishers are unhappy with their earnings. And, on the receiving end, consumers are increasingly protesting against ads via ad blockers.
All of this has dampened the euphoria within the digital advertising ecosystem as respective parties fail to fully achieve their expected results.
There are still uncertainties about the return on investment of data-driven ad campaigns and whether they translate to improved sales. Yet the rapid growth of online ad revenue year on year looks set to continue. In the past few years, most marketing dollars have been poured into buying ads on Google and Facebook because these media giants have large inventories and people data that enable them to offer highly targeted data-driven campaigns.
This trend seems likely to continue globally. There is still much demand from advertisers and publishers to find new and innovative ways to improve their results with more audience data. But for advertisers outside the US, many obstacles continue to stand in the way, preventing them from fully embracing the latest developments within digital advertising.
For an example of this challenge, look no further than the data management platform (DMP).
DMP: The Solution?
To make sense of big data, the DMP emerged to act as a data warehouse to help companies understand their customers. Yet advertisers continue to face a fundamental problem when attempting to get on the DMP bandwagon: its pricing model. This obstacle particularly affects markets outside the US.
As of now, most vendors sell their segments with expensive CPM rates. A $1.50 CPM just for data might be acceptable for a US-based buyer, but for non-US-based buyers, it is costly, not in absolute value, per se, but in relative terms.
Also the inventory prices are very cheap in many countries compared to US traffic. In Turkey, where I am based, for example, advertisers don’t want to pay $1.50 just for data when they may pay 15 cents for inventory.
The need to conduct transactions in a foreign currency increases the operating cost for ad agencies and marketers because any changes in the currency market means it will likely affect the profit margins of non-US advertisers. For instance, $1 USD will give you about 3 Turkish lira, a rate that is too expensive for a Turkish-based agency to afford, even if it is the local office of a global agency network. Over and above this rate, many DMPs also charge for a range of additional costs, from ingesting first- and third-party data to activating that data on buying platforms.
Advertisers Lose Out
The detailed information that the DMP provides is supposed to help publishers gain greater leverage against their customers through commanding a higher price for their online ad inventories. In reality, this solution only works for certain publishers, such as eBay, that are seeking to directly sell ad space on their own websites. For many ad agencies and brand marketers, there is a need for them to target those niche audiences at scale, not just in one website.
There are also other issues that need to be considered, including administrative and bureaucratic obstacles when attempting to make payments to US companies. Another issue would be a misalignment in payment flow between agencies and DMP vendors. The latter typically charge on a monthly basis, or for a maximum of 60 days, while their clients – brands and agencies – typically only pay invoices every 90 to 120 days. From the buyers’ point of view, this discrepancy in billing dates could potentially disrupt their cash flow, particularly for smaller organizations.
All these problems make it difficult to convince ad agencies or marketers, especially those outside of the US, to fork out for DMP-related services. As it stands, consumers outside of the US are not sufficiently incentivized to take on the DMP, which raises questions about the pricing policies of its vendors.
The DMP case is perhaps just the tip of the iceberg of the existing challenges in digital advertising, which include the increasing irrelevance of online advertising and decreasing consumers’ receptiveness to online ads. As advertisers continue to sort these problems out in their relationship with the consumers, it would help to close the gap between vendors and buyers to make advertising work more effectively with better technology.