Why We Need Checks And Balances In Digital Advertising

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 Mike Hans, founder and CEO at Forge Group.

In US history class in high school, we learned about the concept of checks and balances. Each branch serves a distinct role in governing the nation and the upholding its laws, with each branch serving as a check on the others’ power.

This method is used in other arenas, ranging from the balance sheet in accounting to charting in the medical profession. These systems protect society and businesses from single points of failure and create systems based on more than just blind trust.

When appropriate checks and balances are not in place, we often see major problems. The seeds of the Great Recession of 2007-2009, for example, were sowed with investment practices and vehicles that massively outran protective legislation, creating a tipping point that caused the largest global economic decline since the 1930s. 

Building the case

It is clear that there is a lack of checks and balances in digital advertising, especially within programmatic. The industry’s key challenges can, in many ways, be attributed to a convoluted system built on blind trust and nondisclosure agreements. In what other industry can a company spend millions of dollars without the legal right to an itemized receipt?

In response, advertisers are pushing for transparent contracts and log data ownership, governments around the world are probing industry giants’ practices and transparency remains one of the most bandied-about terms in the industry.

It’s time for digital advertising to install a system of checks and balances. This is a critical step toward a mature and sustainable market. These checks and balances can come in the form of processes, technologies and contracts.

Process engineering

Process-driven checks and balances are probably the easiest to implement and should be where the industry looks first. These techniques use transparency-focused process engineering to create a clear paper trail that can be cross-checked and verified.

The most practical place to start would be itemized billing. One of the common problems within digital is the so-called tech tax, which accounts for 55% of programmatic spend. Standardizing itemized billing would break out the component parts of the value chain and allow brands to better assess and control costs. The all-too-common case of a demand-side platform (DSP) taking 30% or 40% margin would stick out like a sore thumb compared to market averages.

To help gain even better insight into the value chain, brands should also begin to expect and scrutinize reporting data from ad tech vendors. Reporting and log data access to DSPs, ad servers and verification vendors would act as a natural check on approved media plans. For example, a comparative review of reports could expose delivery issues that may compromise brand safety or highlight disproportionate spend with a specific partner.

Not all process-driven checks and balances need to be new. Media planning and buying have traditionally been structured as separate roles, but the line has been all but disappeared in the digital age. Moving back to a model with a clear delineation between the planner and buyer would create an additional approval layer that would simultaneously remove a conflict of interest.

Solving with technology

On the technology front, blockchain has drawn significant interest, partly because the shared ledger concept is transparent by design. Companies like NYIAX, Amino Payments and MadHive are pitching marketers blockchain-based applications with transparency as a core value proposition. Marketer education on blockchain in general remains needed but, at a basic level, a decentralized, distributed network acts as a natural check and balance.

Other checks-and-balance technology plays include log data collection and visualization tools such as Ad/Fin, independent attribution methodologies from measurement companies that don’t also act as media buyers and third-party quality verification vendors that assess viewability, fraud and brand safety.

Each of these technologies helps marketers verify the data they see in one system against the data in another unbiased platform. The key element is that a proper checks-and balance system must be unbiased. Marketers would be well served to assemble a tech stack where there’s no conflict of interest between media selling, buying and measurement.

Contracts are king

Contracts may be the most powerful checks-and-balance system available to marketers. In the aftermath of the 2016 ANA K2 Report, many brands put their agency partners into reviews with one of the focus points being to take more contractual control. Some of the key elements of a contract that allow for checks and balances are audit rights, requirements for transparent media reporting and access and mandatory disclosure when agencies act as principals. Other factors to consider include media quality and data ownership.

For brands needing guidance, the ANA’s Master Media Planning and Buying Services Agreement is a great place to start. The most critical of all these terms is audit rights, which helps marketers verify that contract terms are being upheld and billed accurately. Leveraging a third-party media auditing resource, with deep domain experience, can be helpful to set a precedent of unbiased verification.

End-to-end audit rights are not the norm today, but some vendors and agencies are starting to proactively offer them as a transparency-based differentiator. It may feel onerous to renegotiate contracts, but this is an important step that should not be overlooked.

Moving forward

For those wondering if these changes are necessary, an easy litmus test is to evaluate whether your vendors or agencies have any financial conflicts of interest. If there’s even a remote possibility, having a checks-and-balance system in place is a wise idea.

As these checks-and-balance practices become commonplace, marketers must exhibit patience. For example, if a new reporting process exposes high fraud rates, the transparency should be lauded and the vendor given time to right the ship. Punishing vendors or agencies in the short term by pulling spend dissuades the market as a whole from taking steps to mature. Vendors and agencies should welcome these safeguards rather than reading them as a sign of distrust.

Moving to a system of checks and balances will likely induce short-term pain, but the long-term benefits of sustainability and transparency will be well worth it. As Bob Liodice, the ANA’s CEO, often says, the mission of marketing is to drive growth. As an industry, we cannot drive growth without real transparency, and we can’t have real transparency without checks and balances.

Follow Forge Group (@ForgeGroup_) and AdExchanger (@adexchanger) on Twitter.

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